The Shriver Brief

Illinois General Assembly Votes to Eliminate TANF Asset Limits

Karen K. Harris — Thu, 23 May 2013 13:48:45 -0600

HB 2262, which was passed by the Illinois House in April, has now been passed by the Illinois Senate and sent to Governor Quinn. If signed, this bill will eliminate asset limits in Illinois’s Temporary Assistance for Needy Families (TANF) program.

Currently, families are eligible for TANF only if they meet certain income limits and asset limits. Families who own more than $3,000 in assets ($2,000 for individuals) are not eligible for benefits. Advocates have long argued that asset limits hurt TANF beneficiaries as well as the state. Lawmakers in Illinois finally listened, and voted to remove asset limits in TANF.

TANF is the state-run program that provides cash assistance to families earning below 50% of the federal poverty level. Recipients are required to engage in at least 30 hours per week of work-related activities. The monthly TANF grant for a family of three in Illinois is $432, which is the equivalent of 25% of the federal poverty level.

There are many reasons why asset limits, especially limits as low as $2,000, make no sense whatsoever. First, asset limits prevent families from building a level of resources necessary for future needs. Currently, in Illinois a family of four would need $5,762 in savings to live for three months at the federal poverty line if they had no other source of income. If the TANF asset limits do not allow families to save such emergency funds, how are families supposed to become more financially secure and less dependent on state benefits? In other words, if TANF is supposed to be temporary, shouldn’t we allow families to save a few thousand dollars in order to get off of TANF?

Moreover, asset limits are a relic of entitlement programs that no longer exist. Asset limits were created before welfare reform when there was no work requirement for recipients. Now, however, TANF recipients are required to engage in work-related activities for 30 hours per week. Thus, asset limits, which were enacted as a way to prevent people who don’t really need TANF from enrolling, are totally unnecessary.

In addition to hurting TANF recipients, asset limits cost states money. States often fear that eliminating asset limits will increase the number of people enrolling in TANF, thereby making the program more expensive for the state to operate. However, research shows that the opposite is true; removing asset limits actually saves states money due to reduced administrative costs. The Illinois Department of Human Services (IDHS) estimates that removing asset limits will save the state $960,000 in administrative costs required to review TANF applicants’ asset holdings. Of the 192,000 individual TANF eligibility reviews conducted last year, IDHS found just eight cases where assets exceeded the limit. Overall, according to a recent New America study, states that removed asset limits found no significant increases in program enrollment. The study also found evidence that removing asset limits actually significantly reduces administrative costs.

After years of advocating for the elimination of asset limits, the Shriver Center applauds the Illinois General Assembly for understanding that allowing families to save and become financially secure isn’t a bad thing and shouldn’t be punished. With the passage of HB 2262, low-income Illinois TANF recipients will have one less barrier to growing their assets. We look forward to Governor Quinn signing this important piece of legislation.

Bills of Rights for America's Homeless

Michele Host — Tue, 21 May 2013 09:08:31 -0600

Around the country, advocates for low-income Americans are incorporating international human rights norms into their daily work. This spring, in both Illinois and California, advocates for homeless people are on the verge of having their elected representatives pass legislation that would guarantee homeless people certain basic rights. These efforts are part of a positive recent trend. Last summer, Rhode Island became the first state to clearly define homeless people’s rights through the passage of a homeless bill of rights. The state legislatures in Vermont, Oregon, Connecticut, and Missouri have also introduced bills to protect homeless residents’ rights.

Last week, the Illinois House passed the Bill of Rights for the Homeless. Advocated for by the Chicago Coalition for the Homeless (and supported by the Shriver Center), the bill would “protect people who experience the loss of housing from discrimination by creating a list of basic rights. These rights include the right to maintain gainful employment, to access emergency medical care, to access public spaces and transit systems, the right to privacy of personal property, records, and information, and the right to vote on the same basis as others.” Notably, under the terms of the Illinois bill, these rights could not be denied because of housing status; if they were violated because someone was homeless, that person could sue for damages.

California’s Homeless Person’s Bill of Rights and Fairness Act, formally known as Assembly Bill 5, recently passed an important committee hearing and moved one step closer to a final vote. Although it targets the same problem as the Illinois legislation, the California bill differs from the Illinois bill in many respects. The California bill is significantly longer than the Illinois legislation and contains protections for people who assist homeless citizens. The California bill also requires local law enforcement agencies to provide information to the attorney general and the public about their enforcement of ordinances against homeless persons and compliance with the act. Under the California bill, the California Department of Public Health would be required to create “health and hygiene centers” for homeless residents. Like the Illinois bill, the California bill would allow civil suits and damages for people whose rights are violated.

As Greg Kaufman observes in his blog at The Nation, it would be particularly meaningful for California’s homeless population to have a clear statement of their rights. In California, Kaufman writes, “[t]here are now approximately 160,000 men, women and children who experience homelessness … on a daily basis, about 20 percent of the nation’s total homeless population. The state ranks second worst in the number of homeless children, and third worst in the percentage of children who are homeless.”

Bills of rights for the homeless have opponents, however. The California Chamber of Commerce labeled the California bill a “job killer” because it supposedly imposes “costly and unreasonable mandates on employers.” Other Californians are concerned about how much the health and hygiene centers could cost, and the time and money that law enforcement would need to devote to the bill’s reporting requirements. In Illinois, by contrast, criticism of the Bill of Rights for the Homeless focused on the supposed potential for voter fraud.

Both the Illinois bill and the California bill are still moving through their state legislatures. The California bill is scheduled to go before the Appropriations Committee shortly, and the Illinois bill has been returned to the Illinois Senate for a vote on an amendment. Even if the bills pass, their supporters’ work will not end. As the Rhode Island Coalition for the Homeless observed:

“The Homeless Bill of Rights hasn’t changed conditions overnight. Ensuring that agencies are complying with the new rules is difficult. Committees have been established to ensure that the law is implemented, but of course, law or no law, harassment and discrimination continue.”

No matter what happens to the Illinois and California bills, however, they have prompted legislators to give serious consideration to the issues facing homeless people—and to use human rights language when doing so. As the Illinois bill recognizes in its statement of legislative intent:

“[N]o person should suffer unnecessarily from cold or hunger, be deprived of shelter or the basic rights incident to shelter, or be subject to unfair discrimination based on his or her homeless status. At the present time, many persons have been rendered homeless as a result of economic hardship, a severe shortage of safe and affordable housing, and a shrinking social safety net.”

To learn more about how you and your colleagues can use human rights principles in your work, consult Clearinghouse Review’s 2011 special issue, Human Rights: A New (and Old) Way to Secure Justice.

Auto-Title Loans: Driving Dangerously

Karen K. Harris — Mon, 20 May 2013 13:22:39 -0600

Auto-title loans are very common non-bank loans in which borrowers use their cars as collateral for the loan. A new report, Driven to Disaster: Car-Title Lending and Its Impact on Consumers, by the Center for Responsible Lending (CRL) and the Consumer Federation of America (CFA), reveals the predatory nature of auto-title lending, and just how damaging such loans can be for consumers. According to the report, borrowers pay $3.6 billion each year in interest on $1.6 billion in loans, renewing such loans an average of 8 times and paying $2,142 in interest on a $952 loan.

Auto-title loans are asset-based loans, meaning that lenders make the loan based on the value of the collateral rather than the ability of the borrower to repay the loan. According to the report, there are 7,730 car-title lenders across the county. Like all alternative financial services (AFS), auto-title loans are mainly used by people outside of the financial mainstream—the un- and underbanked. About half of car-title borrowers are unbanked, and the average borrower is more likely than the average U.S. resident to earn less than $30,000, be unmarried, have less than a high school degree, rent a home, and be a foreign-born Spanish speaker.

Compared to payday loans, it appears that car-title loans may be even more damaging to consumers. According to research form the Pew Charitable Trust, the average payday loan borrower takes out 8 loans of $375 each per year and spends $520 on interest. Twelve million Americans use payday loans annually, spending a total of $7.4 billion. Yet while the payday lending market is much larger than the car-title loan market (12 million payday loan borrowers compared to 1.7 million car-title loan borrowers), the car-title loan market earns more money in annual interest than the payday loan market ($3.6 billion auto-title loan interest compared to $3.3 billion payday loan interest) since car-title loans are typically much larger than payday loans. In addition, whereas payday loans damage borrowers’ credit and could cause additional indebtedness through bank overdraft fees, car-title loans often result in borrowers’ cars being repossessed. According to the report, 1 in 6 borrowers had their cars repossessed. Not only does repossession impact many borrowers’ ability to work, since their transportation is gone, but the value of the car that is repossessed is significantly higher than the value of the original loan (on average loans were 26% of the value of the car). To add insult to injury borrowers are then hit with $350 to $400 repossession fees, which put them in even more debt.

Just as with payday lending, the legislative landscape for auto-title lending varies across states. While 38 states have specific statutes that allow for payday lending, only 21 states explicitly authorize car-title loans, 17 of which allow for triple-digit annual percentage rates (APRs). Even in certain states that have laws against usurious car-title loans such as Kansas, South Carolina, and Louisiana, the report points out how easy it is to get around these laws.

