The Shriver Brief

Unbanked and Uninsured: Implications for ACA Enrollment

Karen K. Harris — Wed, 19 Jun 2013 13:28:42 -0600

As the countdown to full Affordable Care Act insurance coverage on January 1, 2014, proceeds and details get filled in, smart folks in government and the private sector are analyzing those details and catching potential problems. Case in point--a recent report by Jackson Hewitt raised concerns that nearly 8 million of those uninsured Americans eligible for premium assistance to help them purchase insurance and meet the mandate under the Affordable Care Act (ACA) will not be able to buy insurance and utilize such assistance. According to the report, more than 25% of Americans who are eligible for tax credits to help them purchase health care insurance are unbanked. Among African Americans and Hispanics the prospects are even worse, as they are 40% more likely than whites to be unbanked. The concern was that for these uninsured Americans health care coverage would remain unattainable because insurance companies might not allow consumers to pay premiums through methods other than through a checking account, whether by check or electronically. Turns out the Centers for Medicare and Medicaid (CMS) and the Department of Health and Human Services (HHS) had this potential problem on their radar screen, too. They included provisions requiring insurance companies to accept premium payments in many forms in proposed rules released on June 14 and published in the Federal Register on June 19.

The Jackson Hewitt report, which was released last month, raised significant concerns that the very people who most need the assistance in purchasing health insurance provided by the ACA would not benefit from it. As the report noted, more than 1 in 4 uninsured Americans eligible for the new premium assistance tax credits under the ACA do not have a checking account. Thus, limiting premium payments to only checks or electronic transfers from checking accounts would have prevented these individuals, who are also heavily African American and Hispanic American, from accessing health insurance.

While the report noted that HHS issued guidance in April to issuers on federally-facilitated and state partnership exchanges that included a statement that “issuers must be able to accept payment in ways that are non discriminatory,” it did not specifically state what alternative methods of payment should be accepted. The proposed rules spell out those methods.

Although the Jackson Hewitt report suggested that allowing unbanked Americans to make their health insurance premium payments using prepaid cards would be the best option, this suggestion also raised some concerns. Consumer advocates have warned that prepaid cards are risky and have high fees, and they are likely to weigh in with their concerns in commenting on CMS’s proposed rules.

Clearly in order to ensure that the benefits the ACA was meant to confer were in fact conferred, further guidance was needed, and CMS and HHS have provided just this. Under the proposed rules, qualified health plan issuers must, at a minimum, accept a variety of payment formats, including, but not limited to, paper checks, cashier’s checks, money orders, and replenishable prepaid debit cards, so that individuals without a bank account will have readily available options for making monthly premium payments. As HHS noted, this will allow unbanked individuals to be able to access coverage through an exchange on the same basis as those with a bank account or credit card and ensure that they are not unable to access coverage merely due to the inability to pay their share of the premium by means of a check. The proposed rule also permits issuers to offer electronic funds transfer from a bank account and automatic deduction from a credit or debit card as payment options. HHS also specifically asked for the public to submit comments on this proposal and whether other payment methods should be included during the 30-day comment period.

While we are pleased with the CMS/HHS proposed rules, the issue that millions of Americans are unbanked remains. According to the FDIC, 10 million American households are unbanked, and another 24 million households are underbanked. Thus, the long-term solution to this issue must be to continue to offer banking opportunities to the unbanked and provide greater access to mainstream financial services. As detailed in our recent Clearinghouse Review article, “The Affordable Care Act: An Effective Asset-Building Policy” and related webinar, being uninsured hinders a person’s ability to build assets. Extensive research shows that poverty and poor health outcomes go hand in hand. Sometimes poverty leads to negative health outcomes, and sometimes negative health outcomes lead to poverty. While the directionality of this relationship is not consistent, poor health is known to place additional burdens on low-income people and acts as a barrier against moving out of poverty. Improving health outcomes is, therefore, not only an important asset-building tool, but another reason why banking the unbanked is paramount.

The Unfinished Business of Fair Housing

Emily Werth — Tue, 18 Jun 2013 10:46:56 -0600

Forty-five years after the passage of the federal Fair Housing Act in 1968, a study by the U.S. Department of Housing and Urban Development (HUD) has found that illegal discrimination against blacks, Hispanics, and Asians still pervades housing markets in metropolitan areas throughout the country. The Housing Discrimination Against Racial and Ethnic Minorities 2012 study—conducted in conjunction with the Urban Institute—concludes that, while blatant refusal to rent or sell to certain minorities is no longer prevalent, whites still receive favorable treatment in the process of searching for a home.

This was the fourth in a series of studies conducted by HUD since the 1970s to measure discriminatory treatment in the rental and sales markets. The study found that for the most part equally qualified whites and minorities had equal success in learning about at least one available unit when housing opportunities were advertised. However, white home-seekers were systematically told about and shown more available rental or for-sale units than their equally qualified black, Hispanic, and Asian counterparts (with the exception of Hispanics looking for owner-occupied housing). This means that minorities have fewer housing options and pay higher costs to find suitable housing. The study also found that minorities experience more discrimination when it is easier to identify their race or ethnicity by their names, speech patterns, and/or appearance.

