The American Health Care Act Turns Right-Side Up Tax Credits Upside Down
By Chad Bolt on 03/23/2017 @ 10:00 AM
Editor's Note: On Friday, March 24, Speaker of the House Paul Ryan announced that there would be no vote on the American Health Care Act.
The House is poised to vote today on the American Health Care Act, the Republican Party’s legislation to “repeal and replace” the Affordable Care Act. Although the bill keeps some of the provisions of the current health law, it provides a massive tax break to the wealthy and to pharmaceutical companies and it changes the way states receive Medicaid funding from the federal government. An earlier version of the bill was scored by the Congressional Budget Office as causing 24 million Americans to lose their health insurance by 2026.
But one serious change the bill makes to current law is that it takes tax credits that are currently right-side up and turns them upside down. Unfortunately, that is consistent with the majority of provisions in our upside down tax code. Whether it’s dealing with homeownership, retirement or higher education – the more wealth you have, the more benefit you get from the tax code. We spend $660 billion each year helping the already wealthy build more wealth, while doing almost nothing to help Americans with lower incomes climb the opportunity ladder.
Tax Credits Under ACA: Right-Side Up
The Affordable Care Act (ACA) helped 23 million Americans gain health insurance coverage. 11 million of them gained coverage through the expansion of Medicaid and another 12 million gained coverage by purchasing private insurance through state or federal marketplaces with the help of tax credits.
These tax credits are among the most right-side up tax credits in the tax code. Simply put, that means they give the most help to Americans who need the most help.
That’s why ACA’s tax credits are such a rarity. ACA’s tax credits are primarily based on income, and the less income you have, the more help you get. For example, a single person aged 40 making $20,000 received an average tax credit of $3,337, but a single person aged 40 making $40,000 received an average tax credit of only $452. The tax credit assistance phases out completely when a single person reaches 400% of the Federal Poverty Level (FPL, about $48,000). This is right-side up.
Tax Credits Under AHCA: Upside Down
The American Health Care Act (AHCA) keeps the basic approach of using tax credits to help Americans afford health insurance, but flips it in a very significant way: the tax credits would be based primarily on age, not income. (The assistance does cut off at incomes of $75,000 and above.) The bill uses a flat credit, starting at $2,000 for those under age 30, $2,500 for those age 30-39, $3,000 for those age 40-49, $3,500 for those age 50-59, and $4,000 for those age 60 and older not enrolled in Medicare.
Take a single worker, aged 55, making $60,000. She would not have gotten any tax credit under ACA, but gets a $3,500 tax credit under AHCA. Compare her with another single worker, making only half that income, $30,000 – she would have received an average tax credit of $5,067 under ACA, but under AHCA she receives the same $3,500 tax credit. The tax credits under AHCA provide the same amount of help to both workers regardless of their income, so long as it is under $75,000. This is upside down.
Low-income Americans that receive significant help purchasing health insurance under the ACA’s tax credits receive much less help under AHCA. Vox, working with the Urban Institute’s Linda Blumberg, has an excellent tool to calculate the difference between credits received under each plan using CBO’s projections of premium costs. For example, a single person aged 26 with income of 140% FPL (about $17,000) sees a $76 increase in their monthly premiums moving from ACA to AHCA. A single person aged 46 with the same income sees a $243 increase in their monthly premiums moving from ACA to AHCA.
There are other problems with the tax credits under AHCA as well. They don’t grow at the same rate as medical costs, eroding their purchasing power over time. And they’re not adjusted for geography, meaning rural states are hit extremely hard.
Some workers – primarily young and healthy ones – do come out better under AHCA. And at the last minute, the House added a provision steering $75 billion toward affordability for older Americans not yet eligible for Medicare. But there are no details on this, just instructions for the Senate to come up with… something. It’s unlikely that the Senate will abandon the approach of basing credits primarily on age.
Despite these deficiencies, the House is planning to vote on this bill later today. By doing so, they take tax credits that are, for once, right side up and turn them instead upside down.
If you want to take action, call your Senator now in advance of this bill moving to the Senate. Tell them you don’t support taking critical tax credits away from workers that need them to afford health insurance. And tell them you support changes to the tax code to make it more right side up, so it provides the most assistance to those who need it most.
The Need to Defend Promising Efforts to Protect the Retirement Security of Millions of Workers
By Anju Chopra on 03/22/2017 @ 01:00 PM
While this country may be deeply divided on a number of issues, there is one subject that most people seem to agree on - that lots of households in this country do not have enough saved up for retirement. The results of a recent survey on retirement in America found that close to 90% of participants feel the country is facing a significant retirement crisis, and estimates suggest that more than half the workers in this country have no employer-sponsored retirement plans. This amounts to tens of millions of people with little or nothing to retire on.
Reported by the National Institute on Retirement Security (NIRS), the survey also reveals a lack of satisfaction with the actions the federal government has taken to close this gap. Approximately 85% of respondents said they do not think Washington understands the challenges faced by ordinary people when it comes to saving for retirement, and a similar percentage think the leadership in Washington should be doing more to address the issue.
Indeed, while Washington has come up with some retirement savings vehicles for uncovered workers - like myRA – it has yet to enact a program that would substantially reduce the number of people without savings plans.
The Good News
Faced with this federal inactivity, states have started to step up to the plate and enact innovative programs of their own that are aimed at ensuring the retirement security of their workers. State-run automatic enrollment programs are particularly promising initiatives. These programs set up retirement accounts for uncovered workers automatically, which they can opt out of at any time. Managed by the state, they alleviate some of the administrative burdens that keep employers – particularly small businesses – from offering retirement benefits.
These and other state-facilitated programs have the potential to provide retirement savings for a significant number of uncovered employees. Five states – California, Oregon, Illinois, Connecticut and Maryland – are in the process of developing programs, which research suggests could cover as many as 13 million workers. Many more states are considering them, and the NIRS survey indicates these programs are very popular. Seventy-five percent of respondents said they support state programs and more than 80% said they would participate if given the chance.
The Bad News
Unfortunately, there are actions taking place right now in Congress that could put these up-and-coming programs in jeopardy and discourage other states from considering them. Last year, the Department of Labor passed regulations that make these state-run programs simpler and safer to adopt.
Now Congress is trying to repeal them, using a little known law called the Congressional Review Act. In February of this year, the House of Representatives passed H.J. Res 66 & H.J. Res 67, resolutions that would abolish these regulations and bar the passage of any “substantially similar” agency rulemaking in the future. Then in early March, the Senate introduced S.J. Res 32 & S.J. Res 33, companion resolutions that would do the same thing.
What You Can Do
H.J. 66 & 67 and S.J. 32 & 33 may be coming up for a vote in the Senate very soon. We are urging people to call their Senators and ask them to vote ‘NO’ on all of these resolutions, which would make the already difficult problem of retirement security even worse. If you need contact information for your Senator, click here.
If these resolutions pass and the status quo is maintained, a lot of people are going to enter retirement without enough money, creating an untold number of hardships. That so many people could experience financial instability after working for years is a sobering prospect. It is time to oppose these resolutions and any other efforts to undermine the right of a state to implement innovative policy solutions to look after the retirement security of their citizens.
EITC: Enhancing Health and Wealth
At CFED, we’ve been diving deep into exploring the link between health and wealth. It seems like every day new evidence is coming about how one’s mental and physical health affects one’s financial health (and vice versa) alongside examples of how those connections come to light in practice, such as the integration of financial capability services into community health centers (CHCs). One of the most exciting connections we’re seeing in this space is between the EITC (Earned Income Tax Credit) and health.
The EITC is the most effective anti-poverty tool in the tax code. Last year, 27 million filers claimed the EITC, receiving an average benefit of $2,454. Significant expansions of the credit were made permanent in 2015, ensuring that approximately 16 million families – including 8 million children – won’t be pushed deeper into poverty. Many workers use their EITC benefit to pay down debt, set money aside to save, or make repairs to their car or home. The EITC is a rarity on Capitol Hill these days: because of its proven track record, it enjoys strong bipartisan support.