On the federal level, in March of last year the Consumer Financial Protection Bureau (CFPB) launched its complaint database for auto loans with large banks; however, complaints involving small banks or nonbanks are still referred to other federal agencies with the authority to handle such complaints. More recently, in March the CFPB released a bulletin explaining that certain lenders that offer auto loans through dealerships are responsible for unlawful, discriminatory pricing. The bulletin provides guidance to indirect auto lenders within the CFPB’s jurisdiction on how to address fair lending risks. According to the CFPB, it will closely review the operations of both depository and nondepository indirect auto lenders, utilizing all appropriate regulatory tools to assess whether supervisory, enforcement, or other actions may be necessary to ensure that the market for auto lending provides fair, equitable, and nondiscriminatory access to credit for consumers. While neither of these actions addresses car title lending directly, the CFPB has previously indicated that auto-title lending is among its priorities.

In order to end predatory lending that preys on the underserved, we need a two-pronged approach consisting of laws that restrict predatory lending on both the state and federal level and continued efforts by both the CFPB and states ensure consumers are not driving down dangerous roads by using auto-title loans.

Frontline Report Uncovers the Hidden Costs of Retirement Plans

Karen K. Harris — Thu, 16 May 2013 13:48:09 -0600

The financial industry has continued to grow over the past 30 years, even throughout the Great Recession. In 2010 money flowing to financial services comprised an all-time high 9% of the Gross Domestic Product (GDP). Expansion of employer-sponsored retirement savings accounts managed by banks and financial services companies has fueled this growth. According to the Urban Institute, total financial assets invested in retirement accounts is now $10 trillion. This year, Wall Street has seen unprecedented growth, and the stock market has reached an all time high, despite the fact that the average American family continues to face financial challenges.

A recent PBS Frontline documentary uncovered how average consumers with actively managed employer-sponsored retirement plans are paying huge chunks of their retirement savings in fees to investment managers and financial advisors. The report, which focuses on data from a study by Demos, found that a median-income family pays $150,000 in fees over the lifetime of an average retirement plan. In fact, after adjusting for inflation, the average mutual fund management company collects approximately 50% of the total growth of the fund over the course of an account’s life.

Although actively managed mutual funds claim to collect, on average, approximately 1% in fees annually, that number is based on the total value of the fund, not on the value of the fund’s earnings. When mutual funds’ ratio of earnings are examined over a 40-year period, including hidden and compounded fees, and those earnings are adjusted for inflation, the average retirement savings fund plan is actually collecting about 50% of its earnings in fees. This includes 401(k)s, 403(b)s, 457s, IRAs, Koeghs, and SEPs.

According to the Frontline report, the fundamental problem with retirement savings accounts is that, more often than not, mutual fund managers and financial advisors work together to invest in such a way as to maximize profit for themselves and not their clients, the workers saving for retirement. The most common retirement account investment is called an “actively managed fund” in which an investment firm carefully selects a range of stocks and bonds and then actively trades these stocks and bonds on behalf of clients in an attempt to create an average return of approximately 7%. Since the firm is paid a fee for each trade, active trading generates more work and more fees that clients must pay. Because financial advisors and mutual fund companies earn more money through actively managed portfolios, they tend to market these more heavily than index funds. An index fund is a type of mutual fund that attempts to match the returns of a market index such as the Standard and Poor’s 500 or the Dow Jones Industrial. Ample evidence shows that index fund investments out-earn actively managed funds, require much less labor to manage, and are much more transparent for the consumer.

Despite the fact that an estimated 85% of financial advisors do not owe any fiduciary duties to their clients, many workers believe that their financial advisors have their best interests at heart. Instead, advisors who have no fiduciary obligations can, and do, use retirement savings accounts to maximize their fees. While attempts to require all retirement account managers to be fiduciaries have failed due to strong financial industry opposition, other efforts to make the fees consumers pay investment firms for managing their retirement funds more transparent have been successful.

On October 20, 2010, the U.S. Department of Labor's Employee Benefits Security Administration issued a final rule to help America's workers manage the money they have contributed to their 401(k) accounts, or similar retirement plan accounts, by requiring the disclosure of information regarding the fees and expenses associated with their plans. This participant-level disclosure rule requires plans to provide investment information in a format that enables consumers to meaningfully compare their plan's investment options—similar to the way that interest rates are disclosed by credit card issuers under the Credit Card Responsibility and Accountability Disclosure Act (CARD). A second and related fee transparency rule requires, in part, that certain covered service providers furnish specified information to plan administrators so that they in turn can comply with their disclosure obligations to participants. This second rule, published by the Department on February 3, 2012, requires disclosures to employers sponsoring pension and 401(k) plans about the administrative and investment costs associated with providing such plans to their workers.

As a result of these rules, plan administrators must provide plan participants with certain plan-related information and certain investment-related information, including an explanation of (1) administrative expenses, such as any fees and expenses for general plan administrative services that may be charged to or deducted from all individual accounts (i.e., fees and expenses for legal, accounting, and recordkeeping services), and (2) individual expenses, such as any fees and expenses that may be charged to or deducted from the individual account of a specific participant or beneficiary based on the actions taken by that person (i.e., fees and expenses for plan loans and for processing qualified domestic relations orders). Additionally, participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses (whether "administrative" or "individual") actually charged to or deducted from their individual accounts, along with a description of the services for which the charge or deduction was made. While these rules are a step in the right direction, 401(k) plans remain inherently unsuitable as the primary income supplement to Social Security for retirement since, in addition to high fees, they also pose a multitude of risks—such as losing one’s savings to a market downturn and outliving one’s savings—to workers’ retirement security.

The Shriver Brief has repeatedly highlighted the many ways that both the mainstream financial industry and the fringe financial market have found to get working middle- and lower-income Americans to hand over large portions of their paychecks. These include prepaid cards, payday loans, tax refund anticipation checks, overdraft fees, fees for checking and savings accounts, distribution of public benefits through electronic benefit transfer cards, and now, retirement savings accounts. Yet, most consumers are not aware of how their retirement funds can be drained. According to a recent study by NerdWallet, 9 in 10 Americans dramatically underestimated the amount of fees they incur through their retirement savings accounts. Most people thought the average lifetime fees were under $50,000, whereas in reality it is approximately $150,000 per household. Similarly, a 2007 AARP study on lay-person investment knowledge found that 65% of 401(k) account holders didn’t know they were paying any fees for their 401(k) accounts, and 83% lacked basic knowledge about what the fees were.

As wealth inequality continues to grow, it’s time to ensure that all financial managers and advisors are looking out for their clients and not their own wallets.

This One's Gonna Hurt: What Will Happen to Families Who Lose Their Homes Because of Sequestration?

Emily Werth — Mon, 13 May 2013 12:37:34 -0600

When travelers recently felt the sting of airline delays due to sequestration, Congress quickly acted to provide additional money for air traffic controllers. As more cuts are rolled out over the next few months, a cadre of interest groups will press to restore funding to various federal programs. One group that needs Congress’ attention and action right now: the millions of low-income families who rely upon federal housing assistance to keep a stable roof over their heads and are being threatened with losing access to these funds. If Congress does not act, deep cuts to federal housing programs will do more than just delay a vacation or business trip—they will push thousands of families into needless homelessness. And these cuts will encourage private property owners who participate in these programs to take a pass the next time they are offered a chance to help house the nation’s poor.

The Housing Choice Voucher program, which gives low-income individuals and families a subsidy they can use to afford housing in the private market, is the dominant source of federal housing assistance for the nation’s poorest households. Because of sequestration, however, housing authorities across the country already have been forced to stop issuing newly available vouchers to households on their waiting lists—many of whom have been awaiting this help for years—and are even taking vouchers back from the households that were most recently given assistance. It is estimated that by the beginning of next year approximately 140,000 fewer households will be using vouchers to access affordable housing.

Without this assistance to keep housing costs stable and at an affordable level, low-income households will face an ever-present risk of eviction. Families will be forced to double up with other households, or will wind up in shelters. Children who are forced to change schools will fall behind. Parents who lose access to public transportation will lose jobs. Both physical and mental health will suffer for the whole household. Family members will be separated as they struggle to find a way to stay off the streets. And those families who do manage to find a way to keep their homes will have to sacrifice other necessities such as utilities, food, and medicine.

The nation’s public housing resources are also threatened by the impact of sequestration. Cuts to the public housing operating and capital funds will mean the further deterioration of a housing stock that is already experiencing a severe backlog in addressing capital needs. At some point deferred maintenance cannot be undone, and we will lose these housing units dedicated to serving low-income individuals and families forever. Sequestration is doing long-term damage to our ability to meet the need for low-income housing—a need that already outpaces the assistance that is available by more than 8 million households.

Even as sequestration pushes more low-income families who rely on housing assistance toward homelessness, it will also deprive local communities of the homeless assistance funds that they use to keep people housed in times of crisis and to move families from shelters into permanent housing.

Furloughs of our nation’s civil servants will be tough to be sure, but homelessness creates far greater burdens—not just for the families that experience it, but also for the communities where they live. The debate over sequestration needs to address restoration of funding for the rental assistance programs that keep millions of Americans in stable housing.

