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.
The Color of Patrimonial Capitalism
By Dedrick Asante-Muhammad and Chuck Collins, Guest Contributor on 09/07/2016 @ 02:00 PM
Editor's Note: This article originally appeared on the Huffington Post.
Without a course correction, French economist Thomas Piketty warned, we are hurtling toward a grotesquely unequal future. A future governed by a hereditary aristocracy composed of the progeny of today’s billionaires.
In his assessment, however, Piketty overlooked the “peculiar institution” of our nation’s original sin. The color of what Piketty calls our “patrimonial capitalism” will be almost exclusively white.
Progress in race relations has done little to narrow the racial wealth divide. If average black wealth grows at the same rate it has over the last 30 years, it will take another 228 years before it equals the amount of wealth currently possessed by white households.
If we stay on our current trajectory of unequal wealth growth, the wealth divide between white families and black and Latino families will double to about $1 million by 2043, the same year when households of color are projected to account for half of the U.S. population.
The legacy of discrimination in asset-building programs, which help people purchase homes, save for college or increase retirement savings, goes back generations and has a direct impact on the net worth of today’s families. Assets are a more durable measure of inequality than income, providing a buffer against economic downturns, both personal and societal.
Wealth plays an essential role in establishing financial security and opportunity for future generations. The average retirement savings for black and Latino households is $19,049 and $12,229, respectively, compared to $130,472 for White households.
Homeownership still stands as the most significant asset for low- and middle-income families. In the years after World War II, as the G.I. Bill propelled millions of white households into homeownership, discrimination in mortgage lending left most people of color behind.
The result today is an enormous gap in homeownership. More than 70 percent of white households own their home compared to less than half of black and Latino families.
The driving causes that both compound wealth inequality and worsen the racial wealth divide are overlapping but different. Policy preferences that favor asset owners over wage earners, such as low capital gains taxes and most global trade agreements, have supercharged the share of wealth flowing to the top one percent. The Forbes 400, a list exclusively of billionaires, now possesses a stunning $2.34 trillion — more wealth than the entire black population and one-third of the Latino population combined or a total of over 60 million people.
Policy inaction to reduce inequality, such as allowing the minimum wage to lag and diminished investment in higher education, undermine workers of all colors. Yet popular equalizing initiatives, such as raising the minimum wage or expanding college access, will not aid black and Latino workers in the same way it does for Whites. Homes in black and Latino neighborhoods do not appreciate at the same level as homes in predominately white neighborhoods. And the return on investment for black and Latino college graduates is significantly lower than Whites in terms of lifetime earnings.
So what course corrections are needed to reverse generations of racial economic inequality?
For starters, consider public programs aimed at asset-building and homeownership. These well-intentioned policies lack rigorous enforcement against predatory and asset-stripping products and services.
Low-wealth households often must rely on alternative financial services, such as payday loans, prepaid cards and check-cashing. In some cases, these services take away as much as 10 percent of a household’s income. Black and Latino households are more than twice as likely to have to turn to these services, thanks to barriers to traditional banking. We should provide incentives, such as reduced taxation, to banks that provide accessible banking services to those without significant assets.
We also need to make a full-throttle effort to reverse existing upside-down tax incentives. Over $600 billion in tax subsidies each year helps promote homeownership, private retirement funds, and savings and investments. The overwhelming majority of these subsidies flow to affluent and white households. Why not push these subsidies towards people who actually need them?
The racial wealth divide was created and exacerbated by public policies that currently threaten to push our nation towards fundamentally un-American levels of inequality and unequal opportunity. Another future is possible, one where public policy can begin to bridge our nation’s deep divisions, not continue to widen them.
When Neighbors Resist Affordable Housing, What’s a City to Do?
By Kate Davidoff on 09/01/2016 @ 10:00 AM
When affordable housing developments get off the ground, communities often have a lot to say about them—especially when information about the proposal is scarce. But with the federal government starting to push states and municipalities to do more with their housing programs, getting neighbors invested in new developments in a positive way is more important than ever. Without their buy-in, projects can stall for months or even years, and local governments sometimes try to avoid clashes with residents by making deals as quietly as possible. Housing leaders need to make neighborhood engagement a priority if efforts to expand opportunity are going to be successful—and equitable—for all community members.