The long term benefits of the EITC have been studied as well. This means improved test scores in school, boosted college enrollment, increased earnings as adults and, finally, higher Social Security benefits in retirement.
In addition to those significant and wide-ranging effects, new research from Columbia University’s Mailman School of Public Health finds that receiving the EITC improves health outcomes as well. Researchers looked at data from 1993 to 2010 and found that receiving the EITC increased health-related quality of life and extended life expectancy. It also suggests that the EITC may be more effective than some health interventions in improving health outcomes.
The larger the EITC benefit, the more significant the improvement in quality of life. Researchers found that recipients living in states that had their own state-level match of the federal EITC gained additional quality of life over recipients in states that do not. Similarly, families that receive a larger EITC benefit because they have children gained more quality of life than single workers only eligible for a very small EITC benefit.
Along with the research indicating this connection, the link between EITC and health is coming out in practice, too. In early March, CFED featured StreetCred on our webinar about Your Finances, Your Health: Making the Health/Wealth Connection. StreetCred is an innovative organization that brings tax preparation into pediatricians’ waiting rooms at Boston Medical Center—a safety net hospital that serves many of Boston’s most vulnerable families. Recognizing the importance of EITC and its association with improved health, StreetCred works to help families access those credits more easily during their visits to pediatricians. In its first year, this program returned over $400,000 in tax refunds to almost 200 families. With the success of this program, StreetCred is now reaching out into the community health center (CHC) space to spread this momentum every further to the communities who most need these services.
This link between the EITC and health outcomes is just one more reason Congress should build on the success of EITC by expanding benefits to workers not raising children and empowering workers to save through a Rainy Day EITC program. While researchers noted that additional randomized control trials are needed to further demonstrate the EITC’s effects on health, we know that the EITC improves economic outcomes for workers and educational outcomes for children. Now is the time to protect and expand this critical program.
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Skinny Budget Starves Critical Programs
President Trump released his “skinny budget” earlier today – a document that is both a broad outline of his priorities and a troubling budget forecast for low- and moderate-income families trying to get ahead. It is not a budget that will help build an opportunity economy. It comes on the heels of an Affordable Care Act “repeal and replace” bill that turns tax credits to help Americans afford health insurance upside down and was scored by the Congressional Budget Office as causing 24 million Americans to lose their health insurance by 2026. It was accompanied by $33 billion in supplemental requests for the current fiscal year for additional funding for the Department of Defense and the Department of Homeland Security, to start building a wall on our southern border.
Light on details, the FY18 budget includes a $54 billion increase for defense spending, offset by commensurate cuts for “non-defense discretionary spending,” or the part of the budget that funds housing, consumer protection, community development and some safety net programs. These cuts underscore just how devastating this budget would be for low- and moderate-income families. The budget also exacerbates the ever-growing gap between the wealth of white households and households of color, by cutting or completely eliminating programs that make targeted investments in communities of color.
It’s important to reiterate up front that Presidents’ Budgets are usually very different from what Congress eventually adopts. Congress has its own prerogatives and priorities that will be debated over the next few months, first in what are called “budget resolutions,” expected in early spring. The budget resolution sets overall spending levels to begin the appropriations process, which determines specific program-by-program funding levels. In recent years, the whole process did not conclude until December. Along the way, Congress will likely make significant changes to the President’s budget, although it’s not clear yet where or by how much.
Nevertheless, this is a very challenging point from which to start the budget process for advocates for low- and moderate-income families. While there are very few specifics in the budget, highlights (really low-lights) include:
The budget proposes cutting programs that support low-income households and make up the first rungs of the ladder of opportunity that lead to financial security. While there are no specifics on the Assets for Independence (AFI) program, the budget proposes an 18% cut for the U.S. Department of Health and Human Services (HHS) – over $15 billion. These cuts include the elimination of the Low Income Home Energy Assistance Program (LIHEAP), which assists low-income families with energy costs, and the Community Services Block Grant (CSBG), which supports families in poverty with services that include housing, employment and nutrition.
Though it does not appear that the Supplemental Nutrition Assistance Program (SNAP) is at risk for now, the budget does propose a cut of $200 million to the U.S. Department of Agriculture’s Women, Infants and Children (WIC) program that provides nutritional and health supports to low-income women and their children.
Several independent agencies and commissions that support low-income communities are also being recommended for elimination, including the U.S. Interagency Council on Homelessness, which works to reduce our homeless population, the Legal Services Corporation, which funds free civil legal assistance for low-income households, and the Corporation for National and Community Service, which funds the AmeriCorps program, mobilizing Americans to serve vulnerable populations.
Housing and Community Development
The President's budget slashes spending on programs that support affordable housing and homeownership opportunities for low- and moderate-income families. The U.S. Department of Housing and Urban Development (HUD) receives just $40.7 billion in discretionary funding, a $6.2 billion reduction from 2017 levels. Notably, the budget only identifies $4.1 billion in program reductions of the $6.2 billion that that it eliminates from HUD. This 13% cut to HUD puts critical, asset-building programs like the Family Self-Sufficiency (FSS) program at risk of ending up on the chopping block.
A number of important programs that help make homeownership safer and more affordable for low-income families are also singled out in the budget for elimination. These include the Community Development Block Grant (CDBG) program, the HOME Investment Partnership Program, Choice Neighborhoods, the Self-Help Homeownership Opportunity Program and Section 4 Capacity Building for Community Development and Affordable Housing. It also eliminates the Department of Energy’s Weatherization Assistance Program and the Environmental Protection Agency’s Energy Star program, which help families lower their energy bills.
NeighborWorks America, the Delta Regional Authority and the Appalachian Regional Commission would also be eliminated under this budget. These are organizations that give an economic and social boost to distressed, primarily low-income communities by improving job opportunities, investing in business development, identifying community leaders, improving infrastructure and transportation and developing programs that contribute to community health and wellness.
Finally, the budget eliminates $210 million in funding for CDFI Fund grants, asserting that the 20-year old program supports a “now mature industry where private institutions have ready access to the capital needed to extend credit and provide financial services to underserved communities.” The Fund, which continues to see increased demand for grants, invests in low-income communities and administers the New Markets Tax Credit, which continues to help attract needed private sector investment in distressed communities.
In line with the rest of his budget, the president’s regulatory focus is light on details as he focuses only on his action to enact a government-wide regulatory freeze and his two executive orders to curb regulations and enforce his regulatory agenda. Overall, despite the president’s focus on reining in burdensome regulatory costs and unnecessary regulations that cost jobs, consumer choice and economic growth, his budget’s focus on this issue is limited to a total of three pages.
While this may seem like a victory, the next budget will likely not be light on details or friendly to various agencies working to protect families in the consumer financial market as well as in other aspects of life, such as housing and retirement. If anything, the president’s initial take to eliminate 62 agencies and programs—many of which have shown to be effective in providing much-needed resources and support to communities and families throughout the country—indicates where the next round of cuts will come.
Key among future possibilities are reductions and changes to the Consumer Financial Protection Bureau (CFPB), which in just six short years has done a lot on behalf of families everywhere. In fact, despite being labeled as inefficient, the six-year old investment taxpayers have made to the agency since it opened so far has yielded a return of $4 dollars for every $1 spent. Overall, that’s resulted in nearly $12 billion being returned back to about 30 million consumers. The Bureau has not only been efficient with its resources, it’s also been effective as well. Through its supervisory and regulatory powers, the CFPB has not only given a voice to consumers through its complaint system, it’s also established rules to protect consumers across a number of markets, including mortgage, credit card and payday lending markets.
If the president truly believes “the American people deserve a regulatory system that works for them, not against them—a system that is both effective and efficient”, then his budget should strengthen, not eliminate or weaken, agencies like the CFPB and others that are protecting families against unfair, deceptive and predatory financial practices.
The budget proposes a $500 million cut to the Department of the Treasury, a 4.4% decrease from last year. This includes cutting $239 million by “diverting resources from antiquated operations that are still reliant on paper-based review in the era of electronic tax filing.” There are no further details on this proposal at this time, and the budget doesn’t come close to specifics on the funding level for Volunteer Income Tax Assistance (VITA) grants.