While the housing discrimination uncovered by this study is appalling, it is really only the tip of the iceberg. This study does not measure discrimination that may occur after a prospective buyer or renter actually applies for particular housing, such as the unequal treatment that is found in mortgage lending markets. Further, the study only looked at instances where whites and minorities were treated differently and did not review the pervasive problem of practices that may be applied equally to all groups but ultimately have the effect of making it harder for minorities to obtain housing in the communities of their choice (i.e., create an adverse disparate impact for minorities). For example, the study does not address the problem of source-of-income discrimination experienced by home-seekers who need subsidies in order to afford decent housing, who are more likely to be members of racial and/or ethnic minorities in many areas. As the report itself acknowledges, the discrimination identified by the study does not fully account for the persistence of residential segregation and neighborhood inequality suffered by racial and ethnic minorities in many metropolitan areas. Segregation limits access by minority groups to critical opportunities like good jobs, quality schools, and safe neighborhoods, and thereby perpetuates racial and ethnic disparities throughout society.

Both in its findings and in its gaps, this study makes clear that much more work is needed to eradicate harmful inequalities in our housing markets. However, our ability to achieve this goal is under attack. Although courts have long acknowledged that practices that impose an adverse disparate impact on minorities or contribute to residential segregation are illegal under the Fair Housing Act, some people continue to challenge this well-settled principle. Unfortunately the Supreme Court recently agreed to hear one such challenge. Now more than ever we must be vigilant in our efforts to fulfill the promise that every individual and family will have access to equal housing opportunities

Clinton Global Initiative Announces Woodstock Institute CGI Commitment to Action

Karen K. Harris — Fri, 14 Jun 2013 11:05:27 -0600

Today at its annual Clinton Global Initiative America (CGI America) meeting, Woodstock Institute announced its “Commitment to Action,” which will further its work to strengthen retirement security.

CGI is an initiative of the Clinton Foundation founded by former President Bill Clinton to “turn ideas into action.” The Commitment to Action represents the key feature of the Initiative, lending the Foundation’s name to build awareness, identify partners, and share results for ideas that address some of the world’s biggest problems in a new way. Through Commitments to Action, the initiative has impacted more than 400 million individuals worldwide since 2005.

Woodstock’s Commitment to Action is supported as part of CGI’s financial inclusion Working Group and centers on retirement security. Woodstock's 2012 report, Coming Up Short: The Scope of Retirement Insecurity Among Illinois Workers, found that over half of private sector workers in Illinois lack an employment-based retirement savings option. With most of these workers possessing limited or no assets, they face the real possibility of retiring into a declining quality of life, or even poverty.

Woodstock's commitment, in conjunction with partners such as Heartland Alliance for Human Needs & Human Rights and the Sargent Shriver National Center on Poverty Law, is to build broad-based support for the solution we recommended in Coming Up Short: establishing a statewide Auto Individual Retirement Account (IRA) program.

The proposed Illinois Auto IRA program would establish a retirement savings account program and automatically enroll workers who do not have access to an employer-based retirement savings option. Workers would be able to opt out of the plan. Participants could take their retirement savings from job to job without penalty. Savings in the plan would receive the favorable tax treatment accorded current IRAs and Roth IRAs.

Woodstock and its partners will be trying new approaches to build support, including outreach to new legislative partners, media, businesses, trade groups, and women’s groups.

With millions of Americans are approaching retirement without adequate savings, now is the time to act. An Auto IRA program can help Illinois support its workers and economy while preventing a full-on retirement insecurity crisis in the future.

Read the full Commitment to Action.

About CGI America
The Clinton Global Initiative (CGI), an initiative of the Clinton Foundation, convenes global leaders to create and implement innovative solutions to the world’s most pressing challenges. Established in June 2011 by President Bill Clinton, the Clinton Global Initiative America (CGI America) addresses economic recovery in the United States. CGI America brings together leaders in business, government, and civil society to generate and implement commitments to create jobs, stimulate economic growth, foster innovation, and support workforce development in the United States. Since its first meeting, CGI America participants have made more than 200 commitments valued at $13.4 billion when fully funded and implemented. To learn more, visit cgiamerica.org.

[Note: This blog is reposted from the Woodstock Institute.]

Don't Let it Get Worse: Wealth Inequality

Karen K. Harris — Tue, 11 Jun 2013 14:59:24 -0600

A new report by the Pew Research Center illustrates the worsening wealth inequality in the U.S. According to the report, during the first two years of the nation’s recovery (2009-2011) the net worth of the top 7% of households rose 28%, while the net worth of the bottom 93% dropped 4%. In other words, during the recovery the total wealth of the top 8 million households rose $5.6 trillion, while the total wealth of the bottom 111 million households dropped $600 billion. That’s an average gain of $697,651 for the top 8 million households, versus a $6,079 average drop for the 111 million households in the bottom rung of the economic ladder!