For years, the legacy of residential segregation has kept many households of color locked out of neighborhoods—and wealth-building opportunities—in communities across the country. In recent years, the federal government has started to crack down on housing policies that keep communities segregated—even inadvertently. In a much discussed decision, the Supreme Court ruled in last year that state and local governments do, in fact, violate federal housing laws when they spend money from the U.S. Department of Housing and Urban Development (HUD) on policies that perpetuate segregation. The ruling stipulated that this is the case even if the intent of the policy itself was not explicitly to segregate housing by race.
This decision is still reaching municipalities and their efforts to build affordable housing that doesn’t perpetuate decades-old divisions along the lines of race. Partially as a result of this decision, HUD is providing local governments with the data necessary to understand and measure segregation, in the hopes that localities will use this data to comply with the Supreme Court’s order: creating affordable housing in new places and ending the seemingly endless cycle of segregation in housing in America.
However, regardless of the Supreme Court’s decision, HUD’s data and the White House’s support, state and local officials' ability to comply with this rule can be greatly impacted by individual citizens, like Veronica Walters.
On Dec. 12, the Baltimore Sun published a 6,100 word story…that describes how the city Housing Authority, complying with a federal court order, has been quietly buying homes over the past decade in prosperous suburbs to use as public housing…The reaction to the Sun story was immediate. “City housing program stirs fears in Baltimore County,” Donovan wrote in a follow-up piece.
Veronica Walters, 73, who lives in Catonsville, a middle class, largely white Baltimore County neighborhood with a median household income of $77,165, told Donovan. “We have worked for years in order to have a house in the county, and the government is pushing people out here,” she said, before adding: “They don’t deserve to have what my family worked hard for. It’s a shame we didn’t know about this ahead of time. I would have been right there protesting.”
Wealthy suburban counties such as Veronica’s are not the only group to resist affordable housing. Earlier this month, in the Inwood neighborhood in Northern Manhattan, residents protested and successfully stopped rezoning efforts that would’ve cleared the way for the construction of a new 23-story, mixed-use development that included over 150 affordable units. The predominantly Latino neighborhood felt that the below-market-rate rents weren’t below-market enough to be affordable for most New Yorkers. Moreover, residents feared that, if the building succeeded, it would gentrify the neighborhood, raise rents and lead landlords to force current residents out of their homes.
The dueling examples of Baltimore and Inwood highlight the difficulty of implementing an affordable housing program. Each example offers its own lessons, but both illustrate existing residents’ resistance to change, and how this hampers the ability of governments to use affordable housing to lift people out of poverty.
The reaction to affordable housing certainly isn’t new, but hiding its implementation isn’t the answer. Baltimore city officials have long faced resistance to affordable housing. In one noteworthy example, 1990s Moving to Opportunity project that would’ve relocated people living in segregated poverty to middle income neighborhoods was met with such protest (in one case just 10 new homes were slated to be built in a majority white neighborhood) that the project had to be abandoned. Just this month, under pressure from suburban residents who feared lower property values, Baltimore City Council rejected a bill that would have made it illegal for landlords to discriminate against prospective tenants who use Section 8 vouchers to pay their rent, making it even more difficult for families to find affordable units. These are just some of many examples in Baltimore—so it’s no surprise why city officials may have wanted to keep the purchasing of homes in suburban counties a secret from residents like Veronica.
However, purchasing homes in secret, and trying to keep entire housing programs operating under the radar only encourages the stubborn, occasionally virulent skepticism with which existing residents treat affordable housing. The Supreme Court decision and the provision of HUD data calls for transparency from advocates and city officials alike while giving them the ability to address segregation and poverty. The hard conversations with residents should be at the forefront of these efforts, rather than at best an afterthought and at worst a non-entity. Residents should have the opportunity to understand what the problem is, why the court decisions matter and how they may work together to improve the lives of everyone in the community. The CFED data illustrates the depth of the problem, and the potential for affordable housing to be an effective solution. The opportunity to recognize these benefits exists, but the people who can put a stop to affordable housing are also the people who can ensure its success. Advocates and city officials shouldn’t fear these people; they should welcome them into the process.
