The Law of Unintended Consequences Strikes Again: Criminal Avoids Restitution

The Law of Unintended Consequences Strikes Again: Criminal Avoids Restitution

The United States Congress in an attempt to protect the honest and innocent consumers enacted the Consumer Credit Protection Act (the “Act”), 15 U.S.C. § 1673(a) [enhanced version available to subscribers]. Congress had no intent to protect criminals or allow criminals to avoid paying restitution as ordered by the sentencing order. That intent to protect innocent consumers had the opposite effect in United States v. Ashcraft, 12-2449 (8th Cir. 10/09/2013) [enhanced version available to subscribers].


Joyce Ashcraft appealed a district court’s order denying her objection to the garnishment of her disability payments. The district court ruled Ashcraft’s disability payments were not “earnings” within the meaning of the Consumer Credit Protection Act (the “Act”), 15 U.S.C. § 1673(a), which limits garnishment of “earnings.”

In 2004, Ashcraft pleaded guilty to several criminal charges. She was sentenced to a term of imprisonment and to restitution. She was released from custody in November 2012. At some time prior to her incarceration, she worked for Amana Refrigeration. Amana provided long-term disability insurance to its employees through Principal Life Insurance Company (“PLIC”). Ashcraft’s employment with Amana aggravated a medical condition, rendering her unable to work; as a result, Ashcraft receives disability payments from PLIC. Those payments will continue until she reaches the age of sixty-five in November 2016.

The government does not dispute that the disability insurance providing Ashcraft’s current disability payments was provided by Amana in the course of Ashcraft’s employment.

In February 2012, the government sought to garnish Ashcraft’s disability payments pursuant to her restitution sentence. Ashcraft objected. Ashcraft argued her disability payments are “earnings” within the meaning of the Act and are thus subject to the Act’s limitations on garnishment.


On appeal, Ashcraft argued that the language of the Act is inclusive, allowing for nonenumerated “periodic payments” to fall within the definition of “earnings,” and that the disability payments are the kind of periodic payments intended to be protected by the Act. Ashcraft argued that her disability insurance was part of her compensation from Amana and that her disability payments are considered wages by the IRS. The government argued that Ashcraft’s disability payments are not “compensation paid or payable for personal services” as the Act requires and that the Act does not expressly include disability payments within the definition of “earnings.”

The Act states, in relevant part:

“(a) The term “earnings” means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program. ¶

(b)The term “disposable earnings” means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld . . . 15 U.S.C. § 1672.”

Whether disability payments are “earnings” within the meaning of the Act was an issue of first impression for the Eighth Circuit and neither party points to a case from any of our sister circuits offering a ruling on the present issue.

First, courts interpreting the Act’s definition of “earnings” rely heavily on Kokoszka v. Belford, 417 U.S. 642 (1974) [enhanced version available to subscribers]. In Kokoszka, the Supreme Court agreed that “earnings” did not include “every asset that is traceable in some way to such compensation.” “Earnings” under the federal statute include “periodic payments pursuant to a pension or retirement plan.”

Disability payments serve the same purpose and, like retirement or pension payments, are replacement income. The payments are taxed like wages. The payments are an employee benefit like a pension.

Based on the Act’s plain language, Ashcraft’s disability payments constitute “earnings.” By defining “earnings” as compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, the Act prioritizes the character of the payment over its label. The central issue is whether the disability payments are compensation paid or payable for personal services.

Ashcraft receives the disability payments through her former employer. They are payments designed to function as wage substitutes; they are not merely “traceable in some way” to Ashcraft’s compensation but are themselves a direct component of the compensation Amana provided to Ashcraft in return for the personal services Ashcraft rendered to Amana. They are “compensation paid or payable for personal services” that are “denominated . . . otherwise” by her former employer as disability payments rather than as wages or salary.

The government’s argument that Ashcraft receives the payments precisely because she cannot render “personal services” due to her disability incorrectly focuses on the time the payments are received rather than the character of the payments. Simply because the disability payments are delayed — simply because Amana received Ashcraft’s personal services before Ashcraft began receiving her disability payments — does not take the payments out of the category of compensation.

The Eighth Circuit, therefore, concluded Ashcraft’s disability payments are “earnings” within the plain meaning of the Act and are therefore subject to the Act’s limitations on garnishment.


Considering disability payments made by the past employer of a convicted felon who spent a decade in prison as earnings when, had she been in good health when released from prison there is no potential that Ms. Ashcraft would have been rehired, is difficult to accept. The conclusion of the Eighth Circuit is appropriate based upon the statute and precedent. The result is a violation of the intent of the sentencing court that required payment of restitution.

The Congress should amend the Consumer Protection Act to eliminate from the limitation on garnishment any order of restitution. The criminal court, that ordered the restitution, should reconsider the release of Ms. Ashcraft and return her to prison since she refuses to pay the restitution ordered.

Ms. Ashcraft is not a consumer requiring protection. She is, rather, a felon using the law to avoid an appropriate order of restitution as part of her sentence for felonious conduct.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

For more information about LexisNexis products and solutions connect with us through our corporate site