Employer Credit Checks: A Discriminatory Practice

Karen K. Harris — Fri, 10 May 2013 10:02:16 -0600

Lenders use credit reporting information to determine a borrower’s creditworthiness and to make lending decisions. However, a new report by Demos reveals that a growing number of companies are checking credit reports as part of the hiring process.

According to Demos, 1 in 4 unemployed people reported that a potential employer requested to check their credit report as part of the job application. Employers’ rationale for this practice is that people with bad credit scores will be less reliable or won’t be hard-working or high-quality employees. Yet the report clearly shows that negative beliefs about people with poor scores are nothing more than false stereotypes. According to Demos, financial misfortune is the major driving force behind peoples’ low credit scores, not irresponsibility or poor work ethic. Job loss, loss of health coverage, and medical debt are the leading reasons for poor credit scores—not laziness or irresponsibility. While these factors might hinder a person’s creditworthiness, there is no evidence to suggest that they hinder a person’s job performance. Additionally, African Americans and other minorities are more likely to have poor credit scores, partially due to the proliferation of predatory lending schemes that target minority neighborhoods. Often, these predatory financial products leave people with no option but to default on their loans. The practice of using credit checks in the hiring process is a clear example of structural racism and could be a driver of the ever-growing racial wealth gap.

Moreover, credit scores are prone to error, and therefore cannot be relied upon as an accurate predictor of a person’s reliability as an employee. According to a recent Federal Trade Commission (FTC) study, 1 in 4 consumers identified at least one potentially material error among their three credit reports that could negatively affect their credit scores. Out of the people who found errors in their reports, just 5.2% were able to have their credit scores adjusted enough to move to a lower credit risk score. This study revealed that the Fair Credit Reporting Act (FCRA) is inadequate in allowing consumers to control their own credit scores. The Consumer Financial Protection Bureau (CFPB)’s recent comprehensive study of credit reporting found that ongoing efforts to measure credit report accuracy will likely continue to rely on consumers to identify potential inaccuracies in their credit reports and to rely on the dispute resolution system to validate that inaccuracies have occurred. However, the FCRA’s existing consumer dispute process will not identify or ameliorate certain types of errors that may be associated with the credit reporting agencies’ data processes.

As part of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, the CFPB was given authority to supervise both consumer reporting companies and those that provide consumer reporting companies with consumers’ credit information, such as large banks and many types of nonbanks. In July 2012, the CFPB adopted a rule to extend its supervision authority to cover larger consumer reporting agencies, and in September it released the examination procedures it will use to examine these companies. Previously, these companies were not supervised at the federal level. In October 2012, the CFPB began accepting consumer complaints about credit reporting; for the first time, this gave consumers individual-level complaint assistance with consumer reporting agencies at the federal level. The CFPB has indicated that it may also consider the development and implementation of data quality and accuracy metrics to reduce risk to consumers and assure compliance with FCRA obligations.

As of February 2013, eight states (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington) have passed laws prohibiting the use credit checks as part of the hiring process. During 2012, 35 bills in 17 states and the District of Columbia were pending related to restrictions on the use of credit information in employment decisions. Given credit checks’ low probability of providing reliable proof of a worker’s abilities and its disparate impact on minorities, this practice should be banned nationally. Moreover, when credit rating agencies make errors on reports, the person with the damaged score should not be punished. Requiring people who have suffered financial misfortune to face greater barriers to employment embodies everything America is not about.

Microlending: Not Just for The Rest of the World

Michele Host — Tue, 07 May 2013 08:34:28 -0600

The word “microlending” makes most of us think about faraway places. Kenya. The Philippines. Peru. And that perception would have been justified just a few years ago.

But not anymore.

As the Shriver Center’s 2012 Poverty Scorecard makes abundantly clear, America desperately needs innovative solutions to poverty. For low-income Americans whose lives could be improved by small amounts of capital to start or improve a small business, microlending might be just what they need.

Microlending was born in Bangladesh, where an economics professor named Muhammad Yunus started making small loans to poor women in the 1970s. Yunus focused on women in rural areas because they had little or no access to traditional banks, and because he found that women were more likely to spend the money on their businesses or their families than men were. Yunus went on to found Grameen Bank. Today, in Bangladesh, “the Grameen Bank has 8.4 million borrowers, 96 percent women.” In 2006, Yunus and Grameen won the Nobel Peace Prize.

Yunus’s idea has spread far beyond Bangladesh.

A major player in microlending’s growth across the globe has been Kiva. Kiva is an online platform that allows individuals or organizations to make small loans (in $25 increments) to borrowers around the world who do not have access to traditional banking services. Kiva lenders can choose to support any kind of small enterprise—from furniture-making to farming to crafts. Kiva does not make its loans directly. Instead, Kiva sends the money directly to local microfinance institutions (MFIs). MFIs are local banks, credit unions, and other organizations who then interview and select the individual borrowers that receive Kiva funds.

A major part of Kiva’s success is that it allows lenders to feel personally connected to borrowers. Lenders read profiles of individual borrowers on Kiva’s website and can decide whether they would rather lend to a farmer in Lagodekhi, Georgia, who would like to purchase a car to drive as a taxi, or an entrepreneur in Medellín, Colombia, who wants to purchase more merchandise for her small business selling pet supplies. Notably, lenders can also evaluate the strength of the MFI involved in the loan. Each MFI that Kiva works with has a “risk rating,” and Kiva also gives “social performance badges” based on the MFIs’ success in seven key areas. Most importantly, Kiva works. As of April 24, 2013, Kiva’s repayment rate was 99 percent.

In 2009, Kiva started making loans to U.S. borrowers in addition to those it was making in developing countries. Although some longtime Kiva users formed a new lending group, called Pissed Off Kiva Lenders, because they felt that Kiva’s mission should remain focused on developing countries, Kiva (and most of its lenders) recognized that there are plenty of low-income people in the United States without access to banking services who need help.

As Kristina Shevory wrote for the New York Times back in 2010, the one-two punch of tight credit and the recession has made microfinance a very appealing option for American borrowers. Shevory describes a San Jose, California, hot-dog stand owner who would have lost her business without the $6,500 she borrowed from Kiva at 6% interest. She had been rejected by several San Jose banks when she applied for a conventional loan.

Moreover, in the wake of the foreclosure crisis, microlending programs’ traditional focus on financial education is particularly important for Americans. Many MFIs require borrowers to take classes in financial literacy, and many also offer optional classes on topics ranging from HIV/AIDS awareness to domestic violence prevention.

Microlending is not an answer to every problem. As discussed in the impeccably researched and frequently hilarious book, The International Bank of Bob, which documents the author’s travels to meet Kiva borrowers, the growth of the microlending industry has led to some abuses. In places like Andhra Pradesh, India, a few MFIs that began focusing on profits issued loans with extremely high interest rates and gave individual agents bonuses to sign up high numbers of clients. The result? Borrowers receiving loans that they could not repay. Grameen Bank itself has also had problems, with the Bangladeshi government pushing Yunus out of his job as head of the bank in 2011 and repeatedly trying to malign Yunus and to gain control over Grameen’s assets.

The good news is that microlending organizations have learned from the Andhra Pradesh crisis and added safeguards that make microlending safer. For example, a group of microfinance leaders formed The Smart Campaign to protect microlending clients and keep the industry “both socially focused and financially sound.” More than 1,000 MFIs have endorsed the campaign’s Client Protection Principles, and earlier this year the campaign began a new certification program.

In the United States, federal and state governments are continuing to recognize the potential of microlending. As Shevory wrote in 2010, the economic stimulus bill gave $54 billion to the Small Business Administration for “lending and technical assistance to microlenders.” Now, the SBA’s microloan program provides loans of up to $50,000 to “help small businesses and certain not-for-profit childcare centers start up and expand.” Like Kiva, the SBA does not administer its loans directly; prospective borrowers must apply through SBA-approved intermediaries. The U.S. Department of Agriculture also began a microloan program for young and beginning farmers earlier this year, signaling that more agencies may follow this path.

Several cities have created their own microlending programs. New York City’s NYC Capital Access Loan Guaranty Program is a public-private partnership that assists small businesses “experiencing difficulty accessing conventional bank loans to obtain loans and lines of credit up to $250,000 for working capital, leasehold improvements, and equipment purchases.” Detroit, Michigan; Reading, Pennsylvania; and Stockton, California also administer microloan programs for small businesses.

One of the 2012 Poverty Scorecard’s key findings was that “[i]n 2012, Congress did virtually nothing to advance justice or opportunity for the 46 million people living in poverty in the U.S.” Going forward, microlending may be an anti-poverty tool that both private citizens and the government can use to help low-income Americans succeed.

Federal Amazon Law Vote Today

Karen K. Harris — Mon, 06 May 2013 14:21:23 -0600

The Senate could vote this week on legislation that would close the “Amazon Loophole,” a tax loophole that allows online retailers like Amazon and eBay to avoid collecting sales taxes on most purchases made through their sites. The loophole gives online retailers a major advantage over their offline competitors, since they only have to collect sales taxes in states where they have a physical presence.