More Left Out and More to Come
Notably, the budget released today leaves out a number of components that are normally included in a budget – even “skinny” ones released in the first year of an administration. A summary of policy changes, revenue and tax policy proposals, entitlement reform proposals, and economic assumptions were all not included. OMB Director Mick Mulvaney has said we can expect more details on these components, along with program-by-program specifics, in May.
A budget that builds an opportunity economy would have proposed strengthening the Earned Income Tax Credit and integrating financial capability into Community Health Centers. It would have supported the CFPB and helped put affordable homeownership in reach for all Americans. And it would have included administrative actions to close the ever growing wealth gap between white households and households of color.
What can you do? If you haven’t already, sign up for one or more of our campaigns to stay on top of the latest developments and opportunities to defend and advocate for our priorities. The nuts and bolts of the budget process – including committee hearings and appropriations requests – often take place well below the headlines. Make sure you’ve signed up so we can let you know when these key opportunities for advocacy are coming up.
Upset about these cuts to programs you support? Contact your members of Congress and tell them you do not support these massive budget cuts. This is just the first of more bad news to come, but if we stick together and push back against policies and budgets that don’t reflect our priorities, we can lessen the impact – if not score outright victories for the opportunity economy.
Building on What Works: Congress Can Strengthen the EITC by Expanding and Simplifying Eligibility
By Chad Bolt on 03/15/2017 @ 06:00 AM
Depending on who you talk to in Washington, tax reform is either charging full steam ahead or it’s completely dead. Either way, if Congress and the Trump Administration want to make the tax code work for working people – and not for corporations and the wealthy – they will focus on turning our upside down tax code right side up. This means reforming the biggest areas of wealth-building expenditures in our tax code – higher education, homeownership, and retirement savings – so that they actually help people who need the most help.
Opportunities to Strengthen EITC: Expanding to Workers Not Raising Children and Rainy Day EITC
But one right side up program that actually does help people who need it most is the Earned Income Tax Credit, the most effective anti-poverty tool we have. Last year, 27 million tax filers claimed the EITC, receiving an average benefit of $2,454. Many tax filers used their refund to put money aside for an emergency, pay down debt or invest in a long-term asset. The EITC has a proven track record of success and has long enjoyed bipartisan support.
Recent expansions of the EITC were made permanent at the end of 2015, ensuring that 16 million families won’t be taxed further into poverty. This was a major win for anti-poverty advocates, but Congress still has opportunities to strengthen the EITC with further expansion in eligibility and reduction in improper payments.
One major omission from the 2015 expansions were so-called “childless workers,” or workers not raising children. The disparity in benefits for a single worker not raising a child and a single worker raising a child is huge: $215 vs. $3,373 in 2016. Workers aged 24 and under not raising children are not eligible for the EITC at all. Not only are these workers taxed further into poverty, these non-existent or very small benefits provide little or no incentive to enter the labor force, which is one of the main purposes of the EITC. Congress should expand eligibility to these workers and increase the level of benefit, as Congressman Richard Neal’s Earned Income Tax Credit Improvement and Simplification Act does.
Another way to strengthen the EITC is to use it to empower tax filers to save for emergencies. First proposed by the authors of It’s Not Like I’m Poor and then introduced as legislation by Senators Jerry Moran and Cory Booker, the Rainy Day EITC proposal would allow filers to defer 20% of their EITC benefit for six months. Recognizing that many Americans living in poverty do not have $400 to cover a financial emergency, the Rainy Day EITC would empower filers to save up for those inevitable moments – 20% of the average EITC benefit is $480.
Further Reducing Improper Payments
Even though EITC improper payments represent a tiny slice of the overall tax gap and Congress recently passed “the most robust improvements to address waste, fraud, and abuse in the tax code in nearly 20 years,” the specter of “fraud” persists. As the Center on Budget and Policy Priorities points out, “the EITC’s ‘improper payment rate’ is not a ‘fraud rate’ and shouldn’t be characterized as such. Congress should increase the EITC benefit for workers not raising children, which would reduce the disparity in benefits between EITC claimants who are raising children and are not raising children. To further simplify eligibility and reduce confusion over which children qualify, the IRS should rely on the residency determinations of other benefit programs like TANF, Housing Choice Vouchers, SNAP or state benefit programs.
Finally, Congress should establish minimum competency standards for paid tax preparers. Paid tax preparers are more likely than any other type of preparer to file inaccurate returns and 68% of EITC filers use a paid tax preparer to file their taxes. The vast majority of paid tax preparers are not required to meet minimum standards of competency like passing a certification test or engaging in continuing education to demonstrate that they have an understanding of current tax requirements. The Volunteer Income Tax Assistance program – with its 94% accuracy rate – is a model for such competency requirements. Congress should establish standards to further reduce EITC improper payments.
As Congress considers tax policy over the next few months, whether it’s tax reform or just tax cuts, they should seize these opportunities to build on and strengthen a feature of the tax code that we know works well for working people.
CFED Collaborates with National Partners to Launch Tax Alliance for Economic Mobility
By Chad Bolt on 03/09/2017 @ 09:00 AM
The federal government spends $660 billion every year on wealth-building subsidies to help Americans save for college, homeownership and retirement. The problem? These wealth-building programs are upside down—meaning they help the already wealthy build more wealth, but help families at lower income levels very little. As one piece of our broader strategy to flip this upside-down tax code right-side up, CFED partnered with PolicyLink to launch the Tax Alliance for Economic Mobility last week, a coalition of national organizations committed to building a tax code that is more inclusive, progressive and equitable.
CFED’s investment in the Tax Alliance couldn’t be timelier. With Congress gearing up to make changes to tax policy in some way—whether in the form of broad tax reform or simply via tax cuts—making sure the tax code works for everyone has never been more important. The Tax Alliance is made up of nearly 40 national advocacy organizations, racial justice groups, think tanks and tax experts coming together to ensure that tax reform debates move in the direction of equity, not exclusion. Organized around four broad areas of tax policy—homeownership, higher education, retirement and tax credits for low-income workers—the Tax Alliance has four working groups that respond to legislative proposals and looming congressional threats to an equitable tax code. The Tax Alliance has published four principles documents describing each of these areas.
The work of the Tax Alliance is fueled by a diverse group of leaders, but our success also depends on you. We’re committed to leveraging the Tax Alliance to deliver the tools and resources you need to be an effective advocate for inclusive and equitable tax reform. On our new website, you’ll find a series of resources and publications that explain key issues and how you can engage. There, you can also connect with the member organizations, all of which are respected leaders inside the Beltway and nationally on issues that affect the financial well-being of the most economically vulnerable communities. And, if you sign up for updates, you can receive periodic updates about recent developments on the national tax reform stage, including our brand-new newsletter.
The members of the Tax Alliance span a broad range of interests and missions, but they are united for a tax code that is more inclusive, progressive and equitable. We hope you’ll unite with us as we work to make this vision a reality.
President Trump & Congressional Republicans Are Putting the Interests of Wall Street over Working Families
By Emanuel Nieves on 02/07/2017 @ 11:00 AM
By Seeking to Repeal Common Sense Financial Regulations, President Trump Sides with Wall Street over the Forgotten Men & Women that Elected Him
Last Friday, President Trump signed an executive order that would begin the process of rolling back critical financial regulations and consumer protection laws, including the landmark Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The order, signed after a meeting with a number of business executives, establishes a set of core principles for what the administration believes would constituent prudent financial regulations and instructs the Treasury Secretary to conduct a sweeping review of financial regulations to determine if current rules are promoting or inhibiting these principles.
Framed as a way to remove burdensome regulations, the exercise authorized by the President will only serve as a road map to weaken or eliminate common sense Wall Street reforms and consumer protections. Although the order does not get into specifics, we imagine that the review will target the good work done by Consumer Financial Protection Bureau (CFPB), which in just five years has returned $12 billion to 29 million wronged consumers across the country.