U.S. wealth inequality was already staggering before the recovery began in 2009. At that time, the average household in the top 7% had 18 times more wealth than the average family in the bottom 93%. But since 2009, the top 7% have increased the gap, increasing their total wealth to 63% of total U.S. wealth and 24 times the wealth of the bottom 93%.

The major contributor to the dramatic increase in the wealth gap, according to the Pew Report, was the rise of the stock market and the fall of the real estate market. Because 87% of stock market shareholders are members of the top 7%, the nation’s wealthiest households benefited greatly as the S&P 500 rose by 34% during the recovery. And the top 7% continue to rake in investment gains as the Dow Jones industrial average hit a record 15,000 on May 4, 2013. At the same time, the bottom 93% of families, who rely on the real estate as their main asset, saw the housing market fall 5% from 2009-2011. The bottom 93% also lost out on the fruits of the stock market gains since their share of stock ownership declined during this period (from 16% in 2009 to 13% in 2011).

Overall, during the economic recovery (2009-2011) only households with greater than $500,000 in wealth, or 13% of Americans, saw a growth in wealth (21% growth). The average household earning less than $500,000 lost wealth from during the recovery. The data are consistent with other research showing a consistent growth in wealth inequality in the U.S. over the last 50 years.

While reading these statistics is hard enough, seeing them illustrated graphically drives the point home. A short video about the overall U.S. wealth inequality that was recently posted by “Politizane” uses data from Dan Ariely and Michael Norton’s 2011 study on perceptions of wealth inequality compared to actually wealth inequality in order to drive home the depressing reality of the current wealth inequality in the U.S.

While overall wealth inequality in the U.S. is problematic, when focusing in on race, inequality looks even worse. A new report by the Urban Institute shows that a dollar in a white person’s hand grows significantly faster than a dollar in a black or Hispanic person’s hand. In 1983, whites age 30 had on average 3 times more wealth than blacks age 30. By 2010 the same group of whites had 7 times more wealth compared to the same group of blacks. Unfortunately, just as the recession increased the overall wealth gap in America, it also increased the racial wealth gap. Between 2007 and 2010 Hispanic families lost 40% of their wealth on average, and blacks lost an average of 31%. Meanwhile, white families lost only an average of 11% of their wealth. Overall, on average whites had 6 times more wealth than blacks and Hispanics, according to Urban Institute’s report. These findings are inconsistent with a 2011 Pew Research Center report that found that white households had 20 times the wealth of black households and 18 times that of Hispanic households.

To further demonstrate these staggering figures, the Urban Institute also released a video illustrating the racial wealth gap, based on the findings of their recent report.

But this is just the tip of the iceberg. According to The Rules’ new short video based on United Nations Data, globally, the richest 300 people have more wealth than the poorest 3 billion people. To put that in perspective, the number of people it takes to fill a midsize aircraft have more wealth than the populations of India, China, the U.S., and Brazil combined. The richest 1% of people have 43% of the world’s wealth, while the bottom 80% of people have just 6% of the wealth. Two hundred years ago the richest countries were 3 times richer than the poorest countries; by the 1960s they were 35 times richer, and today they are about 80 times richer.

Clearly, something needs to be done in order to close these wealth divides. All people, whatever nationality or race, must have an equal opportunity to build wealth. This is why the Shriver Center’s Asset Opportunity Unit focuses on asset building policy and initiatives. To learn more about the Shriver Center’s work visit our website and see how you can get involved.

An Asset Building Agenda for the States

Karen K. Harris — Thu, 06 Jun 2013 13:52:50 -0600

How are states working to promote asset building among their residents? A recent paper I wrote for The New America Foundation, “An Assets Agenda for the States,” highlights state asset building trends during 2012 in four policy areas: (1) promoting savings; (2) increasing access to the mainstream financial system; (3) consumer protection; and (4) financial education.

Promoting Savings. States are promoting savings in several ways. First and foremost is through the elimination of asset limits in public benefit programs. Currently, six states have removed asset limits in their state’s Temporary Assistance for Needy Families (TANF) programs, 25 states have removed them from their Medicaid programs, and over 40 states have removed them from their Supplemental Nutrition Assistance Programs (SNAP). The Illinois General Assembly, for example, recently passed a bill that will eliminate asset limits in Illinois’s TANF program.

A second way states are promoting savings is by providing families with mechanisms to effectively build college savings accounts. All 50 states have some type of 529 college savings plan; however, since only 9% of existing 529 account holders earn less than $50,000 per year, it is clear that such plans are not being used by low-income people. Some states have begun collecting data on 529 plan participants in an effort to demonstrate the necessity for program changes. For instance, after Texas began gathering 529 college participation data, it found that only 17% of participants in its 529 prepaid tuition plan during 2008-09 were African-American or Hispanic, even though together these populations represent a majority of Texans under age 18. Moreover, only 5.4% of such accountholders had incomes below $50,000, even though 41.4 percent of Texas families earn less than $50,000 per year. RAISE Texas, a prominent Texas asset building coalition, used this information to develop suggestions for making the state’s 529 program more accessible to these populations, which lead to the recent launch of the Texas Match the Promise Foundation, which will supply matching scholarships to participants in the state’s prepaid tuition fund.

