Explainer

Congress Is Voting on a Bill That Could Make Debt Traps Legal Again

Today, the House of Representatives votes on an end run around state consumer protection laws. If it passes, the bill would overturn state efforts to stop payday lenders from charging triple-digit annual interest rates and creating consumer debt traps that can turn a $1,000 loan into a $40,000 debt.

The bill—misleadingly titled “Protecting Consumers’ Access to Credit Act of 2017”—claims to be a response to a recent federal court decision in a case called Madden v. Midland. Ms. Madden opened a credit card; when she fell behind on payments, it was sold to Midland Funding, a debt collector. Midland tried to charge her an interest rate of 27 percent, higher than New York’s legal limit of 25 percent, and the judge ruled that while banks are not subject to state interest rate caps—consistent with rulings going back several decades that led to the rapid growth of credit cards—nonbanks, such as a debt collector, are. The decision was reached by the Second Circuit, and only applies to New York, Connecticut, and Vermont.

In the bill, both houses of Congress have proposed a so-called “Madden fix” that would declare that any valid loan made by a bank stays valid if that loan is later sold or transferred to a nonbank. On its face, that sounds fair—until it’s clear that this is exactly the business model, sometimes called rent-a-bank, that payday lenders have historically used to get around state consumer protection laws. Under rent-a-bank, in a state that caps annual interest rates at 36 percent or less—a level considered the maximum for responsible lending for about a century—a loan shark shut out of the market can just partner with a national bank that’s subject to no limits on interest rates at all, and charge consumers more than 300 percent annual interest or more. This practice goes back two decades, and federal banking regulators have been grappling with it just as long.

Under rent-a-bank, a loan shark can just partner with a national bank and charge consumers more than 300 percent annual interest

Getting around state laws also means skirting the will of Americans that have elected to keep predatory lenders out of their states. Fifteen states and the District of Columbia—representing more than 90 million Americans—have set interest rate caps to keep payday lenders at bay. South Dakota joined this club in 2016 with a ballot initiative receiving more than 76 percent of the vote, despite confusing, contradictory language on the ballots. Seventy-two percent of Montanans voted for a cap in 2010. And faith leaders across the country have decried the practice—some even using their own community assistance funds to bail out borrowers trapped in debt.

Even in states where payday lending is not restricted with a rate cap, forty-two states have interest rate caps in place for some other types of loans, such as installment loans, which are generally paid back over a longer period of time. It’s no surprise that the Consumer Financial Protection Bureau’s (CFPB) 2017 payday lending rule specifically called out rate caps as providing better protections than what it could do itself to deal with debt trap lending. (The Dodd-Frank Act, which created the CFPB, specifically bans the agency from capping rates itself.)

Taking away states’ ability to pass and enforce laws that protect their residents from loansharking might not be so devastating if a tough federal standard existed in their place. But this January, CFPB Acting Director Mick Mulvaney delayed the final payday rule, which only dealt with certain aspects of predatory lending, with an eye toward weakening or scrapping it altogether. New Trump-appointed leadership at the banking regulators are not likely to scrutinize rent-a-bank partnerships the way past regulators have, and the Office of the Comptroller of the Currency, one of these regulators, reversed its restrictions on banks themselves making payday loans last year. The closest Congress has come to taking decisive action to help vulnerable borrowers in recent years was passing the bipartisan Military Lending Act in 2007, which put in place a 36 percent rate cap on servicemembers and their families—and still only survived an effort to weaken it in 2015 by one House committee vote.

To be sure, some nonbank lenders who do not make payday loans have argued that the Madden decision makes it harder for even responsible startups to lend nationwide because investors will not support them if loans may be invalidated under state law. But they have other options, including seeking a federal nonbank charter or simply ensuring that they comply with state law. Supporting a nationwide market should not mean forcing open the doors to financial exploitation by allowing lending without limits.