Yet, despite the value Dodd-Frank and the CFPB have demonstrated to working families, coupled with the fact that then-candidate Trump himself said he would not let “Wall Street get away with murder”, this action is another affirmative statement that it’s ok for Wall Street to continue with the same behavior that led to the 2008 economic crisis. Given that this behavior resulted in massive economic losses for the very same forgotten men and women he’s pledged to uplift and protect—including African-American, Latinos and Asian-American who lost more than half their wealth during the economic downturn—President Trump’s regulatory action will undoubtedly hurt working families.
Unfortunately, Congressional Republicans are Also Working to Block Consumer Protections That Would Protect Working Families
On the heels of President Trump’s Executive Order last Friday, Congressional Republicans in the House and Senate have begun to use an obscure piece of legislation—the Congressional Review Act (CRA)—to repeal several sensible regulations put in place by the Obama administration.
Among those efforts in one led by U.S. Senator David Perdue and U.S. Representative Tom Graves, along with several other congressional republicans, including Senator Johnny Isakson and Congressman Barry Loudermilk of Georgia, to block the CFPB’s prepaid card rule from going into effect. By using the Congressional Review Act, this action would not only block basic fraud protection and fee transparency protections from being extended to all prepaid card users, it would also indefinitely tie the CFPB’s hands from ever proposing a “substantially similar” rule the future.
Given the rapid growth in the prepaid card market over the past several years, including the fact in 2015 the FDIC found that nearly 10% of all underbanked households—over 12 million—used a prepaid card to manage their financial lives, blocking this common sense regulation should not be a priority for Congress. Instead of allowing prepaid card companies to make tens of millions of dollars in through costly fees, including overdrafts, or making it more difficult for these consumers to access their own money, Congress should allow the CFPB’s rule to take effect.
By doing so, these congressional republicans would ensure that American families that have been shut out of the mainstream financial system can enjoy in some of the same protections banking and credit cards consumers already have. Otherwise, congress is also just picking Wall Street over working families.
The CFPB Wants to Make the Debt Collection Industry Safer for Consumers
By Anju Chopra on 02/01/2017 @ 02:00 PM
In early January of this year, the Consumer Financial Protection Bureau (CFPB) released two new reports on the debt collection industry, and the findings are consistent with older agency reports that have exposed debt collection practices that undermine consumer safety.
One report is the first nationally representative survey of consumer experiences with debt collectors, like how often they were contacted by collectors, whether they disputed a debt, and whether they were sued by a collector trying to collect on a debt. The other report examines the online debt sales industry, a market that buys and sells unpaid debt, along with personal information associated with a debt, including Social Security numbers, addresses and phone numbers of alleged debtors.
The survey revealed that over half the consumers targeted by collectors stated they did not owe the debt, and more than a third were contacted four times or more per week about the alleged debt. The debt sales report reviewed approximately 300 portfolios that carried a collective value of $2 billion, yet the sales price was around $18 million, meaning on average, purchasers were buying portfolios at less than a penny on the dollar.
Fortunately, the Bureau is working on regulations aimed at curbing abuses in the debt collection industry. The latest indication of their current thinking on this subject was shared in an agency outline last summer, and today, CFED is releasing a high-level summary of these initial proposals. The Bureau will be releasing a more fully baked set of proposed regulations in the near future that will be open to feedback from the public, and CFED will be sharing them when they are released, as well as recommending ways to make them as strong as possible.
This summary follows the release of a policy brief and the hosting of a webinar on debt collection late last year, and kicks off a new blog series on various aspects of the industry like medical debt and private collectors moving into the tax space, that will be shared over the next few weeks. Going forward, we will continue to engage in this space to share developments related to the industry and advocate for strong protections.
Why the Earned Income Tax Credit is Essential to the Opportunity Economy
By Rebecca Thompson on 01/27/2017 @ 11:00 AM
Since 1975, the Earned Income Tax Credit (EITC) has been among the most powerful anti-poverty tools in our country. Because the EITC is a fully refundable tax credit that puts money back into the hands of hard-working taxpayers, it often represents the largest windfall of cash that low- and moderate-income households receive in a given year. As such, the EITC is a critical income support that helps hard-working Americans overcome financial challenges and put a little away for a rainy day, all while fulfilling their civic obligation to pay their taxes.
In recognition of this powerful tool, the IRS has declared today EITC Awareness Day. Now an annual event, EITC Awareness Day is dedicated to raising awareness of, protecting and expanding the EITC. Throughout the month, CFED and the Taxpayer Opportunity Network have been working with our partners in the field to take advantage of this important opportunity, as protecting and expanding the EITC is critical to our mission of expanding economic opportunity.
As we celebrate EITC Awareness Day today, it is also critical that we recognize the important role that Volunteer Income Tax Assistance (VITA) programs play in connecting taxpayers with the EITC. VITA programs provide free, high-quality tax preparation services to low-income workers, and these services not only connect families with the EITC, but also to a range of other financial capability and asset-building services in their community. As such, EITC Awareness Day is a prime opportunity for CFED and the Taxpayer Opportunity Network to say “thank you” to the thousands of VITA volunteers across the country who make the important work of community tax preparation possible.
EITC Awareness Day affords us the opportunity to carry the message of the value and effectiveness of the EITC far and wide, encouraging all who may be eligible to seek out and claim the credit, and to lift up our collective voice with our elected officials at the local, state and federal levels to protect and expand the EITC to help as many taxpayers as possible.
Interested in using your voice to protect and expand one of the most powerful anti-poverty programs in the US? Download our EITC Awareness Day Toolkit for more information, resources, templates and tips for how you can make a difference!
President Donald Trump Won't Help the Working Class by Attacking the CFPB
By Jeremie Greer on 01/26/2017 @ 12:00 PM
Editor's Note: This article was originally published at U.S. News on January 25, 2017.
Donald Trump has just been sworn in as our next president and already newly emboldened congressional Republicans are planning assaults on an agency that exists to help all consumers, regardless of party affiliation. And they’re doing so even though Trump ran on a platform of protecting working-class Americans.
The agency is the Consumer Financial Protection Bureau (CFPB), part of the Dodd-Frank reform package enacted by Congress to rein in the excesses of the banking and finance industry in the wake of the Great Recession. The CFPB was created with the recognition that products like mortgages, credit cards and student loans involve some of the most important aspects of people's lives. It's the first and only federal agency dedicated to protecting consumers in the financial marketplace.
In the six short years since its formation, the CFPB has collected and sent back to consumers $12 billion (that's billion with a "b") from financial service companies that have preyed upon U.S. consumers. It now is finalizing a "payday rule" that finally would bring basic protections to an industry that costs Americans more than $8 billion annually in interest fees.
And the response from Congress? Two Republican senators have called on Trump to fire the CFPB's director, Richard Cordray. The chairman of the House Financial Services Committee has introduced a bill that would gut much of the bureau's regulatory authority and replace the office of director with a five-member commission subject to congressional oversight and appropriations. And Trump's own transition team now is promising to dismantle the 2010 Dodd-Frank law, suggesting it's produced nothing but "bureaucratic red tape and Washington mandates."
So what type of red tape and mandates are we talking about?
Over and beyond the $12 billion returned to consumers through enforcement actions, the CFPB has introduced strong new mortgage disclosure forms that have improved the market and gone a long way to rectify the predatory lending practices that were rampant before the financial crisis. The agency's consumer complaint database has given Americans a vehicle for getting attention and help for problems with financial institutions. And the bureau has conducted research and outreach to millions of people so they better understand their finances and can access good financial products.
Moreover, the CFPB has or will soon introduce strong new rules in several markets beyond the payday rule to improve fairness and transparency for consumers, including in the areas of prepaid cards, overdraft offerings and arbitration requirements. Congressional critics say the rules and enforcement actions of the CFPB are holding back lending and the economy in general, but the evidence isn't there to support that. Lending in mortgages and other financial products is approaching pre-crisis levels, unemployment is under 5 percent and the stock market is approaching all-time highs.
So what's the real fallout if Trump goes along with the congressional assault?