Similar to 529 programs, states are also considering policy proposals such as children’s savings accounts (CSAs). Under most CSA proposals, children would be given savings accounts that would be seeded with an initial deposit from the government, often with supplemental amounts available for low-income families, and states would also offer matching funds, up to a cap, for contributions made by family, friends and children themselves. Numerous pilot studies of CSA plans over the last decade have demonstrated such accounts’ usefulness and in 2012 San Francisco expanded its Kindergarten to College pilot program to all San Francisco elementary schools. Under the program children are provided with an initial deposit of $50, matching funds of up to $100 for the first year, and children receiving free or reduced lunch receive an extra $50. Additional incentives include a $100 bonus when families sign up for auto-deposit of a minimum of $10 every month for six months.

Another way states are promoting savings is by expanding access to retirement savings opportunities. Currently only about 50% of all workers have access to employer-sponsored retirement savings accounts. In 2012, California passed the first comprehensive state bill to address this issue. The bill lays the groundwork for establishing an automatic enrollment IRA program for employees in California. Illinois has also introduced legislation to create an Illinois automatic IRA program, though the bill has to yet to make it out of committee.

Finally, incentivizing savings accounts through programs like D2D’s prized-link savings have also started to gain traction in states. In prize-linked savings programs, consumers are given lottery ticket equivalents for each deposit they make. The opportunity to win prizes encourages them to continue to save money. Results from initial pilot studies in Michigan have been very promising.

Increasing Access to Mainstream Financial Services. Asset building advocates’ efforts to increase access to mainstream financial services continue to focus on programs that help bank the unbanked. According to the Federal Deposit Insurance Corporation (FDIC), approximately 8.2% of U.S. households are unbanked. This represents 1 in 12 households in the nation, or nearly 17 million adults. Low-income households, with incomes of $30,000 or less, constitute nearly 82% of unbanked and nearly 41% of underbanked households, and minorities are more likely to be un/underbanked—nearly 63% of unbanked and 40% of underbanked households are African American or Hispanic. Bank On programs, which began in San Francisco in 2006, are collaborations between governmental agencies (e.g., cities or states), financial institutions, and community groups, wherein the financial institutions offer low-cost basic transaction accounts to unbanked individuals. Since Bank On programs are low-cost initiatives, states can still implement such programs despite existing budget crisis. The Bank On model has been replicated in more than 30 cities, 4 states, and two regions, with dozens more programs in development.

Another way to provide access to mainstream financial services that states are exploring is alternative data reporting. An estimated 50 to 70 million Americans do not have a credit score. They are considered “thin file” meaning that the “big three” U.S. credit bureaus (TransUnion, Experian, and Equifax) do not have enough information about these individuals' finances to assign them a credit score, whether good or bad. Without a credit history, it is difficult, if not impossible, to qualify for a mortgage, obtain a credit card, buy a car, or finance a small business. Increasingly, even employment, rental housing, and real property insurance decisions hinge on credit information. Whether the inclusion of such nontraditional credit information will be helpful or harmful to those with thin files or no score at all is controversial. Although research has shown that using alternative credit data reporting increases the number of people able to be scored, it is not clear what such scores will be. Thus, more research is needed to determine the effect of alternative credit reporting. In the meantime, states seem to be focusing on other problems within the credit reporting system. As of December 2011, legislation had been introduced in 26 states, up from 16 states in 2009, regarding insurance scoring and other aspects of the credit industry, such as preventing the use of credit scores in employment decisions. Given that credit, for good or ill, is a fundamental part of our country’s economic DNA and an essential part of asset building, such efforts should be encouraged.

Protecting Consumers Against Predatory Financial Products. Usurious payday and auto-title loans perpetuate a cycle of debt for low-income Americans. With interest rates as high as 400%, 12 million Americans are caught in a long-term debt cycle created by payday loans each year. Additionally, banks have entered the short-term, high-cost loan market by offering so called “deposit advance loan products,” which are basically payday loans with another name. Yet, currently only 19 states ban payday loans or cap interest rates. On the federal level, it appears that we may be closer than ever in obtaining more comprehensive federal payday and auto-title regulation as the Consumer Financial Protection Bureau (CFPB) continues to study the issue and publish guidance, such as its Short-Term, Small Dollar Lending Procedures guide, a field guide that CFPB examiners will use to ensure that payday lenders are compliant with federal consumer protection laws. In the meantime, states continue to introduce legislation to cap payday and auto-title loan interest rates, particularly at the municipal level, as well as encourage mainstream financial institutions to provide affordable and safe small dollar loans as alternatives to payday and other predatory loans.