Looking More Closely at Microbusinesses Sheds Light on Other Aspects of Financial Security & Inequality
By David Meni, Graduate Intern on 08/23/2016 @ 10:00 AM
Being supportive of small businesses in the United States can often be like supporting apple pie or baseball. With every election season comes the inevitable parade of campaign commercials with B-reel footage of a smiling baker or construction worker, evoking the American entrepreneurial spirit.
However, many efforts to support “small” businesses in the United States don’t help the country’s millions of microbusinesses—those with 1-5 employees, including the owner. These firms constitute more than 90% of all small businesses and are responsible for a significant share of national employment relative to their size. In fact, during the Great Recession, microbusinesses were the only kind of firm that were still creating jobs.
If there’s one thing to know about microbusinesses, it’s this: if just one in three of them hired an additional employee, the United States would reach full employment.
Despite the fact that microbusinesses are such a powerful force in the U.S. economy, a minority of federal funds for small business go to these firms, and microentrepeneurs face barriers to financial stability in everything from financing to everyday cash flow.
CFED’s newest Fact File on microbusinesses highlights the importance of these firms in the national economy, diagnoses their financial challenges and elevates the potential of microentrepeneur support in advancing goals of racial and gender equity.
Here’s an overview of how microbusiness development is informed by some of CFED’s other work.
Predatory Lending Regulation Should Help Businesses, Too
One of the biggest hurdles facing microbusinesses and the entrepreneurs that run them is a lack of appropriate financing. Many traditional lenders are only providing business loans of $1 million or more. Since the Great Recession, that amount of smaller loans given out by traditional lenders has gone down year after year, even as larger loans have rebounded.
But demand for smaller business loans is high: 68% of small businesses are seeking loans less than $250,000, and 50% want loans less than $100,000. With the Small Business Administration’s financing of small loans remaining nearly flat since 2010, many business owners (and soon-to-be business owners) have had to turn to high-cost alternative lenders like Merchant Cash Advances (MCAs).
These loans have all the issues we’ve written about with predatory payday loans to consumers, but are for many thousands of dollars instead of a couple hundred. On average, an MCA has an interest rate of 94%, saddling business owners with monthly payments that are nearly double their income. These unsustainable loans prevent many microentrepeneurs from hiring or growing their business.
While the Consumer Financial Protection Bureau has come out with a proposal on how to rein in the debt trap of small-dollar consumer lending, such rules would not apply to these predatory business loans—despite the fact that they’re essentially mega-payday loans.
Microbusiness Support Could Address the Women’s Wealth Gap
My fellow graduate intern, Anna Mahathey, published a great blog series this summer about the harsh realities of the gender wealth gap in everything from retirement savings to asset limits. Though the growth of new women entrepreneurs since the recession has been high, women-owned businesses have more difficulty securing equity financing, accessing reliable networks and mentors, and growing their enterprise.
Since women are over-represented in the microentrepreneurship space, additional support, research and funding for businesses of this size could go a long way towards helping address the gender wealth gap and ensuring women entrepreneurs gain a more stable foothold in their retirement savings and other personal assets.
The Racial Wealth Divide is Also Fueled by Business Assets
“The Ever Growing Gap,” a report CFED and the Institute for Policy Studies published this month to illustrate how far-reaching the racial wealth divide is in the US, paints a bleak picture. The report finds that it will take centuries for Black household wealth to catch up to where white wealth was in 2013. Other households of color don’t fare much better.