Replacing the director with a commission would bog down the agency's work and mire it in politics, similar to what's happened at the Securities and Exchange Commission. Moving the funding of the CFPB from the Federal Reserve System to Congress would not only add to the deficit, but would allow Congress to stymie the work of the bureau by starving it of funding. Congress has done the same to the SEC and the Internal Revenue Service, greatly reducing their effectiveness.
Families would lose protections from predatory products that could leave them mired in debt and unable to pay for basic living expenses, let alone save or build wealth to get ahead. And if arbitration rules were overturned or watered down, consumers would have no ability to hold financial institutions accountable for predatory practices and would never be able to have their day in court.
Last fall, Treasury Secretary Jacob Lew testified to Congress that the law and associated regulations absolutely had made the financial industry safer and that it made no sense to roll back those protections. Even the financiers are urging caution; Goldman Sachs CEO Lloyd Blankfein says it might be appropriate to review some parts of Dodd-Frank, but he wouldn't "want to repeal in toto."
A partisan backlash against federal regulation is not what we need right now, particularly when an agency is doing the job it was chartered to do. The CFPB should remain independent and encouraged to continue its work on behalf of all consumers.
From Talk to Action: What The Next Administration Can Do to Help Close the Racial Wealth Divide
By Emanuel Nieves on 01/19/2017 @ 10:00 AM
This is it. 72 days after the 2016 Presidential election came to a surprising end, the inauguration of President-elect Trump is upon us. Despite the various feelings that may come with tomorrow’s inauguration, the peaceful transition of power will conclude in about 24 hours from now when President-elect Trump is sworn in as the 45th President of the United States.
Once the inaugural ceremonies conclude, President Trump and his team will face the difficult task of not only governing and leading a deeply divided country but also turning many of his pledges into reality. Given what we’ve learned during the campaign and since it ended, President Trump will be heavily focused on accomplishing much of what he’s laid out in his First 100 Days Agenda, which includes a number of ambitious and troubling items such as the undoing of a number of Obama-era executive actions as well as action to weaken the Affordable Care Act.
Given the real impact that a number of President Trump proposals will have on some of our most vulnerable individuals and families, CFED has been working diligently over the past several months to ensure that we’re ready to defend and strengthen affordable homeownership and safety net programs, consumer protections and tax policies that we view as instrumental towards building an opportunity economy that works for all. As a first step towards fulfilling this goal, this past September we released A Federal Policy Blueprint to Close the Ever-Growing Wealth Gap, which outlined a number of wealth-building, inequality-reducing, opportunity-expanding legislation and ambitious budget requests.
Today, as another step towards expanding economic opportunity for all, we’re proud to announce the release of a new publication—Administrative Actions to Close the Ever-Growing Gap (direct download here)—which proposes several ambitious administrative actions the Trump administration could enact to help solve the problems of financial insecurity and wealth inequality. These actions address seven issue areas:
- Rainy Day Savings
- College Savings
- Affordable Homeownership
- Retirement Savings
- Financial Capability Services & Tax Preparation
- Racial Wealth Divide
- Persistent Poverty and Community Development
While each issue area outlined in Administrative Actions is critically important to building an opportunity economy that works for all, we wanted to highlight one in particular that builds off President-elect Trump’s commitment to taking a number of actions the moment he becomes President as well as his expressed interest in tackling the economic realities facing African Americans and other communities of color. This interest has been expressed through his ‘New Deal for Black America’ as well as through meetings with personalities such as Jim Brown, Ray Lewis, Kanye West, Steve Harvey and most recently Martin Luther King III. Thus, Administrative Actions presents the President-elect Trump with a singular action he can take during his First 100 Days to begin addressing the ever-growing racial wealth divide, which today amounts to households of color owning just a fraction of the wealth ($12,377) White households own ($110,637).
That action—which President Trump could take with just the stroke of a pen—is an executive action to authorize a government-wide audit to understand how current policies are affecting the racial wealth divide facing communities of color today. Given the role that federal policies have played in creating the racial wealth divide, understanding how current policies continue to shape the economic circumstances of communities of color is a necessary first step towards deliberately crafting policy solutions to close the divide.
As part of this executive action, President Trump should appoint a special advisor or ombudsman to coordinate the audit as well as advise him on unilateral actions he can take to address this pressing economic problem. To ensure the audit is as comprehensive as possible, President Trump should direct the ombudsman to make use of empirical tools that would quantify the economic impact of current federal policies and programs on the racial wealth divide.
In selecting these tools, the ombudsman should first look towards established methods, such as the Racial Wealth Audit framework co-developed by the Institute for Assets and Social Policy (IASP) at Brandeis University and Demos, which underpins a recent paper CFED and IASP co-published that assessed the impact that specific education policies would have on the racial wealth divide. In addition to these duties, the ombudsman should also assist in the development of a legislative agenda and public report that can increase public awareness of strategies that can reduce the government’s role in growing the racial wealth divide.
While the matters facing communities of color today might seem like an isolated problem only affecting a particular group of people, the changing demographics of our country tells us these problems will soon be relevant to everyone. In fact, according to recent research we conducted last year with the Institute Policy Studies, if nothing is done to lift up the economic opportunity of the children and their families now, the racial wealth divide will literally never close.
Once the inauguration ceremonies end and the focus shifts to governing, we hope that Administrative Actions provides President Trump with solutions that can turn his stated concern for communities of color and the places they call home into the actions needed to begin closing the racial wealth divide. By taking deliberate and substantial steps, President Trump can help to ensure that the racial wealth divide does not become a deeply ingrained feature of our future American life.
Congress Hears Your Voice! Making a Difference Through Effective Advocacy
By Arohi Pathak on 01/17/2017 @ 12:00 PM
The 115th Congress is busy transitioning to a new Administration—one that has already prioritized the interest of the corporate sector over that of the working families who sent them to the White House. Over the past several weeks, CFED has engaged with state and local Network members from across the country to send the new Administration and Congress an important message: we need an opportunity economy that works for all, one that allows us the chance to build a more prosperous future for our families and communities.
As Congress focuses on vetting President-elect Trump’s cabinet nominations, our state and local members have shared numerous stories and data with their members of Congress, asking them to hold these nominees accountable for their policy priorities and perspectives, while ensuring that the needs of consumers, working individuals and families and communities are protected.
Ben Carson’s nomination as Secretary of the Department of Housing and Urban Development (HUD)
- CFED shared stories with several Senators on the Banking, Housing & Urban Affairs Committee, showing the impact of HUD programs, such as Family Self Sufficiency (FSS) and housing counseling, which help families move toward self-sufficiency and independence. During the vetting of Dr. Carson’s nomination, we asked that Senators hold Dr. Carson accountable to protecting FSS, housing counselling and other HUD programs that help so many families build financial security.
Steven Mnuchin’s nomination as Secretary of Treasury
- Mnuchin has made no secret of his interest in chipping away at Dodd-Frank, the CFPB and consumer protections. Additionally, while at OneWest, Mnuchin was responsible for racially discriminating against people of color, barring them from the opportunity to own a home and foreclosing on tens of thousands of families. Along with our Network members, CFED shared data, testimony and stories with Senators on the Senate Finance Committee to show how the foreclosure crisis and predatory mortgage practices impacted communities and families in their state. We’re hopeful that this information will inform and arm Senators as they ask questions during the confirmation hearing to better understand Mnuchin’s views on protecting consumers as well on a range of other issues.
Rep. Tom Price’s nomination as Secretary of Health and Human Services (HHS)
- CFED shared stories and data with Senators on the Health, Education, Labor & Pensions (HELP) Committee to show how the Assets for Independence (AFI) program and other HHS programs help low-income families save for their future and move out of poverty. Our hope is that Senators vetting Rep. Price’s nomination will ask the Congressman how he plans to protect AFI and other programs to ensure continued investment in low-income communities.
These are your stories and your voices, and they are making a difference! In sharing your stories and data with Members of Congress, CFED has received great feedback about how this information will arm Members of Congress in:
- holding nominees accountable during the vetting process
- asking nominees tough questions about their priorities as leaders of key agencies over the next four years
- holding nominees accountable over the next four years to protect consumers and communities
CFED’s top priority in 2017 is continued advocacy at the federal level to ensure that we protect and strengthen the hard work that so many of you have engaged in over the past decades to create an opportunity economy. Such engagement will allow the Network to be a strong and credible partner to federal policymakers, it will highlight the incredible work that so many of you do on a daily basis, and it will enable us to fight for priorities that help build economic opportunity and access for all.