State asset building advocates are also looking to increase consumer protections on prepaid cards and other payment products used by the low-income and asset poor populations. A growing number of unbanked Americans, instead of using checking account debit cards or credit cards, which have consumer protections provided under the Electronic Fund Transfer Act and Regulation E, are using prepaid cards instead. Prepaid cards are fraught with higher and less transparent fees than traditional credit and debit cards, frequently resulting in consumers spending more for such products than they should or can afford to. As a result, state asset building groups are paying close attention to the marketing of these products and looking for ways to ensure that consumers do not wind up in a cycle of debt.

Improving and Increasing Financial Education. Arguably nothing is more important than improving financial education. Currently, 44 states include personal finance in their education standards, up from 40 states in 2007 and 21 states in 1998. While, 13 states require high schoolers to take a personal finance course in order to graduate, the majority of states do not have such a requirement. Thus, state asset building advocates continue to encourage more states and school boards to adopt curricula that include comprehensive financial education.

To learn the current status of all of these and other asset building policies in each states read my report, “An Asset Agenda for the States,” recently published by New America. The paper, which includes a comprehensive appendix that provides charts which outlay the status of each asset building policy by state, is a very useful tool for organizations trying to get a sense of what is happening around the country when it comes to asset building.

Payday Loans Harm the Economy, Not Just People

Karen K. Harris — Mon, 03 Jun 2013 14:49:42 -0600

A large body of research shows that payday loans place households at financial risk. For instance, two recent Pew Charitable Trust reports on payday lending (2012 and 2013) show that 12 million Americans use payday loans annually, spending a total of $7.4 billion. Moreover, these reports show that 86% of borrowers cannot afford to repay the average payday loan on time, which leads the average borrower to take out eight loans of $375 each per year and to spend $520 on interest. The five groups of people most likely to use payday loans, and therefore most likely to be harmed, 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.

Yet, until recently the harmful effects of the payday lending industry on the national economy were not known. A recent report by the Insight Center for Community Economic Development (Insight Center) now reveals new statistics on the negative impact of payday loans on the national economy as a whole. According to the report, in 2011 households paid a total of $3,309,926,773 in interest on payday loans. While this approximate $3.3 billion in interest payments to payday lenders added a total of $5.5 billion and 65,122 jobs to the overall U.S. economy, the report found that payday loans actually caused a net loss of $773 million and 14,094 jobs. According to the report, if private households had held on to the $3.3 billion that they paid to payday lenders, they would have generated $6.3 billion and 79,216 jobs for the overall U.S. economy. Additionally, the report found that, because payday loan borrowers are five times more likely to file for bankruptcy compared to the average American, payday lending leads to an increase in bankruptcies. Since the average bankruptcy costs $3,000. and there were a total of 56,250 bankruptcies due to payday lending, the report estimates that the total cost of bankruptcies due to payday lending in 2011 was $169 million.

On a state-by-state basis, the report reveals that every state’s economy suffered due to the payday lending industry—from a low of $330,000 lost in Hawaii to a high of $135 billion lost in California. Every state also lost jobs as a result of the amounts households paid to payday lenders—from a low of 5 jobs lost in Hawaii to a high of nearly 2,000 jobs lost in California. For instance, according to the study, Illinois was the fifth worst state for payday lending with a total interest in 2011 of $237 million and a loss to the economy of $55 million and 810 jobs.

When all losses are calculated, payday lending costs our overall economy about $1 billion per year. Now that the evidence is so clear regarding the economic damage that payday loans have on individuals and on society at large, it is time to legislate a ban on payday loans. A new report by published by the Woodstock Institute highlights the need for strong action by federal and state regulators and lawmakers. The report shows the historical strength and success of the payday lending lobby, but reminds us that consumer protections against payday lending have gained traction in several state legislatures in recent years. The Stopping Abuse and Fraud in Electronic (SAFE) Lending Act is the latest federal level bill to stop payday lending. Although many states have already successfully implemented state level bans and others have proposals on the table, a national ban is needed to ensure that all Americans, as well as the national economy are protected.

Illinois General Assembly Extends Medicaid Coverage to Low-Income Residents

Andrea Kovach — Fri, 31 May 2013 10:31:01 -0600

Time: 4:30 p.m Central, Tuesday, May 28, 2013. "Mr. Clerk, take the record." With those words the President of the Illinois Senate asked the clerk of the chamber to record the votes on Senate Bill 26, as amended, the bill which would put Illinois in the column of states that will, come January 1, 2014, offer Medicaid coverage to all low-income state residents. The Senate passed the bill by a vote of 39 to 20, concurring with the House, which passed the same bill the previous day (63 to 55). Thus, pending Governor Quinn’s signature, which he has promised, President Obama's home state will extend Medicaid to all previously ineligible low-income adults under the Affordable Care Act.