This vote is particularly important for state governments whose budgets continue to come up short and could therefore use the huge sums that the failure to tax Internet sales has denied them. In 2012, Internet retailers earned $225.5 billion costing states millions of dollars—California (over $4 billion), Texas ($1.7 billion), Florida ($1.4 billion), Illinois ($1 billion), and New York ($1.7 billion). Cities, whose budgets are also in dire straits, are also taking a hit. Take for instance, Los Angeles, where the projected e-commerce tax revenue loss for 2013 is over $95 million. In Chicago, it tops out at more than $55 million.

Technically, online retailers should be collecting taxes, however, due a complicated history of Supreme Court cases, Internet-based retail stores have not had to comply with the same sales tax rules that brick-and-mortar stores had to comply with. Regardless of whether or not retailers collect the taxes, buyers are technically still required to pay such taxes—although few actually do. In recent years, a few states have begun enacting laws to require Internet companies to collect sales taxes. New York was the first state to enact a law defining “nexus” or presence more broadly in order to be able to require Internet sellers to collect sales taxes. Since then, six other states (Rhode Island, North Carolina, Illinois, Arkansas, Connecticut, and California) have adopted similar laws that require online retailers with sales affiliates based within their borders to collect sales tax, while other states (South Dakota and Colorado) have enacted laws that require online companies to at least notify customers that they owe the tax. California's law also extends the obligation to collect sales taxes to online retailers that have subsidiaries or affiliated companies in the state. While some of these laws have been upheld, others—such as Illinois’s—have been declared unconstitutional based on the previous Supreme Court cases.

States have also tried to collect the tax directly from consumers through amnesty programs. Illinois, for example, implemented an amnesty program to allow customers to pay sales and use taxes on past online purchases, made between June 30, 2004, and December 31, 2010, without penalty. North Carolina’s program, on the other hand, specified that if Internet retailers commenced collecting sales tax on products sold to North Carolina state residents, the state would, in turn, forgive taxes, penalties, and interest for certain periods, and it would not seek information about customers who bought from them. Such approaches have not been too successful. Illinois, for instance, collected only about $10 billion of the estimated $150 billion that should have been paid.

As a result of state amnesty programs not working and laws being overturned, the pressure on Congress to pass federal legislation has been intense. The Marketplace Fairness Act of 2013 would give states the authority to levy sales taxes on online purchases even when the retailer isn’t based within a state’s borders. Passing the legislation would both remove an unfair advantage for online retailers and give cash-strapped states more authority to collect sales taxes. The bill states that the tax is only required for companies earning more than $1 million per year in sales, and states that do not currently have a sales tax would not be required to participate.

The bill has caused a wide divide between supporters and opponents. Online companies like Amazon and brick-and-mortar giants like Wal-Mart and Target support the bill, while other online giants like eBay oppose it. It has also created a divide within the Republican party; many conservative Republican lawmakers who are anti-tax and pro-business are against the bill, while others are acknowledging their small business constituents’ desires and supporting it.

More important that the benefits to states are the effects such a law would have on low-income families. In general, poorer families pay a larger share of their income in sales taxes than better-off families do because they have to spend almost everything they earn. The Internet sales tax, though still regressive, might have less of an effect on low-income consumers since they are not heavy users of online shopping. Low-income families’ lack of home computers, high-speed Internet, and lack of credit cards relative to higher income families means that they are already paying state sales taxes when they shop in traditional stores. The bill, if passed, merely levels the playing field by ensuring that everyone else pays the tax too. Moreover, the increased revenues from sales taxes could help states fund the types of public programs that benefit these communities—job training, education, public health—which have been cut due to state budgets.

Thus, the vote, which is scheduled for May 6^th , is an important one for states and low-income communities they are trying to serve.

To see an interactive chart showing how much each state is estimated to loss in Internet sales taxes, click here.

When Custody and Disability Intersect for Native American Families

Amanda Moore — Wed, 01 May 2013 14:03:11 -0600

Many Americans had probably never heard of the Indian Child Welfare Act until last month when the U.S. Supreme Court heard oral arguments in the emotional case of Adoptive Couple v. Baby Girl. But the Indian Child Welfare Act has been on the books since 1978, when about one-third of Native American children were being removed from their homes and placed with non-Native families. This federal law works to keep Native American families and tribes intact by setting higher evidentiary and procedural standards for state court proceedings that seek to remove Native American children from their families. The Act also supports reuniting Native American parents with their children.

As Ella Callow, the legal director of the National Center for Parents with Disabilities and Their Families, explains in the current issue of Clearinghouse Review: Journal of Poverty Law and Policy, the protections offered by the Indian Child Welfare Act are in danger of being undermined. The threat, Callow asserts, comes from discrimination against people with disabilities. Both Native Americans and parents with disabilities have a long history of losing custody of their children. (Parents with intellectual disabilities lose custody of their children 40-80 percent of the time, while parents with psychiatric disabilities lose custody at a rate of 70-80 percent.) Given that Native Americans have a disability rate of 27 percent, the combination of ethnic and disability discrimination poses a real threat to Native families.

Attorneys who practice under the Indian Child Welfare Act must make sure that disability discrimination is not working an end-run around the Act’s protections for Native American families. Callow offers the following examples in her article, “The Indian Child Welfare Act: Intersections with Disability and the Americans with Disabilities Act”:

Parental disability is a valid basis for removing a child and terminating the disabled parent’s parental rights in thirty-seven states—including most of the ten states with significant Native American populations. The Indian Child Welfare Act does not change these laws but does require better evidence from the state before it can remove a Native American child or terminate parental rights.
The Indian Child Welfare Act gives priority to extended family members when placing a child who is no longer in parental custody. But advocates should take care that neither the child’s nor the extended family member’s disability is being used to get around this preference.
Normally federal courts cannot review state court decisions—such as those made in child custody cases—even when disability discrimination has reared its ugly head. The Indian Child Welfare Act, however, offers a path to federal court review if the issue can be framed as the state’s failure to take “active efforts” to provide remedial services or rehabilitation programs to prevent the breakup of a Native American family.
Some states “bypass” the usual procedure for denying reunification services to parents with mental disabilities. This bypass—such as allowing only two medical professionals to agree that the parent could not care for the child in twelve months, even with services—should not be permitted under the Indian Child Welfare Act, but advocates must remain vigilant.

While the wrenching facts of Adoptive Couple v. Baby Girl may cause some people to look askance at the Indian Child Welfare Act, Callow’s article shows its real potential to protect Native American families and tribes even when custody becomes intertwined with disability.

Prepaid Cardholders Need More Protections

Karen K. Harris — Tue, 30 Apr 2013 15:00:26 -0600

One of the largest concerns involving the rapidly growing prepaid card market is that money deposited onto prepaid cards does not have the same protections as money held in mainstream bank checking accounts. Specifically, prepaid cardholders are not covered under Regulation E of the Electronic Transfer Fund and therefore do not have protections against lost or stolen cards like those afforded to checking account debit cards. Nor are prepaid card companies required to provide consumers with important information such as statements, receipts, and notifications. Additionally, prepaid cardholders lack the benefit of having Federal Deposit Insurance Corporation (FDIC) insurance of up to $250,000 on their accounts.

According to the Consumer Financial Protection Bureau (CFPB), from 2007 to 2011 the dollar amount loaded onto prepaid cards grew 477% ($12 billion in 2007 compared to $57.2 billion in 2011), and this year Americans are expected to load over $200 billion onto these cards. Prepaid cards essentially function that same as debit cards, but without the underlying banking account, and are frequently touted as the same thing as a checking account despite the fact that important consumer protections may be missing from these products. These cards are typically marketed to the 34 million Americans who lack access to mainstream banking services: the so-called unbanked and underbanked.

While some prepaid card providers are able to offer their customers FDIC insurance by complying with the FDIC’s requirements for “pass-through insurance,” many prepaid cards do not. Moreover, it is often impossible for a consumer to know whether or not a prepaid card has such insurance because issuers do not have disclosure requirements. In addition, most consumers probably do not even understand the ramification of not being FDIC-insured. Yet, since the establishment of the FDIC in 1933, no depositor has ever lost money from FDIC-insured funds.

Money Transmitter Laws regulate any entity that acts as an intermediary of a transfer of money between two parties. PayPal, for example is considered a money transmitter because it serves as an intermediary for a large portion of online purchases. Thus PayPal must comply with all 50 state money transmitter laws. In addition, PayPal has pass-through insurance, meaning funds held by PayPal are insured by the FDIC up to $250,000. PayPal is not legally required to purchase pass-through insurance in order to protect consumer funds, however it is required to comply with state money transmitter laws. A recent report by the Pew Charitable Trust details the state-by-state requirements for complying with money transmitter laws in terms of insuring consumer funds. According to the report, requirements for insuring consumer funds vary across all 50 states, and in general, consumer protections required by money transmitter laws are much worse than the protections offered by FDIC insurance. For example Montana, South Carolina, and New Mexico money transmitter laws do not require transmitters to insure consumer funds at all, whereas New York transmitter laws require the transmitter to purchase a $500,000 surety bond. If companies were to comply with the floor state money transmitter requirements across all 50 states they would be required to purchase on average a $75,000 surety bond in each state. Thus, if the money transmitter went under, there would be insurance to cover an average of only $75,000 losses per state, not to mention the fact that three states do not even require the transmitter to purchases insurance.