As President Obama eloquently reminded us during the final speech of his presidency on January 10, 2017, change is only possible "when ordinary people get involved" and join forces to demand progress. Together, we can demand change and progress. Your voices are important for effective advocacy and they are being heard loud and clear. Over the course of this year, CFED will continue to engage you in other actions to ensure consumers and families are not left behind at the expense of corporations and financial institutions. We hope you’ll join us in these efforts as we work to build an opportunity economy that works for all.
Thank you to all those who have engaged with CFED and shared this information with us.
One Easy Step to Improve Tax Return Accuracy and Protect Consumers This Tax Season
By Chad Bolt on 01/10/2017 @ 01:00 PM
In Washington, DC, all eyes are focused on a date less than two weeks away: January 20, Inauguration Day. Outside the beltway, another date this month looms large for hardworking taxpayers and tax prep volunteers across the country: January 23, the official kick off of tax season!
The new administration and the new Congress have an opportunity to improve tax return accuracy, reduce overpayments and protect tax filers during tax season by setting minimum competency standards for paid tax preparers. Currently, 46 states do not require paid preparers to meet any minimum level of training or expertise to charge filers to file a return on their behalf. Chances are, your hairdresser has undergone more training and certification than your paid tax preparer.
The lack of minimum standards has serious implications. A recent National Consumer Law Center and Consumer Federation of America review of mystery shopper testing studies found problems in as many as 90% of returns filed by paid preparers! In 2013, South Carolina had to permanently ban a tax services provider due to fraudulent claims that federal authorities estimate cost the federal government $55 million. Maryland established its own minimum standards at the state level after it stopped accepting tax returns from four groups of private tax preparers due to a high volume of suspicious returns and repeated compliance violations. Minimum standards would save the government money and protect consumers from predatory preparers that lack basic competencies.
Fortunately, we already have a model for implementing effective minimum competency standards: the Volunteer Income Tax Assistance (VITA) program. VITA must meet strict federal standards to ensure returns are accurately and efficiently prepared. Unlike paid tax preparers, local VITA programs are held to a national standard for tax preparer training, site administration and quality of tax preparation. Local VITA programs train and prepare volunteers, who must become certified according to strict IRS standards. To prevent identity theft issues, valid federal or state identification is required of all filers.
How have these standards affected VITA’s results? VITA’s level of accuracy has been steadily increasing over the years, from 85% in 2009 to 94% in 2015, despite increased demand for VITA services and stagnant funding. The 94% accuracy rate is one of the highest of any category of tax preparation services, including CPAs and major tax preparation services companies, and proves that minimum competency standards can have a marked impact on the quality of tax preparation.
Congress can improve tax return accuracy, particularly returns that involve the Earned Income Tax Credit (EITC), by establishing minimum competency standards. This is an easy but effective way to reduce overpayments without making the EITC more complex to claim or less beneficial to workers that claim it. The Joint Committee on Taxation has scored proposals to establish minimum competency standards as generating $135 million over ten years – in part because unenrolled paid preparers are more likely than any other type of preparer to file inaccurate returns. Even big tax preparation software providers and large tax preparation chains support this proposal.
Tax reform is sure to be a top priority in the 115th Congress. Any discussion of reforming the tax code should include this easy and commonsense measure that improves the accuracy of tax returns, reduces overpayments and protects tax filers.
You can help by calling your member of Congress and letting them know you support minimum competency standards for paid preparers. Or, if you are a member of the tax preparation community and have a story to share about someone you know who fell victim to an unscrupulous preparer, email CFED’s Federal Policy team so we can make sure members of Congress know how the lack of minimum competency standards affects their constituents.
New IASP/CFED Report Finds Universal Policies Designed to Help Students Succeed May Exacerbate the Racial Wealth Divide
By Emanuel Nieves on 12/20/2016 @ 01:00 PM
Too often, policies aimed at creating greater opportunity for low-income families have resulted in the expansion of the wealth divide between White families and households of color and perpetuating historic inequities. Although past policy choices—such as federally sanctioned housing discrimination and unequal distribution of G.I. Bill benefits—intentionally created the racial wealth divide, current policies continue to drive this gap. These findings and more are included in a new report released this morning by CFED and the Institute on Assets and Social Policy (IASP) called Equitable Investments in the Next Generation: Designing Policies to Close the Racial Wealth Gap, which calls on policymakers and advocates to ensure that investments will result in greater equity.
While there are a number of ways to begin addressing this ever-growing wealth gap, the simplest step policymakers and advocates can start to take is to ensure that policies aimed at creating greater opportunity for low-income families do not have the unintended consequence of expanding the wealth divide between White families and households of color and perpetuating historic inequities. As novel as that may sound, understanding the ways a proposal may affect household finances is critically important to closing the racial wealth divide.
Utilizing a new framework—The Racial Wealth Audit™—jointly launched by IASP and Demos, Equitable Investments focuses on the impacts universal education policy initiatives may have on narrowing or widening the racial wealth divide. In addition, the report also highlights how universal policies designed to help students succeed may exacerbate the racial wealth divide and what we can do to ensure that this doesn’t happen.
For example, the report highlights how universal policies to eliminate student debt could actually increase the racial wealth gap among young adults by nearly 10%, while targeted policies such as providing relief to households making $50,000 (roughly the U.S. median income) or less could reduce the racial wealth gap by 7%.
Although the Racial Wealth Audit framework can and should be applied to many other areas of policy design, it is just one tool to ensure that policies do not spread resources without consideration of need. As the example highlighted above shows, without consideration of need even well-meaning policies can direct resources to those with little financial need, thereby exacerbating the racial wealth gap.
By focusing on the ways in which policy design in the area of education shapes the racial wealth gap, we hope that Equitable Investments will foster a conversation about how policymakers can more effectively address pervasive and far-reaching inequality in the United States through intentional, well-crafted policies that place racial economic equity at the forefront of policy design considerations. Without such focus, our ability to reverse historically-rooted, racial economic inequalities will be greatly impeded.
Bright Spots for Financial Security in the Election Results
By Kamolika Das and Solana Rice on 11/17/2016 @ 12:00 PM
As the dust settles from tumultuous presidential and congressional elections, we are working to forecast and prepare for what is on the horizon for low- and moderate-income families. One thing we do know is that state and local policy will be even more important frontier in advancing financial security. Admittedly, the issue of household financial security took a hit in some parts of the country. For example, Right to Work is now enshrined in the Alabama constitution. We’re taking note of some wins in states and cities in the hopes that they will deliver more financial stability and security to low- and moderate-income families in the coming years.
Increasing income and protecting consumers
While not quite $15 an hour, voters in Arizona, Colorado, Maine and Washington approved ballot measures to increase the minimum wage to at least $12 an hour ($13.50 for Washington) by 2020. Arizona and Washington also approved a minimum of paid sick leave. All four states will adjust the minimum wage based on cost of living after 2020. Aside from the increases last week, other states and cities have either introduced legislation or vowed to pursue a referendum in 2017 for minimum wage hikes. The across-the-board approval of minimum wage increases demonstrate that regardless of changes to the federal minimum wage, states and select cities will continue to march ahead in the coming years. Ensuring a stable income is an essential pillar to financial security. For an overview of where your state stands on the issue click here.
There is also great news out of the Mount Rushmore State! South Dakota voters both protected wages for teenagers by rejecting a referendum that would have decreased the minimum wage people under age 18 from $8.55 an hour to $7.50 AND voters approved a 36% rate cap on payday loans. Advocates overcame both a well-resourced lobby and conflicting ballot measures. These are huge wins for low-income workers and consumers.