While the racial divide in homeownership is one of the biggest drivers of this wealth gap, it is also driven by differences in business value between white entrepreneurs and entrepreneurs of color. The average value of a white-owned business is more than eight times larger than that of a Black-owned business. Much of the reason for this persistent gap in business value comes from a vicious cycle of financial insecurity facing microentrepreneurs who lack sufficient credit and savings to launch and sustain their businesses. Since entrepreneurs often leverage their own savings or the equity of their home to start and maintain a business, lower levels of wealth for people of color translates into more difficulty in sustaining entrepreneurship.
The silver lining here is that a bit of support for businesses owned by people of color goes a long way. Research conducted by FIELD at The Aspen Institute found that microenterprise development programs helped level the playing field for non-white business owners, increasing business survival rate to be on par with white-owned firms, and boosting business revenues and owner take-home pay.
Microbusinesses and entrepreneurship have always been important issues for CFED. As our new Fact File shows, the field of microbusiness intersects with so many of our other policy and advocacy areas.
With Homeownership at an All-Time Low, Why Is the Federal Government Tying its Own Hands?
By Doug Ryan on 08/18/2016 @ 10:00 AM
It’s been eight years since the 2008 economic crisis and homeownership is at an all-time low. More than five million homes have gone into foreclosure since the housing crisis, and Latino and African-American households are bearing the brunt of that misfortune with higher rates of foreclosure than other groups. But there are signs that the housing market can turn itself around, including home equity surpassing pre-crisis levels. Organizations like CFED are pushing for ways to continue to improve the economic viability in communities of color. With the right policies, we can be a nation with economic equity, no matter your race or socioeconomic status.
But if we know how to create greater economic prosperity for all, why is the housing finance system still in paralysis? A recent article in the Miami Herald noted the two agencies responsible for making home-buying more affordable—Fannie Mae and Freddie Mac—are in a “zombie state,” functioning without enough capital reserves to withstand another market downturn. It turns out that in 2012, the U.S. Treasury decided to sweep all of Fannie and Freddie’s profits into government coffers, leaving them increasingly dependent on the federal government to bail them out in the case of rainy day.
Unfortunately, the current status quo for these housing agencies, and the lack of action from lawmakers and policymakers, have led to uncertainty and instability that has scared buyers and lenders alike. Rising home prices and the tightening of access to credit has left low- to moderate-income borrowers out of the buying market. And, although the current director of the Federal Housing Finance Agency (FHFA) has authorized long-delayed contributions from Fannie and Freddie to the National Housing Trust Fund—which supports affordable housing construction for low-income families—those contributions are at risk if Fannie and Freddie post a bad quarterly report.
The current trend—given the rules put into motion by former FHFA acting director Ed Demarco—seems to be to gradually dismantle Fannie and Freddie and hand over their business to the too-big-to-fail banks. Under a credit risk-sharing policy, Fannie and Freddie push more of the credit risk associated with home loans onto investors, such as mortgage insurers and money-center banks.
In addition, Fannie and Freddie are being forced to build a new financial infrastructure—termed “the common securitization platform (CSP)”—which would ultimately help their competitors. Together, these policies are not a strong plan for comprehensive housing finance reform, but rather part of a strategy to achieve the ideological and competitive goals of privatizing the housing finance market and leaving American homebuyers with fewer protections from predatory practices. These approaches also risk further limiting access to housing credit for lower-income families and first-time homebuyers.
For years, Fannie and Freddie served the nation well by providing countercyclical market liquidity. By 2007-08, it became clear that reforms were needed. These reforms have mostly occurred, but siphoning Fannie and Freddie’s earnings and forcing them to cede the core of their business to large banks leaves taxpayers exposed, marking a move in the opposite direction from what low-income potential homebuyers need. This dismantling of Fannie and Freddie—enterprises established to provide liquidity and stability to our nation’s housing market—is already well under way. No one really knows what the new system will mean for homebuyers, capital markets or taxpayers.
Risk-sharing creates market distortions and instability. It is a much better investment for the American people to make additional fixes to Fannie and Freddie, allow them to recapitalize, and update their structure and regulatory oversight so they can return to their core mission: putting the dream of homeownership within reach for more and more Americans.