The Pew report also points out that prepaid cardholders without FDIC-insured funds would likely be required to navigate burdensome legal processes in order to obtain their funds in the event of a money transmitter default. However, it is unclear what this legal process would like; it is implied that most prepaid cardholders would lose their money in the event that the uninsured company became insolvent.

Even when prepaid card companies have FDIC pass-through insurance, the protections for consumers are thin at best. One of the largest prepaid cards on the market today is the Bluebird card issued by American Express and Walmart. When Bluebird was first launched, it did not have FDIC pass-through insurance. Only recently, after criticism, did they decide to provide this feature. The FDIC insurance only covers the funds in the event that the bank in control of the custodial accounts (Wells Fargo or American Express Centurion Bank) becomes insolvent. If American Express becomes insolvent, consumer funds are not protected.

In addition, the Bluebird card has limited coverage for cardholders who lose their cards. While Regulation E protects mainstream credit and debit cardholders against lost or stolen cards, prepaid cardholders are afforded no such protections, and most companies do not voluntarily offer such protection. According to Bluebird’s cardmember agreement, lost or stolen cards are replaced with a value equal to the available funds on your card at the time you notify Bluebird of the loss or theft. By that time a cardholder’s funds have likely been taken. Also, the cardmember agreement details a laundry list of exclusions comprising almost any imaginable situation in which a card would be lost, stolen, or damaged. So in reality, if you lose your Bluebird card, you lose the money on the card.

To ensure that the growing number of prepaid card users are protected, the federal government should require that all prepaid card issuers offer FDIC insurance and comply with Regulation E. While the prepaid market may be new, there is no reason that the same, tried-and-true protection given to debit cardholders can’t also be required for prepaid cardholders.

[Editor's Note: The Illinois Asset Building Group will sponsor a free webinar on prepaid cards on May 21, 2013. Learn more.]

Mobile Banking on the Rise in 2013

Karen K. Harris — Wed, 24 Apr 2013 14:34:51 -0600

In March, the Federal Reserve released a report examining the use of mobile banking in the U.S. The report, which defines mobile banking as “using a mobile phone to access your bank account, credit card account, or other financial account,” revealed mobile banking is on the rise, up 33% since December 2011.

According to the report, the most common use of mobile banking is to check account balances or recent transactions (87% of mobile bank users). The second and third most common uses of mobile banking is to transfer money between accounts (53%) and to receive text message alerts (29%).

The report also discusses the use mobile banking by the un- and underbanked. According to the most recent Federal Deposit Insurance Corporation (FDIC) study of the un/underbanked, more than 1 in 4 households are un- or underbanked (28.3% or 68 million people). According to the Federal Reserve mobile banking report, the un/underbanked make significant use of mobile phones and smartphones. Among the unbanked, 59% have access to mobile phones, and 50% of these are smartphones. Among the underbanked, 90% have mobile phones, 56% of which are smartphones. In general, the low-income population has a high rate of access to mobile phones. Seventy-six percent of adults earning less than $25,000 per year have a mobile phone, and 40% have smartphones. Yet, despite their high rates of mobile phone access, people earning less than $25,000 are far less likely to use mobile banking compared to people making over $100,000 (16.7% compared to 28.4%). In addition, people who lack a high school degree are far less likely to use mobile banking than those with a bachelor’s degree or higher (5.6% compared to 37.1%).

In the search for new, creative ways to expand access to banking among the un- and underbanked, the idea of mobile banking has generated momentum among asset building advocates. Specifically, it is hoped that digital access to mainstream banking might make it easier for people to avoid costly alternative financial services such as payday lenders, pawn shops, and check cashers. Unfortunately, since the most common uses of mobile banking are tied to an already existing account, these types of mobile banking do nothing to help bank the un- and underbanked.

One mobile banking use that has seen the greatest increase is depositing a check by phone. This feature, known as “remote deposit capture,” nearly doubled in usage from 11% in 2011 to 21% in 2012. This feature, particularly if combined with Bank-On programs that offer low or no-cost bank accounts to the unbanked, could harness mobile technology in a way more likely to benefit low-income people.

According to the FDIC’s report on the un- and underbanked, the most commonly cited reason for using non-banks instead of banks was convenience; this was cited by 45.2% of all households that used non-bank check cashing and 56% of all households that used non-bank money orders. These results are similar to those reported in 2009. Convenience was the most common reason given by both underbanked and fully banked households. Among underbanked households, the second most common reason for using non-bank check cashing was “to get money faster” (18.4%), while the second most common reason for using non-bank money orders was that “a bank charges more” (28%). Among unbanked households, the most commonly cited reason for using non-bank check cashing was the fact that the household did not have a bank account (38.9%); convenience was the next most common reason (28.7%). These were also the most common reasons for unbanked households’ use of non-bank money orders, although the order was reversed: the most common reason for using non-bank money orders was convenience (39.1%), and the second most common reason was that the household did not have a bank account (27.3%).

By linking the remote deposit capture mobile banking feature and Bank On programs, which provide low-cost accounts to consumers, mobile banking could become more frequently used among the un- and underbanked. The convenience of this feature and its low cost, combined with access to an account through the Bank On program, could encourage this population to become banked.

To learn more about mobile banking in the lives of low-income and un/underbanked people view our webinar and read our Clearinghouse Review article.

Big Banks Engaging in Payday Lending

Karen K. Harris — Mon, 22 Apr 2013 11:04:33 -0600

When people who lack access to mainstream financial services, primarily the unbanked or underbanked, need an infusion of cash, they often take out payday loans. Payday loans are typically marketed as two-week credit products for temporary needs, with annual interest rates set at around 400% and often more. Payday loans, which are advertised as quick way to obtain needed funds, appeal to disadvantaged members of society for many reasons. Payday loan stores are everywhere, with more locations than all of the McDonalds and Starbucks locations combined, and practically anyone can walk into a payday loan store broke and walk out with $300 cash in a matter of minutes.

Although if paid back within a two-week period, borrowers can avoid the 400% interest, according to the latest Pew Charitable Trust report on payday lending, Payday Lending in America: How Borrowers Choose and Repay Payday Loans, the people who borrow payday loans are not prepared to pay them back in such a short period.

According the report, 86% of borrowers cannot afford to repay the average payday loan on time. The first Pew Charitable Trust report on payday lending, Payday Lending in America: Who Borrows, Where They Borrow, and Why, found that 12 million Americans use payday loans annually, spending a total of $7.4 billion. According to that report, the average borrower takes out eight loans of $375 each per year and spends $520 on interest. The five groups of people most likely to use payday loans are people without a four-year college degree, home renters, African Americans, people earning below $40,000 per year, and people who are separated or divorced.

The two Pew reports show the extent to which the payday loan industry attracts vulnerable customers: people who are financially desperate, people who are ill-equipped to understand the ramifications of payday loans, and people who are ill-equipped to repay payday loans in time. Payday loans are bad products, and they exist only because struggling people feel like they have nowhere else to turn.

So who is at fault? Obviously the payday lenders themselves are engaging in morally reprehensible behavior, but the fact is that these lenders are enabled by mainstream banks.

Although the major banks are not literally distributing payday loans, they are an integral part of the payday lending market. Banks such as Wells Fargo, U.S. Bancorp, and JPMorgan Chase bankroll the payday lending industry providing more than $2.5 billion in credit to the payday lending industry. These banks earn approximately $70 million annually lending money to payday lenders.

In addition, banks profit directly from payday loan borrowers. Many banks including JPMorgan Chase, Bank of America, and Wells Fargo authorize payday lenders to withdraw funds from borrowers’ bank accounts. Given what we know about the population that obtains payday loans, it is not surprising that when banks provide payday lenders access to borrowers’ bank accounts to repay the loans, there are usually insufficient funds available. As a result borrowers’ accounts are often overdrawn. In fact, according to the latest Pew report, 27% of payday loan borrowers overdrew their accounts. To add insult to injury, since paydayloans are rarely one-time purchases—the average borrower takes out eight per year—these fees help trap people in a cycle of debt. Even in states where payday loans are illegal, consumers that used online payday lenders are faced with overdraft fees from their banks due to online payday loans. In 2012 alone, banks earned $31.5 billion on overdraft fees, charging a median fee of $29 per overdraft.

Thus banks are benefiting just as much as payday lenders.

There is one piece of recent good news for consumer advocates. Two days after the publication of a front page New York Times article exposing these unfair overdraft practices, Jaime Dimon, the CEO of JPMorgan Chase, said that he would change how the bank deals with internet-based payday lenders that automatically withdraw payments from borrowers’ accounts. Additionally, as discussed in a previous blog, the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act of 2013 (S. 172) was recently reintroduced. This bill attempts to address the issue of online lenders who have designed abusive products in order to evade state consumer protections.

To become part of the effort to stop predatory lending in Illinois, join the Illinois Asset Building Group.