At CFED, we are aiming to turn the tax code right side up by ensuring that the tax code protects and supports low- and moderate-income workers in making ends meet, saving for their future and building assets that help weather a financial crisis. We saw voters across the country agree. Florida and Louisiana passed constitutional amendments on property tax exemptions to help tax payers save money. In Florida, Amendment 5 allows senior citizens to save on their property taxes as soon as they file for exemption, instead of waiting. Amendment 4 in Louisiana is exempting property taxes for widowed spouses of military personnel and first responders. Click here for additional ways that states can deliver property tax relief.
In Oklahoma, the bottom 20% of taxpayers pay 10.5 % of their income in taxes, versus just a 4.3% tax rate for the top 1%. Oklahomans took steps to reject an additional regressive sales tax. Despite the fact that the revenue would be used for an “Education Improvement Fund,” opponents to the increase recognized there are other ways to fund valuable things like teacher salaries that don’t disproportionately impact low- and moderate-income families.
Maine, on the other hand, decided to fund public education through a “3% surcharge on the portion of any household income exceeding $200,000 per year.” This increase will provide an estimated $157 million for public education funding that, according to a Maine Center for Economic Policy report, took a hit with two tax breaks for the wealthy since 2011. They project this being a help to closing the opportunity gap in a state where the number of low-income students are increasing.
Affordable housing has become another key issue in state and local races. At the state level, Rhode Island voters approved a $50 million Housing Opportunity Bond designed to expand affordable housing and improve blighted properties. However, the bulk of movement around affordable housing occurred in cities from Boston and Baltimore on the east coast to a slew of west coast cities. Boston voters approved a 1% property tax surcharge to fund affordable housing units, while voters in Baltimore approved an amendment to the city charter to create an Affordable Housing Trust Fund. Several measures in Los Angeles County, Orange County and the Bay Area could change the outlook for affordable homeownership in California. For example, voters in Alameda County overwhelmingly supported creating an Affordable Housing Bond to construct 8,500 units of affordable rental housing with the support of a slight property tax increase. Affordable housing measures expanded beyond just the west coast and Northeast – Asheville and Greensboro, North Carolina also voted to dedicate part of their annual transportation budget to affordable housing initiatives.
Do you have bright spots for financial security to share from your neck of the woods? Or are there particular policy challenges to financial security that you’d like our support on? Submit a comment below!
Celebrating Success and Reflecting on Lessons Learned at the Financial Inclusion Policy Action Initiative’s Pre-ALC Convening
By Craig Sandler on 10/13/2016 @ 09:00 AM
It was no surprise that ALC 2016 was packed with content, but there was exciting work being done during ALC week even before the conference officially began. For the past two years, CFED has been working on a three-year project with seven organizations funded by the Northwest Area Foundation’s Financial Inclusion Policy Action Initiative to build financial capability and security among Native and non-Native communities in the Northwestern region of the US. This cohort met early during ALC week in order to celebrate their accomplishments over the past two years of the grant, share their lessons and to chart a path for their work in the final year.
This two-day pre-convening event kicked off with a celebration of successes from the Initiative’s second year, highlighting the State and Tribal policy wins and successful advocacy that these partners engaged in over the grant. These wins included:
- Expanding revolving loan programs to foster minority and Native entrepreneurship
- Eliminating asset limits from state public benefit programs
- Defending against predatory and payday lending bills that would strip many consumer protections
- Expanding incentive savings programs for low-income individuals
- Building critical financial education skills and awareness in Native communities.
As advocates always must, these organizations wrestled with daunting obstacles that stood in the way of their policy goals. Adversarial legislators, powerful lobbyists from the predatory lending industry, barriers to coalition-building and effective engagement, and institutional challenges, such as lack of jobs or structural racism, all made their efforts to build financial capability in the Northwest region an uphill battle. These organizations, however, were successfully able to overcome many of these barriers, building the systems and momentum needed for policy change at the State and Tribal level. This impressive and inspirational achievement energized the cohort to dive head-first into their work for the final year of the grant, where they will continue to fight for financial security in low-income communities.
The cohort also discussed some of the lessons learned over the course of the year. For instance, one key insight that emerged is that even progressive legislators don’t always act in the best interest of their constituencies and districts. Sometimes, legislative allies turn out to be less supportive (or sometimes even obstructionist) than those with a lived experience working on the issues or with populations most affected by the proposed policy change.
Another insight was that coalition partners and other allies are not always well-equipped or comfortable in advocating for change, thus building the advocacy skills and comfort of these partners is necessary. Several organizations, including the Minnesota Asset Building Coalition (MABC), Neighborhood Partnerships, and the Idaho Asset Building Network (IABN), kept this valuable lesson in mind as they invested time and resources in helping build their coalition’s capacity and comfort in effective advocacy. For example, IABN created a series of webinars on advocacy skills, rules, and strategies that helped build the comfort of its Network partners. Other organizations, including MABC, IABN, and Neighborhood Partnerships, hosted advocacy days to educate policymakers on key financial inclusion issues at the start of their legislative sessions. Neighborhood Partnerships also hosted an ‘advocate’s college’ to train coalition partners on effective advocacy and engagement. These lessons, and others, shared during the cohort meeting will prove invaluable as the partners go into their final year of this project.
CFED is delighted to work with such an inspirational group of partners on the Financial Inclusion Policy Action Initiative. Being able to celebrate the amazing accomplishments they made during year two of their project, and reflect on lessons learned as they gear up for year three, was an excellent reminder of how lucky we are to work with this cohort. We would like to thank all of our cohort members and their partners for making our pre-ALC meeting such a valuable and memorable one.
CFED would also like to thank our partners who provide invaluable technical assistance on this project, including Seven Sisters Community Development Group, Center for Responsible Lending, First Nations Development Institute, Campaign for Every Kid’s Future, and independent consultant Tanya Beer. Finally, we offer a huge thanks to the Northwest Area Foundation for their vision and leadership in building financial security at the State and Tribal level.
#ConsumersCantWait Campaign Achieves Two Major Victories Last Week
Fresh off the heels of another great Assets Learning Conference which featured Consumer Financial Protection Bureau (CFPB) Director Richard Cordray as a keynote speaker, consumer advocates reached two major milestones with the Bureau this week.
The first victory came last week when CFED submitted our comment letter on the CFPB’s proposed payday lending rules to Director Cordray in an in-person meeting at the CFPB, along with a group of other representatives from the Stop the Debt Trap campaign. As part of the #ConsumersCantWait campaign, CFED and 90 organizations submitted a letter that contains 10 overarching recommendations for strengthening the proposed rule and putting an end to predatory practices in the small-dollar lending marketplace.
We hope these recommendations will be reflected in the final rule and want to thank all of you that have signed on to the letter and supported the Consumers Can’t Wait campaign. There is power in numbers, and the letter is strengthened by gathering so much support.
If that wasn’t enough excitement for one week, on Wednesday, the CFPB also released their final rules on the regulation of prepaid cards. The rules will finally bring strong consumer protections to a financial product that has been lacking any basic standards for many years. While prepaid card usage is skyrocketing among consumers from all income levels, low-income households and the unbanked are particularly common and routine users and more often rely on these products as their primary financing tool. We applaud the CFPB for releasing these rules and think they will help protect the financial health of many consumers, particularly those with the least!
Many of you may remember that CFED and the Assets & Opportunity Network commented on the proposed rules for these prepaid card regulations back in 2015. We are thrilled to report that many of our recommendations are reflected in the final rule bringing strong protections to this product for consumers and particularly for those that are more financially vulnerable. Below are more details on the substance of the final rules.
Both the release of the final prepaid card rules and the strong showing on our comments for payday lending rule demonstrate the power advocates can have to create meaningful change for low- and moderate-income consumers when we work together. CFED wants to thank you for all that you have done and will do to help make this happen. We couldn’t do it without you. The work by no means ends here and there will be future battles to be fought, but these important and hard-won victories deserve to celebrated!
CFPB's Final Prepaid Card Rules: An Overview
The CFPB’s rules on prepaid cards cover a number of products like general purpose reloadable cards, payroll cards, student financial aid cards and government benefits cards. They contain meaningful overdraft, disclosure and fraud protection provisions that are described in more detail below and should elevate the safety of these products in ways that already benefit debit card users. The final rule will take effect on October 1, 2017.