IRS Future Vision: A Cautionary View
By David Marzahl and Paul Harrison, Guest Contributors on 07/29/2016 @ 12:00 PM
Editor’s Note: CFED welcomes leaders in the field to share their views on current events and policy issues. In this post by leadership of the Chicago-based Center for Economic Progress, CEO David Marzahl and Tax Clinic Director Paul Harrison weigh in on the IRS’s “Future State Vision.”
Since Congress adopted the IRS Revenue Reform Act of 1998, the IRS has focused substantial amounts of energy and resources to improve its use of technology to facilitate communication with taxpayers. On its face, the IRS Future State Vision appears to be a continuation of this trend toward modernization. Under this vision, the IRS will enhance its digital capabilities enabling taxpayers to identify, resolve and avoid tax controversies with the IRS. An explicit objective is to increase voluntary compliance with the Internal Revenue Code (IRC.) However, a close review of internal IRS documents highlights the risk of it devolving into a “one-size-fits-all” solution that threatens quality service to taxpayers, may reduce voluntary compliance with the IRC and dramatically increases burdens on VITA and the non-profit sector.
As currently envisioned, the Future State risks exacerbating the compliance problems of millions of taxpayers who lack access to high-speed internet service, are not experienced with the world of digital commerce or who merely prefer to do business with the IRS by telephone or face-to-face at a Taxpayer Assistance Center (TAC).
We are concerned that Commissioner Koskinen’s vision for the IRS appears to adopt an either/or approach to taxpayer communication and service. Either the IRS will continue to communicate with taxpayers by telephone, by letter and by face-to-face contact at TACs, or it will modernize and enable electronic communication by and with taxpayers. Implicit is the IRS’ desire to move communication and assistance into an on-line environment and thus reduce if not replace telephone and in-person transactions between taxpayers and the IRS. The Center for Economic Progress’ (CEP) experience in operating one of the nation’s largest VITA programs and our Low Income Taxpayer Clinic (LITC) strongly suggest that a successful IRS modernization effort will require maintaining a robust telephone and walk-in service for at least the next decade during a gradual transition to a predominantly digital taxpayer interface.
As the IRS ombudsperson, the National Taxpayer Advocate (NTA) has recommended that the IRS develop greater electronic and digital capacity for taxpayer communication and interaction while calling for continued IRS telephone capability, the maintenance of TACs and increases in IRS resources to maintain existing capacities and develop new ones. Interactive electronic and digital communication must not become a substitute mode of communication according to NTA Nina Olson’s recommendations. It must be an addition to the avenues by which taxpayers may communicate with the IRS.
The IRS Future State Vision promises significant improvement in the mode and quality of taxpayer communication with the IRS, yet its success also requires a large-scale change in taxpayer behavior – one that the IRS has not attempted since it began to shift from filing paper tax returns by regular mail to e-filing several decades ago. It is worth noting that a quarter century elapsed between the first e-filing pilot project in 1986 and the achievement of an e-filing rate of 80% of tax returns in 2012. Moreover, the IRS accomplished the goal of 80% participation 14 years after Congress established the goal in 1998. The changes in taxpayer behavior required for the success of the Future State Vision are as vast as those required to make e-filing the norm for return preparation and should be approached with an eye toward a long transitional period.
At the Center for Economic Progress (CEP), we believe the either/or approach being advanced by the IRS is a mistake. Rather, the IRS should adopt a both/and approach to taxpayer communication and service: one that enhances and maintains a robust program of telephone and face-to-face communication for taxpayers while simultaneously expanding its electronic communication technology.
Today’s reality is that large segments of the taxpaying public, including many low-income taxpayers, are excluded from the sophisticated world of interactive technology endemic to the banking and financial industries. Additionally, it is one thing to manage one’s bank account on-line but entirely another to rely on digital platforms to manage the complex and confusing relationship most taxpayers have with the IRS. Since 2001, NTA reports have repeatedly stated that for a substantial portion of low-income taxpayers, telephone and personal contact are the most effective methods for communication, taxpayer education and to ensure taxpayer compliance. Many of the same taxpayers served by VITA and LITC’s are the ones least likely to move to digitally enabled communication and assistance being promoted by the IRS.