2012 Poverty Scorecard Shows Congressional Inaction in Fighting Poverty

Dan Lesser — Fri, 19 Apr 2013 09:09:07 -0600

Forty-six million Americans live in poverty. More than one in five children and nearly one in three single-parent families are poor. And yet, in 2012, Congress did virtually nothing to improve their lives. In fact, according to the Sargent Shriver National Center on Poverty Law’s sixth annual Poverty Scorecard, most significant poverty-related legislative proposals considered by the U.S. House of Representatives would have made poverty worse had they been enacted into law.

The 2012 Poverty Scorecard grades the voting record of every U.S. Senator and Representative on the most important poverty-related votes in 2012. We identified which votes to use in consultation with national experts in twenty different subject areas. This year’s votes again cover a wide range of topics, including budget and tax, food and nutrition, health care, immigrants, community and economic development, domestic violence, housing, legal services and veterans. In all, we used 11 Senate votes and 17 House votes to grade the Members.

In addition to showing Congress’ neglect on the issue of poverty, the Poverty Scorecard also shows that when it comes to poverty, as with other topic areas, there are very few moderates in Congress. Based on 2012 voting records, 95 percent of the Senators and 92 percent of the Representatives were at one extreme or the other, i.e., they earned an A+ or A grade or a D, F, or F-. Only five Senators and 32 Representatives earned a B or C.

The Poverty Scorecard found an inverse correlation between a state’s poverty levels and the voting record of its Congressional delegation. Members with poor records in voting to fight poverty tended to come from states with higher levels of poverty whereas members with good records tended to come from states with lower levels of poverty.

The antipathy of the majority of the House of Representatives towards people living in poverty was best exemplified by its passage of Rep. Paul Ryan’s proposed budget, which would have dismantled Medicare by converting it into a private voucher program, undermined the structure of Medicaid and SNAP (formerly Food Stamps) by converting them into state block grant programs, and slashed funding for such important anti-poverty programs as the WIC nutrition program for pregnant women and young children, Pell Grants for Higher Education, mental health and substance abuse services, and workforce programs, Fortunately, the Senate rejected Rep. Ryan’s proposed budget.

Other House votes that would have made poverty worse included a vote to repeal the Affordable Care Act (Obamacare), separate votes to repeal two key provisions of the Affordable Care Act, votes to eliminate economic and community development programs for low-income people and neighborhoods, votes to slash funding for legal services and subsidized housing, and votes to prevent the federal government from protecting the civil rights of immigrants.

Most of the Senate’s significant poverty-related votes were on proposals that would have reduced poverty. Unfortunately a minority of Senators used parliamentary tactics to block consideration of legislation needed to vindicate women’s right to equal pay for equal work, and a proposal to increase jobs for veterans by creating a veterans job corps and providing for various veterans’ hiring preferences.

The only two legislative proposals included in the Poverty Scorecard that became law were needed to avoid a crisis. One extended expiring tax cuts and unemployment benefits for 2012 and the other averted the fiscal cliff.

Congress made few strides in reducing poverty last year. More action is required for millions of Americans to have access to basic programs that allow them to lift themselves out of poverty and reach for the American dream. By sharing these grades and holding lawmakers accountable, the Shriver Center will help to spark a legislative environment that has low-income families’ best interests in mind. To learn more, download the 2012 Poverty Scorecard from our website.

Refund Anticipation Checks: The New Refund Anticipation Loan

Karen K. Harris — Wed, 10 Apr 2013 09:20:38 -0600

The 2013 tax season is officially in full swing, and this year consumers no longer have to worry about refund anticipation loans (RALs). RALs are short-term, high-interest, payday loan-style bank loans sold through tax-preparation sites. The allure of RALs is that they provide taxpayers an immediate advance on their anticipated tax refunds; however, like payday loans, RALs have usurious interest rates and hidden fees. Fortunately, tax preparers will no longer be able to offer RALs this tax season.

In 2010, the Internal Revenue Service (IRS) stopped providing its “debt indicator” device to tax- preparers. As a result federal banking regulators such as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued cease and desist orders to banks funding RALs. According to federal banking regulators, because the IRS debt indicator was no longer available, tax preparers’ ability to adequately underwrite RALs was undermined. Banks were, therefore, engaging in unsound lending practices when making loans to tax preparation companies to fund RALs. The effect of these cease and desist letters was to prohibit banks from lending to tax preparers, forcing them in turn to cease offering RALs as of the 2012 tax season. Thus, in 2011 only 750,000 RALs were issued.

Unfortunately, since tax-preparers earned millions from RALs (a high of $1.24 billion at their height in 2004), and they are no longer allowed to offer them, they have switched to a similar product that hasn’t been subjected to the same scrutiny by federal regulators: Refund Anticipation Checks (RACs). RACs are temporary bank accounts set up by the tax-preparer on behalf of a taxpayer into which the IRS direct deposits a refund check. Consumers access the money through a check or prepaid card. Consumers typically pay about the $30 to set-up the one-time use account.

A recent report by the National Consumer Law Center (NCLC) looks at RAC growth in recent years. In 2009 12.9 million taxpayers used RACs at a cost of $387 million. By 2011, the number of RAC consumers grew to 18.3 million taxpayers paying about $550 million. Given that RALs are no longer offered, the number of RACs issued is likely to grow in 2013.

According to the NCLC report, many tax-preparers engage in deceiving practices that allow them to squeeze as much money as they can from consumers. Tax-preparers often charge add-on fees such as document processing or e-filing fees. Thus, the report estimates that RAC consumers paid a total of $140 million in add on fees in 2011. The study also points out that many people use RACs to pay for the services of the tax-preparer, which ultimately serves as a loan with a usurious interest rate. For example, a person is, in essence, paying $30 to defer a $200 tax-preparer fee for three weeks when they use a RAC. The annual percentage rate (APR) equivalent here is 260%. In addition, by allowing taxpayers to deduct the cost of tax-preparation from the RAC, the consumer is less sensitive to the cost of tax-preparation. Finally, a 2010 study using “mystery shoppers” revealed that many tax-preparers automatically sell RACs to consumers without consumers’ knowledge.

The NCLC report also warns about the new nonbank RALs, which have been sold to a few hundred thousand consumers thus far. These RALs are being offered by high-cost non-bank lenders such as payday lenders and other non-bank businesses that have stepped in to replace the banks that can no longer finance RALs. Nonbank RALs are riskier and more expensive to consumers; however, according to the report, such products have yet to really take off.

The largest issue surrounding RACs is that they allow tax-preparers and banks to profit from the Earned Income Tax Credit (EITC). The EITC is the nation’s largest federal anti-poverty program providing nearly $58 billion to 26 million families in 2011. The EITC is meant for low-income people earning incomes near the federal poverty level. According to the NCLC, EITC recipient who purchased RACs and RALs paid a total of $2.2 billion to tax-preparation organizations. Theoretically 100% of the this money should be in the hands of low-income people, but because our tax system is so contrived, complex, and inefficient, tax-preparation companies like H&R Block and Jackson Hewitt are able to siphon off a large chunk of this money (almost 4%).

Ultimately, the federal government needs to make it simpler for people to access their tax refunds faster and more easily. The Treasury Department ran a pilot program offering the unbanked and underbanked tax refund initiated bank accounts. This demonstration project showed a lot of promise and could be brought to scale. Additionally, the IRS now allows consumers to check the status of their tax refunds online at the “Where’s my refund” website. Consumers who file their taxes digitally can expect to receive their refund in fewer than 21 days—the same time frame for receiving a RAC. Finally, consumers should be encouraged to take advantage of the free Volunteer Income Tax Preparation (VITA) sites across the country, so that they don’t waste their hard-earned money on unnecessary tax preparation schemes. All consumers should be able to access 100% of their tax-returns.

To read more about the demise of RALs see our previous blogs.

Rally for Equal Pay on April 9th!

Wendy Pollack — Mon, 08 Apr 2013 10:14:11 -0600

Tuesday, April 9^th is Equal Pay Day, the day that marks how far into the new year a woman must work on average to earn as much as a man earned the previous year. The average working woman earns just 77 cents to the average man’s dollar—it takes 99 days for women to catch up to what men earn in a year. Fair pay is important for all women, but the wage gap especially hurts those who are already at a disadvantage in the labor market, including African American and Hispanic women, as well as the millions of children and families who rely on women’s earnings.

Equal Pay Day brings attention to the persistent wage gap in the United States and encourages all of us to take action to end the continuing discrimination against women in the work force. It is projected that, at the current rate of progress, the wage gap for women will not close until the year 2057.

Over a 40-year, full-time, year-round career, a typical woman loses $443,360, or twelve years worth of work. The difference is even starker for women with lower levels of education; a woman who does not finish high school would lose $372,400 over a 40-year period, or seventeen years worth of work. The impact of the wage gap is felt even in retirement, with women receiving lower Social Security benefits and having lower retirement savings as a result of lower lifetime wages. The fact that a woman in 2013 can be disadvantaged throughout her entire life simply because of her gender or race is unacceptable. We need to take action and speak out to close the wage gap to ensure women everywhere are paid equally for their hard work.

Take Action!

The Equal Pay Day Rally in Chicago will bring together activists and concerned citizens to protest this inequality. Speakers will include Lieutenant Governor Sheila Simon, Congresswoman Jan Schakowsky, Illinois Attorney General Lisa Madigan, Cook County Board President Toni Preckwinkle, Cook County Clerk Dorothy Brown, ABA President Laurel Bellows, NOW President Terry O’Neill, and Women Employed Executive Director Anne Ladky.