If a card allows overdraft fees to be charged, the credit extended will be regulated like credit cards, meaning the lender will have to determine a borrower’s ability to repay the extension, and users will be sent monthly statements, given a grace period for paying off the debt before late fees are allowed, and be protected against excessive fee amounts. This is welcome news, considering a majority of borrowers turn to these products precisely to avoid being subject to these fees.
The Bureau is requiring that fees and other important card characteristics be presented to consumers in a standard/uniform format across products, improving consumer understanding and making it easier for consumers to comparison shop before committing themselves to a particular card. There are also mandatory “short” disclosures that advertise core card fees and terms and “longer” disclosures with an across-the-board list of all product features for consumers to consult.
Protection from Fraud and Errors
If a borrower reports unauthorized activity in a timely manner (within two days), companies will be required to look into the complaint, and borrowers will be limited to no more than $50 worth of liability. This makes the protections for prepaid cards equivalent to those for debit cards and banks accounts.
Congratulations to advocates across the country who helped make these victories possible!
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Back By Popular Demand: Guides for Advancing State & Local Policy
By Solana Rice on 10/06/2016 @ 09:00 AM
Though you don’t always hear it, change doesn’t have to be daunting. In 2011, CFED published With a Stroke of a Pen, a report that offered 24 recommendations for advancing meaningful, moveable and manageable policies—ranging from children’s savings to higher education to retirement—designed to boost financial security. CFED’s State & Local Policy team is now transforming this framework into an ongoing series to highlight upcoming and trending state and local policies that have potential to advance financial health and well-being for vulnerable individuals and their families. This ongoing series will frame key challenges, present policy recommendations and propose concrete actions for advocates, making them an educational tool for the field and policymakers alike.
The first briefs in our series focus on inclusive retirement security, options for financing children’s savings account programs and youth financial capability in the workforce development context. While each brief is founded on policies and topics highlighted in the Assets & Opportunity Scorecard, they also succinctly outline action steps advocates can take to incorporate these issues in their policy platforms.
These particular briefs are timely given recent developments in the field. For example, the retirement security brief was informed by CFED partners in several states on the verge of implementing AutoIRA programs, which will make it possible for millions of workers to save for the future. Given new rules from the U.S. Department of Labor, we anticipate interest from many more states in the coming months.
As another example, through the new Workforce Innovation and Opportunity Act, the nation’s workforce development system now requires all workforce development plans to incorporate youth financial literacy. We teamed up with MyPath to identify ways that local workforce development boards and financial institutions can take this mandate a step further by fostering financial capability—the skills, knowledge and access needed to boost financial well-being—at the critical moment when young people are earning their first paychecks.
Finally, the brief on financing models for children’s savings highlights innovations that are emerging from Children’s Savings Account (CSA) programs. This brief—which targets key decision makers who have committed to the idea that all children deserve access to higher education regardless of their family’s economic background—explores ways to fund a CAS program.
We welcome your feedback about how you use these briefs, as well as which policy issues should be covered next in the series. We also invite you to find more state and local policy resources on our website!
Action Alert: Help the CFPB Curb Dangerous Payday Lending Practices
As you know, this past summer, the Consumer Financial Protection Bureau (CFPB) released its highly anticipated proposed rules for reining in the most predatory practices of the small-dollar lending industry. This market is notorious for trapping borrowers in costly cycles of debt, which drain over $9 billion from financially vulnerable households every year.
Over the past year, you have worked hard to promote the need of the communities and borrowers most heavily impacted by this market, both through our #ConsumersCantWait Campaign and through the collective efforts of the Stop the Debt Trap Campaign. It’s those efforts that have gotten us here, to the public comment period of the CFPB’s push to end the payday debt trap. We’ve finally reached the moment we’ve all been waiting for—the most important moment for taking action and ensuring the CFPB releases the strongest possible rule to protect consumers.
We applaud the Bureau for releasing a solid proposal – but that proposal needs improvements if it is to truly end the debt trap for all consumers. To do that, the CFPB needs to hear from as many advocates on the ground as possible.
As part of the comment period, CFED has written a letter that strongly backs the Bureau’s efforts, and recommends a number of ways the rule could be improved. As was reported earlier this month, payday lenders are actively—and openly—working to delay or defeat the CFPB’s efforts by adopting a number of aggressive schemes, including pressuring every single customer that comes to their stores “…to write out a handwritten letter [telling the] Bureau why they use the product, how they use the product and why this will be a detriment to their financial stability.”
In order to ensure the strongest rule possible and to push back against the industry and its hardline tactics, we need as many signers to CFED’s letter as possible. Let’s make sure small-dollar lenders do not succeed in their efforts to weaken the CFPB’s proposed rule.
Adding your voice is easy—simply click here for an executive summary that outlines our recommendations for making the rule as strong as possible. The deadline for signing on is October 4, so please don’t wait: sign on today!
If you have any questions about the rule or the comment letter, please reach out to Anju Chopra, Senior Policy Manager, at firstname.lastname@example.org.
Structural Challenges Continue to Characterize the State of the IDA Field
By Callie McLean, Graduate Intern on 09/08/2016 @ 10:00 AM
Earlier in the summer, CFED solicited responses to its 2016 Individual Development Account (IDA) Program Survey. The results are in, with many important insights on how we can support and grow the field of practitioners who make it possible for even the most vulnerable families to save. Among the good news, this year’s survey shows that a large majority of IDA programs receive federal funding, and that funding is largely remaining stable or growing. But the survey also reveals deep and pressing needs, such as training on raising the non-federal match funds that are essential to secure federal dollars.
IDAs help low- and moderate-income individuals and families save toward an asset like a home, an education, a car, a small business and more to build financial stability. These matched savings accounts can go a long way to help jump-start greater economic opportunity. CFED takes stock of the field annually to discern trends and impacts across IDA programs nationally. The survey data allow IDA programs to see how they fit in this wide-spanning field and help CFED determine how we can best support IDA providers.
CFED distributed the 2016 survey to the IDA Program Listserv and the Assets & Opportunity Network and received responses from nearly 90 programs nationwide. We offer our gratitude to all who took the time to respond.
- The funding picture looks more positive than in past years, Funding has remained stable for about half of respondents, while about one in three said their funding increased! Only 16% of respondents reported that their funding decreased. In addition, 80% of respondents reported receiving federal funding, making it the most common funding source (consistent with past years).
- Financial coaching is becoming widespread at IDA programs. Eighty percent of respondents indicated that financial coaching and education are the top financial capability services that they offer to their IDA program participants. These organizations also offer a large variety of additional services through partnerships or referrals. Similarly, 80% of respondents indicated that they engage participants through ongoing case management and financial coaching. Also notable was the slight uptick in the number of organizations using social media to engage clients (37% in 2016, compared to 23% in 2013).
- IDA staff are hungry to learn more about raising non-federal matching dollars and measuring impact. Sixty percent of 2016 respondents selected raising non-federal dollars for administration and/or participant match as one of the most important technical assistance topics they’d like to see, 55% selected measuring/evaluating the impact of IDA programs and nearly 50% selected developing effective funding proposals for non-federal funders.
New Legislative Innovations
In addition to understanding the needs of the programs in the field, CFED has also been hard at work incubating innovations in IDAs. Our most recent progress has been with the Refund to Rainy Day Savings Act. In addition to allowing tax filers to set aside and possibly receive a match on their tax refunds if they save a portion of their refund for six months, this legislation, introduced by Senators Cory Booker (D-NJ) and Jerry Moran (R-KS), would also enable grantees of the Assets for Independence (AFI) program to innovate by changing the types of asset purchases available to participants, changing the eligibility requirements or testing out new structures. If you are interested in learning more or signing on to support this legislation, email Ezra Levin, Associate Director of Government Affairs, at email@example.com.
Want to know more about the results of our survey? Download our PowerPoint presentation with graphs showing responses to questions asked of respondents. Have questions? Feel free to email IDAProgramSurvey@cfed.org.
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