To whom will they turn when the IRS (literally and figuratively) no longer answers the phone?
Our recent experience at CEP illustrates this issue. Calls to our tax hotline have increased 40% to 60% during each of the last three years even as, during this time, IRS in-person and phone customer service has fallen to all-time lows. This trend mirrors reports from other VITA/TCE programs through the Taxpayer Opportunity Network that reflect similar trends.
The segment of taxpayers who depend on the telephone and face-to-face interaction as their primary means of communication with the IRS does not diminish because the IRS allocates fewer resources toward those programs. The taxpayers simply turn to other sources of assistance.
In our opinion, the lucky taxpayers will contact a nearby LITC or VITA program; assuming that we have the capacity to serve them. A few will have the means to call a CPA, enrolled agent or attorney and get advice from competent, reliable tax professionals. Most will not be so lucky, and they will get advice from the, heavily marketed tax preparation industry. Few low-income taxpayers can afford to pay for tax advice, and, given the largely unregulated state of commercial tax preparation, tax preparers are not necessarily tax experts and may or may not be qualified to give advice to taxpayers who contact them. A future state which drives taxpayers toward unregulated for-profit businesses does not serve the interests of the taxpayers. It puts them at risk of bad advice or expensive mistakes on their tax returns and ultimately doesn’t even serve the interests of the IRS.
Organizations sponsoring VITA and LITC services play a critical role in assisting the IRS but are not substitutes. We are poised to serve a growing number of taxpayers in fulfilling the guide star of the IRS: voluntary compliance. It is an emphasis on service not enforcement that produces the high rate of voluntary compliance exhibited by American taxpayers.
At the Center for Economic Progress, we believe that the future state of the IRS must:
- Include sufficient funding to ensure equitable service for all taxpayers, including telephone assistance.
- Establish minimum licensing standards for commercial tax preparers and require tax preparers to register and renew their licenses periodically.
- Increase VITA funding to maximize resources available for free tax preparation assistance.
- Remove VITA and TCE program grant restrictions for specific tax forms, schedules, and issues, including Schedules C, D and F, and ITINs.
- Allow grant funding for quality review, CAAs and year-round services at select sites.
- Only require authorized volunteers under Circular 230 to annually recertify for new provisions and changes in tax law.
- Provide free tax preparation and proper staffing at TACs in areas with limited access to VITA or TCE volunteers.
- Permit VITA programs flexibility regarding income maximums similar to that afforded LITCs under the “90/250” rule, enabling exceptions for taxpayers whose employment status has changed.
David Marzahl is President & CEO of the Center for Economic Progress.
Paul Harrison is Director of the Center for Economic Progress Tax Clinic.
Challenges to Building Wealth and Financial Security in Puerto Rico
By David Meni, Graduate Intern and Rachel Merker, Graduate Intern on 07/28/2016 @ 02:00 PM
Three point five million
American civilians are on the hook for billions
Vulture bonds are circling and lobbying for payout
There’s nothing left to tax or cut
We’re stuck we need a way out
Hamilton’s Lin-Manuel Miranda rapped about his home of Puerto Rico in a song on Last Week Tonight, calling on the nation to pay attention to the island’s dire situation.
With Puerto Rico’s $72 billion debt crisis continuing to grab headlines, the needs of its residents are often swept under the rug. Puerto Ricans are American citizens as much as residents of Vermont or Indiana (or Guam, for that matter). However, more than 46% of Puerto Rico residents live below the federal poverty line (despite having a higher cost of living than many urban areas in the continental US), and income inequality in Puerto Rico is worse than anywhere else in the United States.
If we really want to help the almost half of Puerto Ricans living in poverty find a realistic path out, we need to give them access to the same anti-poverty and asset-building programs available to all other American citizens. Without these policy measures, Puerto Rico is less equipped to offer effective public benefit programs, implement an equitable tax code, adequately fund education or make any number of the other investments and policy changes needed to foster economic opportunity. On top of all that, a lack of accurate and up-to-date data often makes it difficult to diagnose the problems of financial security in Puerto Rico.