Join us for an Equal Pay Day Rally on Tuesday, April 9^th at noon at the Daley Center Plaza (located at Clark and Washington). The Sargent Shriver National Center on Poverty Law is one of the proud sponsors of this event.

Learn More!

To learn how the earnings ratio and wage gap is calculated as well as why the pay gap is not just about women’s choices, check out the American Association of University Women’s publication, The Simple Truth about the Gender Pay Gap. In addition, because the wage gap varies significantly by state, the National Women’s Law Center provides an analysis for each state that includes the wage gap for women by race, education, and occupation as well as additional information such as unemployment rates. You can also estimate what the wage gap has cost you personally based on your current salary, occupation, age, and location using the WAGE (Women Are Getting Even) calculator.

For more information, contact Wendy Pollack, Director of the Women’s Law and Policy Project at the Shriver Center.

The Tax-Time Savings Movement

Karen K. Harris — Wed, 03 Apr 2013 14:05:12 -0600

For many Americans, especially low-income Americans, tax season is a great moment to save money. For many people, especially those receiving the Earned Income Tax Credit (EITC), this is one of the few times when they have extra cash in their pockets. A total of $115 billion is returned to Americans earning less than $40,000, averaging $1,680 per person. Thus, asset building advocates consider tax time a “savable moment” and have developed programs to nudge people into saving a portion of their tax returns.

In 2007, the IRS developed the 8888 tax return form through which people can have a portion of their tax returns deposited into savings accounts or used to purchase Treasury Bonds. According to the 2012 Tax Time Savings Bond Annual report by Doorway to Dreams (D2D), the tax time savings bonds program has allowed more than 78,000 tax filers to order Treasury Bonds and, because many people purchase bonds on behalf of others, more than 102,000 people have benefited from this program.

This year D2D announced a new program to encourage saving called Save Your Refund. Consumers who deposit part of their tax refunds into their savings accounts will be entered into a lottery where they can win one of forty $250 prizes or the $25,000 grand prize. In order to qualify for this lottery, participants must complete an 8888 tax form and deposit at least $50 into their savings account or purchase a U.S. savings bond.

In 2011, the U.S Treasury Department launched a pilot program in which taxpayers had the opportunity to have their tax refunds placed on a prepaid debit card. This program was aimed at addressing the problem of the estimated 34 million underbanked and unbanked Americans without transactional accounts at mainstream financial institutions.

The New York City Office of Financial Empowerment offers the Save USA program. Similar to the Treasury Department pilot program, Save USA is a pilot program that initiates a bank account from a tax return. Participants must deposit at least $200 into the account initially, and they can subsequently receive a 50% match on all savings deposits up to $1,000.

The New America Foundation has been promoting their tax-time savings policy proposal known as the Saver’s Bonus. This policy would create a program for people who deposit tax returns into savings products that would match up to $500 of those deposits annually. Savings products eligible for the match would be IRAs, 401(k)s, 529 College Savings Plans, Coverdell Education Accounts, U.S. savings bonds, and certificates of deposit.

More generally, to incentivize positive savings and financial behaviors, D2D developed a prized-linked savings account program in 2009. Participants in this program that deposited money in their savings accounts were rewarded with lottery tickets.

In recent years, policy and practice innovations have helped tax time become a critical asset-building moment for many low-income individuals and families. Each of these programs aim to incentivize people to save money. Hopefully, more of these tax-time savings opportunities will be brought to scale so that more people are encouraged to save.

NPR--Addressing the Wrong Question About Disabilities

John Bouman — Thu, 28 Mar 2013 13:52:06 -0600

Several recent NPR stories reported by Chana Joffe-Walt that originated on This American Life perpetuate stereotypes and misconceptions about disability and the country’s main safety net programs that support people with disabilities. Many of these stories’ mistakes and insinuations have been pointed out and refuted in other blogs this week. These include comprehensive facts from the Center on Budget and Policy Priorities, a Media Matters fact check, strong protest from the Paralyzed Veterans of America to the stories’ skepticism about mental and other disabilities that cannot be seen, and a letter from over 100 groups that work on behalf of people with disabilities.

Ira Glass of This American Life issued a statement defending the reporter’s fact-checking of the piece, denying factual errors, and standing by the story. That statement, in turn, was rebutted by Shawn Fremstad of the Center for Economic Policy Research.

Although the blogs convincingly establish that the NPR stories make a number of errors about the disability programs, what is more disturbing to me is the tone of the reporting and the reporter’s cynical message that something is fishy with these programs. Joffe-Walt never outright claims that a significant number of the people who receive disability benefits are not in fact disabled, but reading and especially listening to the This American Life piece make it unmistakable that this is what she wishes to convey. Her stated “news” from her research is that the growth in disability benefits recipients reveals a hidden feature of our economy—that there are no jobs for lots of people with less than high school education in our economy. That’s a fair and useful point. But she clearly also conveys that she thinks there is something wrong with the disability programs, because people who tell her they would try to work if they could find a job instead are able to qualify for disability.

Joffe-Walt says the disability definition is “squishy,” especially with respect to impairments that are not readily visible, because “you can end up with one person with high blood pressure who is labeled disabled and another who is not.” She apparently did not dig enough to find out that core inquiries in the disability determination process, which may be answered only by medical experts, are about the “severity” of impairments and the impact they have, when combined with all of the person’s impairments, on his or her ability to function in the workplace. High blood pressure, in particular, is explicitly blocked from being the basis for disability all by itself. Thus, two people with high blood pressure of different severity, in the presence of different additional medical impairments, can easily fall on different sides of the disability line. Nothing “squishy” about it, once you understand it.

Joffe-Walt questions the good faith of all 14 million Americans “on disability.” She never notes how stringent the disability requirements are, or that only 40% of applicants succeed in establishing disability. Although at times she concedes that many people getting disability benefits are actually medically unable to work, she also says that “going on disability,” which offers recipients small cash benefits and health coverage but also keeps them poor for the rest of their lives, is a “deal 14 million Americans have signed up for.” That conclusion assumes that, for most of recipients, “going on disability” was some sort of choice. But people who are disabled do not have a real choice. Their only “choice” is whether to apply for available subsistence income or to have no income at all.

The main problem I have with the piece is its paper-thin penetration of a deep problem. Joffe-Walt never examines the issues through what should be an obvious lens—what if virtually all of the people receiving disability benefits are actually disabled or medically unable to work? The real problem is not why so many people get disability benefits, but why so many people are disabled. If you spend any length of time in low-income communities, it becomes increasingly clear that there are lots of walking wounded, a reservoir of people who medically qualify for disability benefits but who have not been able to apply or navigate the system to get assistance.

Examining the issues through that lens gives rise to important questions about our health system and the healthiness of our workplaces (in addition to Joffe-Walt’s good point about the changing nature of the American job market). The one doctor Joffe-Walt could find in the Alabama county she visited apparently carries on a heroic practice. Yet one wonders how much preventive care, how much early diagnosis and treatment of conditions to keep them from becoming acute, how much well-child care, how much prenatal care is going on in that crowded practice, where so much of interaction involves assessing the disabling impact of impairments people already have. In the larger picture, there are important questions about the impact that a lack of health insurance, and its attendant lack of a regular relationship with a doctor, have on the working ability of the 50 million uninsured Americans.

There is a huge debate raging in this country about vigorously implementing the Affordable Care Act, which has aggressive strategies to reform the health care system and insure most of the uninsured, all of which can bring down the number of people with disabilities. And we have the spectacle—in Alabama and elsewhere—of governors and legislators rejecting those reforms on ideological and political grounds. Joffe-Walt’s piece, unbeknownst to her, is a very poignant reminder of who and what those politicians are sacrificing on the altar of their political ambitions.

Expecting a Baby, Not a Pink Slip

Amanda Moore — Wed, 27 Mar 2013 09:00:16 -0600

A cashier in New York, a firefighter in Michigan, a shelf-stocker in Indiana, a restaurant worker in Washington, D.C., a train conductor in Mississippi: all real-life examples of pregnant women who were denied minor accommodations at work and suffered negative health or employment consequences as a result.

How does this happen? The intersection of disability and civil rights laws leaves a gap big enough for pregnant women who need temporary workplace accommodations to slip through. They are left vulnerable to harsh consequences at work, and many must choose between their health and their jobs—if they are given a choice at all and not fired outright.

Often the women who face the most challenges in securing workplace accommodations for pregnancy—such as lifting restrictions or more frequent bathroom breaks—are the very women who most need to continue to earn income to support their growing families: those in low-wage jobs. Pregnancy discrimination at work is not just a question of fairness; it’s a matter of economic security for families across the country.

While a few federal laws—such as the Pregnancy Discrimination Act, the Americans with Disabilities Act Amendments Act, Title VII, and the Family and Medical Leave Act—offer some relief to employed pregnant women, the need for temporary reasonable accommodations remains. Some state and local laws offer stronger protections.