As Shriver Center President John Bouman stated:

Passage of this measure helps everyone in the state because it is a key part of the overall reform of the health care system and controlling its costs. But make no mistake: it is also the single most significant blow against poverty struck in Illinois in the last 50 years.

It was clear from the floor debates that these thoughts, as well as the moral conviction that health care should be for all, were prevalent among the supporters of the bill. Opponents of the bill largely cited unsubstantiated fears about future costs and the speculation that the federal government might someday renege on the funding promises in the Affordable Care Act. In fact, however, the opposition was partisan. The Republican caucuses took “caucus positions,” meaning that individual members were not free to vote their consciences or their opinions about wise public policy.

Enacting this legislation means Medicaid coverage and increased access to quality and affordable health care to those who are uninsured with incomes under 138% of the federal poverty level (roughly $15,856 for an individual). This would make an exponential improvement in their quality of life and economic opportunity. This measure is a crucial part of the overall health reform taking effect since March of 2010. With passage of this law, Illinois joins 28 other states that have supported extending Medicaid to those newly eligible under the Affordable Care Act.

The Affordable Care Act provides that the Federal Medical Assistance Percentage (FMAP) rates for newly eligible individuals are 100% for calendar years 2014 through 2016. Federal financial support will then phase down slightly over the following several years so that, by 2020 and for all subsequent years, the federal government will pay 90% of the costs of covering these individuals (meaning that Illinois will pay just 10% of the cost of care for this new population). Medicaid coverage for the newly eligible group will start statewide January 1, 2014, with enrollment starting in October 2013. (The new coverage took effect January 1, 2012, for Cook County, Illinois, residents.).

In addition to health improvements for the newly eligible, the law’s implementation will also:

Ease the financial burden on health care providers. Through 2016, this legislation will bring an estimated $4.6 billion into Illinois in the form of Medicaid provider payments for newly eligible adults, with no net state costs for the care.
Help stabilize Illinois’s state budget. The Illinois State Budget, Townships, and General Assistance providers will be relieved from paying for coverage of those who are uninsured and are currently ineligible for Medicaid.
Benefit family economic well-being. New Medicaid will help reduce the financial burden that those who have private insurance pay towards the cost of uncompensated care. According to a report from Families USA, the average family with private health insurance pays an annual “hidden tax” of over $1,000 annually to offset the cost of uncompensated care.
Create new jobs in Illinois. Adding the new eligibility category to Illinois’s Medicaid program will bring in a large amount of federal funds, which will result in more economic growth and jobs. In Illinois, the total amount of federal Medicaid funding anticipated to accompany the expansion is over $21 billion dollars from 2013 to 2022, which could finance hundreds of thousands of new health care jobs.
Provide health insurance coverage to veterans. About 13,000 of the newly eligible for the Medicaid Expansion are returning veterans who will not be helped by the U.S. Department of Veterans Affairs.

This new adult coverage legislation, Senate Bill 26, sponsored by Senator Heather Steans and Representative Sara Feigenholtz, was supported by hundreds of business, health care, faith-based, community-based, and patient/consumer advocacy organizations. These supporters conducted public outreach, wrote articles and blogs, and attended the legislative sessions. Thank you to all of the legislators who voted yes on a bill that tackles one of the most fundamental justice issues of our time: access to health care.

Workers Need Paid Sick Days and Fair Wages, Not Increased Hours for No Pay

Wendy Pollack — Tue, 28 May 2013 10:01:49 -0600

Too often, workers have to choose between taking time off for illness and not receiving the wages they desperately need or showing up for their job despite their poor health or the poor health of someone they care for. For workers who support families, these decisions are even more difficult. In the absence of guaranteed leave for sickness or family obligations, workers fear losing their jobs or sacrificing their paycheck. Fortunately, there are viable solutions. Paid sick days help workers maintain a work-life balance, and an increase in the minimum wage would put more money in the pockets of low-income workers. We need to support policies that allow workers to take time off when they are sick and earn wages that keep their families out of poverty. But recent legislation that passed the U.S. House is a misguided attempt to give employers the ultimate deciding power and exploit low-wage workers.

Paid Sick Days

Paid sick days ensure workers are not forced to choose between their health and their paychecks. Hourly-paid employees in particular are made to feel that taking time off will jeopardize their jobs, and they often go to work despite their illness. This is called “presenteeism” and is estimated to cost our national economy $160 billion in lost productivity each year. Those who show up sick to work are often the same people who prepare our food or care for children—nearly three in four food service workers and child care workers don’t have access to paid sick leave, putting public health at risk (pg. 2-3). No one wants to work while seriously ill, but people who are supporting themselves or their families need every paid hour of work they can get. Unpaid time off has serious implications for the economic security of workers and their families. Just three and a half days of missed work is equivalent to an entire month’s groceries for the average family (pg. 1). Paid sick days clearly benefit workers, but they also help employers by reducing turnover, which can be very expensive. Five cities and one state have already introduced their own paid sick days laws with great success. San Francisco instituted a paid sick days law in 2007 and saw greater increase in job growth as well as business growth compared to the five neighboring counties. The movement in support of paid sick days laws is making progress in states across the country. Find out what is going on in your state. Additional information and resources are available here.

