Can a collection agency garnish my wages?

A collection agency or anyone including an individual can in most U.S. states use a valid judgment to garnish a debtor's wages.

However, the lender must follow the laws of debt recovery as prescribed by the state in which the debtor resides. In general that would be the filing of a civil suit against the debtor and if successful a writ of judgment which could be executed as a wage garnishment or other means of recovery of monies owed.

Please note, some financial institutions (Capital One is an example) have obtained the right of arbitration of defaulted debts. This means they can file a grievance with the arbitration board and if they win (they usually do) they can then use the aribtration decision to obtain a judgment from the court. In most instances arbitration is a much faster way in the recovery procedure than civil court.