Elizabeth Gedmark, a law fellow at A Better Balance, surveys this legal landscape in the January-February 2013 issue of Clearinghouse Review: Journal of Poverty Law and Policy. She explains the strengths and weaknesses of these laws, offers practice tips to attorneys who do not focus on employment law, and highlights federal, state, and local efforts to protect pregnant women at work.

Gedmark’s article comes at a good time, as discrimination against pregnant women in the workplace is garnering more attention. For example, in his January State of the State address, New York governor Andrew Cuomo announced a ten-point Women’s Equality Agenda that includes “stop[ping] pregnancy discrimination once and for all.”It aims to require employers to provide reasonable accommodations for pregnancy-related conditions.

Then in February, the Maryland General Assembly began to consider SB 784, Reasonable Accommodation for Disabilities Due to Pregnancy. Recently, the Judicial Proceedings Committee issued a favorable report on the bill.

Maine followed suit in March by considering HP 581, a bill that would amend the state’s Human Rights Act to require covered employers to give pregnant women the same reasonable accommodations that they would provide a qualified individual with a disability.

Is your state or city joining the movement to keep pregnant women healthy and employed? Let us hear about it either in the comments below or by email.

Obamacare Enters Its Big Year for Fighting Poverty

John Bouman — Tue, 26 Mar 2013 12:35:16 -0600

Obamacare, the Affordable Care Act (ACA), had its third birthday over this past weekend. So this is its first work week in its most important year. This is the year for the ACA’s heavy lifting, bringing affordable health coverage to 36 million uninsured Americans and ending discrimination against adults with pre-existing conditions, all effective as of January 2014. This is the year that the ACA becomes the biggest single measure in the fight against poverty in the last 50 years.

The ACA, of course, is usually discussed in terms of its impact on the health care system. And it is already doing a significant job on that front. In its birthday editorial, the New York Times aptly summarized the important contributions to reform of the health care system that the ACA has already produced:

6.6 million young adults covered through their parents’ health insurance (3 million of whom were previously uninsured);
71 million Americans received at least one preventive care service without co-payment (including 34 million older adults through Medicare);
17 million children protected from discrimination by insurance companies due to pre-existing conditions;
3 million more patients served by community clinics due to ACA-funded expansion;
private premium increases dramatically slowed and $1.1 billion refunded to customers due to the ACA’s limit on premiums;
6.3 million seniors saved $6.3 billion in spending on drugs as the ACA fills in the notorious “donut hole” co-payment requirement in Medicare;
growth of the overall cost of the health care system dramatically slowed; and
promising improvements in health care quality.

That is a substantial list of accomplishments; moreover, the health care system is due for its most important improvements in the coming year. The upcoming big changes, however, will have an impact that should be understood in more than just health care terms. The progress that will be made in the fight against poverty will be truly remarkable.

Half of the gain in covering the uninsured will be directed at people in the deepest poverty in our country. Since Medicaid began in 1965, it has had a gap. It never offered coverage to people aged 19-64 who are not officially disabled and not caring for a child in their home. These are young adults leaving high school or college (whose parents do not have employer-supported coverage); empty nest parents whose children are over 18; tens of thousands of veterans not covered by VA health programs (over 12,000 would gain Medicaid coverage just in my home state of Illinois); chronically unemployed people with serious mental and physical impairments who are not officially disabled; many of the homeless; and others. The ACA will fill that gap in Medicaid , providing coverage to all with income under 138% of the Federal Poverty Line ($15,415 per year for an individual and $26,344 for a family of three) in the states that choose to take the federal money that the ACA offers them to pay for it.

For many people in poverty, health coverage not only means health, reduction in pain, and expansion of life expectancy, it also means employability and productivity and upward mobility. It can improve learning capacity. It reduces family stress. It can be a major factor in reducing family and community violence. It is a vast improvement in quality of life and quality of opportunity.

The ACA also ends the high cost for Medicaid beneficiaries of making more money. Currently, when a Medicaid beneficiary succeeds in the workplace and escapes poverty, there is a penalty: the loss of health coverage when earnings exceed allowed Medicaid levels. Starting in January, though, the Healthcare Marketplaces in every state will offer affordable private insurance coverage to replace Medicaid when earnings call for termination of Medicaid eligibility. This private coverage removes a barrier to upward mobility. It also acts as a net to keep workers in the middle class if they lose employer-supported insurance, when a health emergency might otherwise mean a free-fall into poverty. And it is there to provide coverage for budding entrepreneurs who want to try for the American Dream and start their own businesses, but who currently are blocked because they cannot risk losing either Medicaid or employer-supported coverage.

Obamacare already fights poverty by helping seniors on Medicare make ends meet and by helping young adults make their way in the workforce by staying on their parents’ insurance. And in the coming year, at least in the states that implement it thoroughly, Obamacare will make its biggest inroads against poverty.

How Much More Data Is Needed Before We Address the Discouraging Racial Wealth Gap?

Karen K. Harris — Fri, 22 Mar 2013 10:01:39 -0600

Recently, the Census Bureau released an American Community Survey Brief that highlights poverty rates among different races and ethnicities. The data show a wide and growing racial wealth gap, especially in the black and Native American groups.

The report looks at income poverty, which is based on the federal poverty level ($23,550 for a household of four). According to the report, the national poverty rate is 14.3%. American Indians and Alaska Natives had the highest average poverty rate at 27%; in nine states, the poverty rate among American Indians and Alaska Natives was more than 30%. African Americans had the second highest average poverty rate at 25.8%, while the Hispanic poverty rate ranked third at 23.2%.

These rates, which are more than twice the poverty rate of whites (11.6%), reveal the massive racial wealth gap in this country. Nearly 22 million American Indians, Native Alaskans, African Americans, and Hispanics are living in poverty, accounting for 51% of all people living in poverty despite the fact that they represent just 30% of the total population.

While income poverty depicts part of the picture, it leaves out other important metrics such as net worth. According to the Pew Research Center, the median net worth of white households is 20 times that of African American households and 18 times that of Hispanic households. In fact, for every dollar that a white family owns, Hispanic households own 10 cents and African American households own 5 cents. According to a report by the Institute on Assets and Social Policy, over the past 25 years, for each $1 increase in income by white people, their overall wealth grew $5.19, while among black people, an increase of $1 in income led to a wealth growth of $0.69. White people were also able to grow their wealth more effectively when it came to inheritance and family financial support.

These Census Bureau and Pew statistics call into question the notion that we live in a country of equal opportunity. A study by the nonpartisan Congressional Research Service shows that, compared to other developed countries, the U.S. has one of the highest rates of economic inequality and this inequality has steadily and consistently risen over the past 43 years as the gap between rich and poor widens.

The civil rights movement supposedly ended racial discrimination; however, historically minorities have always had less of an advantage than whites in building assets. For instance, the federal government has always subsidized asset building opportunities for Americans. In 2009, the United States spent nearly $400 billion on asset building policies. These subsidies, however, overwhelmingly go to those who already have significant wealth. For example, those earning more than $160,000 received an average of $5,109 in tax breaks per taxpayer, while those earning less than $19,000 received an average of only $5 in tax credits in 2009. Instead of subsidizing wealth creation mostly for the wealthy, the federal government must switch to supporting asset-building strategies for those who need it most.

A recent report from the Institute on Assets and Social Policy examines the root causes of the widening racial gap by determining whether equal accomplishments are producing equal wealth gains for whites and African Americans. The report determines that homeownership is the biggest driver of the racial wealth gap, accounting for 27% of the gap. Whites have many advantages when it comes to real estate equity. First, due to residential segregation, the value of real estate in black neighborhoods is lower than the value of real estate in white neighborhoods. Second, due to family financial support and inheritance, white families are able to acquire real estate on average eight years earlier than black families. In addition, family financial assistance leads to larger down payments by white homeowners, which leads to lower interest rates and lending costs. Finally, black borrowers are consistently more likely to receive more risky loan products than white borrowers due to discrimination by financial institutions. The 2008 recession and subprime mortgage crisis, during which racial and ethnic minorities lost about a third of their net worth from 2007 to 2010, did not help this situation. A landmark lawsuit, the first suit to connect racial discrimination to the bundling of mortgage-backed securities, has been filed against Morgan Stanley for facilitating the production of risky loans that targeted African American borrowers. Yet, even if the suit is successful, any damages collected will not be enough to cover such losses.

As a result of the government’s inaction, in less than a generation (from 1984 to 2007), the racial wealth gap has more than quadrupled, mostly as a result of rising white wealth. Fortunately there are some tangible policy solutions that move us in the right direction. The Shriver Center and the Illinois Asset Building Group work to promote policy agendas that would allow all people equal opportunities to build assets. Such policies include universal retirement savings accounts, college savings accounts, elimination of asset limits on public benefits, and establishment of fair lending laws. By shifting government’s expenditures toward facilitating asset building among poor and minority populations, we can alleviate the legacy of racial inequality and provide needed fiscal stimulus for the American economy. After all, how much more data do we need before we start addressing this issue?

To learn more about the causes of the racial wealth gap and asset building policy solutions to bridge this gap, read the “Eliminating the Racial Wealth Gap: The Asset Perspective,” featured in the July-August 2011 issue of Clearinghouse Review.

To get involved with closing the racial wealth gap become a partner here.