The Healthy Families Act

Now pending in Congress, the Healthy Families Act (H.R. 1286/S. 631) would set a national paid sick days standard, allowing workers to earn up to seven paid sick days each year. The Healthy Families Act would guarantee paid sick days for most workers, allowing workers in businesses with 15 or more employees to earn up to seven paid sick days each year. These sick days could be used to recover from illness, access preventative care, or care for a sick family member, which is a crucial problem for all working parents. The bill would give victims of domestic violence, stalking, or sexual assault the opportunity to use their paid sick days to recover or get much needed assistance.

The Fair Minimum Wage Act

The Fair Minimum Wage Act (H.R. 1010/S. 460) would help families prosper—nearly 28 percent of workers who would be affected by an increase are parents (pg. 8). Currently, a parent who works full-time, year-round at a job that pays federal minimum wage will not earn enough to be above the federal poverty line (pg. 3). We need to help families struggling to provide for children by paying workers wages they can actually live on. The Fair Minimum Wage Act would raise the minimum wage to $10.10 via three incremental increases of $0.95, and then index it to inflation. To put the present (and shockingly low) minimum wage of $7.25 per hour in perspective, if minimum wage had increased at the same rate of the average worker’s wages, it would be about $10.50 today (pg. 4). Leaving minimum wage workers behind will increase income inequality and keep families in a cycle of poverty.

The Paycheck Fairness Act

Women workers and their families would also benefit from the passage of the Paycheck Fairness Act (S. 84), which would target discriminatory pay practices that contribute to the persistent wage gap between women and men. The Paycheck Fairness Act would strengthen the Equal Pay Act to make investigation into employment discrimination against women more effective. Women earn, on average, $11,084 less annually than their male counterparts. This is especially hard on single mothers but also hurts two-parent families who rely on both parents’ wages.

The Working Families Flexibility Act

Unfortunately, the only proposal that has made progress in Congress so far is the Republican-backed Working Families Flexibility Act of 2013 (H.R. 1406), a bill with a misleading name that would actually undermine the Fair Labor Standards Act and force workers to spend more time away from their families by increasing overtime hours without paying workers overtime wages. The Working Families Flexibility Act, despite being bad news for all working families, passed the House on May 8th with a vote of 223-204 (with only three Democrats voting for the bill). The legislation allows employers the opportunity to give workers paid time off for overtime hours worked, instead of paying workers the overtime pay they have earned. Unfortunately, instead of making workers’ schedules more flexible, the bill will cause employers to increase workers’ overtime hours. Since they do not have to compensate workers for up to 13 months, the bill hands employers an interest-free loan for the amount of money they would have had to pay as time and a half wages. Because hourly-paid workers in today’s economy cannot say no to their employers without putting their jobs at risk, employees will be forced to choose comp time instead of pay. Provisions of the bill give employers all the power, including decisions as to when workers can take their comp time (this can be refused if it “unduly disrupts the operations of the employer”), and employers can even cash out comp time for wages if they choose to do so, leaving workers who had planned on having time off with no options. The bill provides no recourse for requests for time off that are unfairly delayed or denied and no protection for employees when businesses collapse or go bankrupt.

Take Action and Contact Members of Congress!

Contact both of your U.S. senators and your U.S. representative and let them know that you support the Healthy Families Act (H.R. 1286/S. 631), the Paycheck Fairness Act (S. 84), and the Fair Minimum Wage Act (H.R. 1010/S. 460) and would like to see all these bills move forward. In addition, let your senators know that you oppose the Working Families Flexibility Act of 2013 (H.R. 1406). Hopefully, this bill will not move in the Senate; however you should still let your senators know that you oppose this legislation. For Illinois residents, Senator Mark Kirk (R-IL) is a member of the Senate Committee on Health, Education, Labor, and Pensions (also known as the HELP Committee), which all of these bills have to pass through, so contacting Senator Kirk is particularly important. Thanks for taking action!

For more information, please contact Wendy Pollack, director, Women’s Law and Policy Project, Sargent Shriver National Center on Poverty Law.

CFPB Consumer Complaint System Shows Early Success

Karen K. Harris — Fri, 24 May 2013 13:27:51 -0600

For an agency that has existed for just under three years, the Consumer Financial Protection Bureau (CFPB) has accomplished quite a lot for consumers, breaking down the stereotype that all government agencies are slow, inefficient bureaucracies. In its short existence, the CFPB has already developed and implemented an efficient, user-friendly consumer complaint system that has allowed 131,300 consumers to file complaints regarding a range of financial products and issues. The Consumer Complaint System, developed in July 2011 to handle credit card complaints, has been gradually expanded to cover mortgages in December 2011, bank accounts and loans in March 2012, and most recently credit reporting in October 2012. In addition to handling civilian complaints, the CFPB’s Office of Consumer Response coordinates with its Office of Servicemember Affairs to track complaints from military servicemembers, veterans, and military family. The CFPB recently released two reports that provide an overview of the complaints filed to date: one report analyzes complaints by the general population and one analyzes complaints by servicemembers.