Weakened Public Benefit Programs
Puerto Ricans rely on public assistance at a rate higher than the national average. However, many of the commonwealth’s public benefit programs are inadequate, especially compared to their mainland counterparts:
- Nutrition assistance: The 50 states and the District of Columbia use the generous Supplemental Nutrition Assistance Program (SNAP) to ensure that low-income families get enough to eat. Only Puerto Rico has to rely on a small, fixed grant called the Nutritional Assistance Program (NAP.) Not only are NAP’s monthly benefits lower, they serve fewer needy people and eligibility is determined through stricter asset limits that discourage savings.
- Support for low-income elderly and persons with disabilities: Nearly every low-income American is covered by the Supplemental Security Income (SSI) program should they become unable to work — unless they live in in Puerto Rico. Because of Congressional inaction, Puerto Rico continues to rely on the much less generous Aid to the Aged, Blind and Disabled (AABD) program — a program that hasn’t existed in the rest of the states since 1973.
- Medicaid and Medicare: Puerto Rican health outcomes are strikingly worse than those in the States. From diabetes and hypertension to premature births, the Commonwealth suffers at higher rates than the mainland. Unfortunately, spending on Medicaid and Medicare is consistently underfunded by the federal government; Puerto Rico’s borrowing to help make up that shortfall is partly responsible for its current budget woes.
Left Out of the Federal Tax Code and the Benefits of Tax Programs
Congress’ many exemptions for Puerto Rico keeps the Commonwealth from fully integrating with the U.S. tax system. But don’t be too jealous that Puerto Ricans don’t have to pay federal income taxes. An unintegrated tax code denies Puerto Rico access to some of our most powerful anti-poverty programs:
- The Earned Income Tax Credit (EITC): In 2013, the EITC brought more than 6.2 million Americans above the poverty line. Not only does the EITC incentivize and reward work, it also helps households build emergency savings and weather unforeseen expenses. Yet Puerto Ricans — who have a lower labor force participation rate than any other state — don’t qualify.
- The Child Tax Credit (CTC): Unlike other Americans, Puerto Ricans only qualify for the CTC if they have three or more children. As a result, small families lose out on a crucial support that bolsters academic performance and future earnings potential in young children.
A majority of Puerto Rico’s residents would see no or negative tax obligation if the full federal income tax — along with programs like EITC – were implemented there. Providing equitable tax credit treatment to Puerto Ricans was part of the Obama administration’s initial aid proposal, but has since been scrapped.
A Crumbling Public Education System
As Puerto Rico’s economic troubles worsen, public education is suffering. Puerto Rican children have the lowest average test scores in the nation, and public schools are closing at rapid rates. Educational disparities in Puerto Rico abound:
- State-Funded Pre-Kindergarten: Research shows the importance of early education in enhancing children’s economic futures. Currently, there is no state-funded pre-K program in Puerto-Rico — though it’s not for lack of trying. In fact, the commonwealth was recently denied a Preschool Development Grant from the federal government.
- Underfunded Special Education: 129,000 minors in Puerto Rico receive services under the federal Individuals with Disabilities Education Act. But due in part to a funding cap, Puerto Rico has had to delay payments to special education therapists for months.
Beyond the Debt Crisis, a Dearth of Data
These are just some of Puerto Rico’s challenges in the implementation of policies that enhance economic security. In order to truly bring the economic disparities in Puerto Rico to light, advocates and policymakers alike need access to more data. Whether it’s foreclosure rules, unemployment compensation or the unbanked population in Puerto Rico (the most recent data for which is from more than a decade ago), the commonwealth is often missing from various efforts to track and evaluate state policies, including our own Assets & Opportunities Scorecard.
Without readily available information on whether Puerto Rico is implementing important strategies for facilitating individual economic security, advocates are hindered in offering real, proven solutions to the income and wealth disparities on the island.
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