Both reports suggest that it is likely more effective for consumers to file complaints to companies through the CFPB complaint system than independently. Since its inception, the consumer complaint system has allowed the CFPB to recover an average of $145 for 9,300 civilian consumers as well as an average of $170 for 345 servicemembers. Companies are extremely responsive to complaints filed through this system, responding to 95 % of the complaints they received from the general public and 98% of complaints they received from servicemembers.

Mortgage complaints are currently the most popular type of complaint filed by both servicemembers and the general public. Nearly 50% of all consumer complaints (63,700) related to mortgages. For the most part, consumers who filed mortgage complaints through CFPB were “driven by a desire to seek agreement with companies on foreclosure alternatives.” Sixty-one percent of all complaints regarded problems in which consumers were unable to pay their mortgages. Out of the complaints received, 1,800 consumers received an average of $425 of relief from mortgage companies. Unfortunately the report does not include data on how many people were able to prevent or delay foreclosures or renegotiate mortgages. The growing body of evidence showing the structural racism embedded in the subprime mortgage crisis makes it clear that the CFPB’s role as an advocate on behalf of consumers in mortgage complaints is important.

In addition to advocating for consumers facing mortgage difficulties, there is a clear, demonstrable need for the CFPB to advocate for people facing credit score problems. In 2012 a CFPB report that examined the credit rating system’s infrastructure found that it is hard for consumers to resolve complaints because of the maze of contracted “data furnishing” companies. Earlier this year the Federal Trade Commission (FTC) released a long-awaited study on credit reporting accuracy that found that credit reporting agencies make errors on a massive scale leading to decreased credit scores for 26% of consumers for no fault of their own. With the data so clear, it seems obvious that consumers facing credit score problems need an advocate. Since the CFPB opened its credit reporting complaint system in October 2012, 6,700 consumers have filed complaints, 73% of which related to incorrect information in their credit reports. Credit reporting companies responded to 90% of the complaints they received, and out of the 3,900 company responses there have been just 600 situations (15%) in which the consumer was still not satisfied with the resolution. In the FTC study, on the other hand, 95% of consumers who found errors in their credit reports were dissatisfied with the credit reporting agency’s response. Thus, it appears that using the leverage of CFPB has led to substantially better outcomes for consumers compared to filing complaints individually.

Overall, for all types of complaints, after receiving a response from companies, most consumers using the CFPB complaint system did not dispute the response (73%). The majority of companies, however, did not respond with monetary relief. While most consumers sought monetary relief only 15% received such relief. Instead, 65% of complaints ended with the company providing a written explanation. So while in certain instances the consumer complaint system seems to be effective in resolving issues, it does not necessarily lead to reimbursement or compensation.

As the CFPB continues to expand the consumer complaint reporting database to more types of complaints, it will be important for advocates to monitor the efficacy of the complaint system and ensure that the CFPB has the capacity to pursue such complaints.

Illinois General Assembly Votes to Eliminate TANF Asset Limits

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

HB 2262, has passed the Illinois House and Senate and will be signed into law later this summer by Governor Quinn, who supported the legislation. HB 2262 is landmark legislation that eliminates the asset limit in Illinois's Temporary Assistance for Needy Families (TANF) program, the cash assistance program for needy children and their families. Rep. Robyn Gabel and Sen. Mattie Hunter were the bill's chief sponsors and are to be commended for their hard work in getting this difficult piece of legislation passed by a margin of two votes in each house.

Under current law, families with more than $3,000 in assets are not eligible for TANF. This has disqualified families in need with modest savings or a second care needed to get to work. It has also sent the message to low-income people that they should spend and not save. Passage of HB 2262 signals a new day where low-income families will be allowed and encouraged to take responsibility for their own financial futures and to build savings that will enable them to weather future adversity.

Asset limits were originally put in place to ensure that only the truly needy would qualify for cash assistance. However, as a result of the stringent work requirements imposed by the 1996 federal welfare reforms, asset limits are no longer necessary. TANF recipients are now required to engage in work-related activities for 30 hours per week to "earn" $432, a monthly grant for a family of three. This works out to $3.32 per hour. No person with alternative means would choose to receive TANF under these conditions.

In addition, the Illinois Department of Human Services (IDHS) has estimated that eliminating asset limits in the TANF program will save the state nearly $1 million in administrative costs annually. Last year, IDHS conducted 192,000 individual TANF asset reviews at a cost of $960,000.

Advocates have sought to eliminate asset limits in the TANF program for many years. Kudos to the Illinois Asset Building Group, a program of Heartland Alliance for Human Needs and Human Rights, the Woodstock Institute, and the Shriver Center for achieving this legislative success.

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.