Should the House bill pass this week, it then goes to the Senate, where a bipartisan group of senators has teamed up to co-sponsor the same bill. In an era of massive tax cuts for the rich and devastating benefit cuts for everyone else, this is merely the latest attempt from Congress to tilt the financial playing field further in favor of corporations and the wealthy, making it even harder for working families to get by.

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Feature

See the March That Revived Martin Luther King Jr.’s Poor People’s Campaign

In Memphis yesterday, the Fight for $15 and the new Poor People’s Campaign joined forces to mark the 50th anniversary of the sanitation workers’ strike and march with Dr. Martin Luther King Jr.

Workers came from as far as St. Louis, Chicago, New Orleans, and Boston, as hundreds of people walked the same path to City Hall as their predecessors once did, and issued the same demand: a living wage and the right to form a union.  Workers and activists will continue the campaign in the coming months, with six weeks of direct action and nonviolent civil disobedience beginning on Mother’s Day.

Photographer Andrea Morales was on hand to capture how the day transpired.

Hundreds walk down Dr. Martin Luther King Jr. Avenue during the march from Clayborn Temple to Memphis City Hall to commemorate the 50th anniversary of the 1968 sanitation workers' strike.
Hundreds walk down Dr. Martin Luther King Jr. Avenue during the march from Clayborn Temple to Memphis City Hall to commemorate the 50th anniversary of the 1968 sanitation workers’ strike.
AFSCME Secretary Treasurer Bill Lucy (center), stands between Baxter Leach, one of the sanitation workers who went on strike in 1968 (left), and Rep. Steve Cohen (right) at Clayborn Temple, where marchers gathered.
AFSCME Secretary Treasurer Bill Lucy (center), stands between Baxter Leach, one of the sanitation workers who went on strike in 1968 (left), and Rep. Steve Cohen (right) at Clayborn Temple, where marchers gathered.
Fight For $15 supporters lead chants before the march begins.
Fight For $15 supporters lead chants before the march begins.
Marquisha McKinley and her daughter in the Fight for $15 strike line outside a McDonald's in Midtown Memphis.
Marquisha McKinley and her daughter in the Fight for $15 strike line outside a McDonald’s in Midtown Memphis.
Fists are raised as a moment of silence is called before the march reaches its destination at Memphis City Hall.
Fists are raised as a moment of silence is called before the march reaches its destination at Memphis City Hall.
A couple that traveled with Fight for $15 from St. Louis listens to speakers during the program at Memphis City Hall.
A couple that traveled with Fight for $15 from St. Louis listens to speakers during the program at Memphis City Hall.
A young marcher catches some rest. Many workers and supporters brought their children along to the event.
A young marcher catches some rest. Many workers and supporters brought their children along to the event.
Baxter Leach, a former sanitation worker who was part of the original strike in 1968, is embraced by SEIU President Mary Kay Henry during a program following the march.
Baxter Leach, a former sanitation worker who was part of the original strike in 1968, is embraced by SEIU President Mary Kay Henry during a program following the march.
Rev. Traci Blackmon, a United Church of Christ pastor based in Florissant, Missouri, speaks at City Hall to close out the march. She recalled the workers' deaths that sparked the original strike 50 years ago: "I don't want to stand here and forget Brother Cole and Brother Walker, who died in a garbage truck, crushed to death because the government refused to fix the garbage trucks."
Rev. Traci Blackmon, a United Church of Christ pastor based in Florissant, Missouri, speaks at City Hall to close out the march. She recalled the workers’ deaths that sparked the original strike 50 years ago: “I don’t want to stand here and forget Brother Cole and Brother Walker, who died in a garbage truck, crushed to death because the government refused to fix the garbage trucks.”

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Analysis

Yes, Replacing Food Stamps With a Blue Apron-Style Delivery System Is As Bad As It Sounds

Yesterday, the Trump administration released its fiscal year 2019 budget. For the most part, it’s similar to last year’s proposal: massive cuts to safety net programs, a big boost in military spending, and very Trump-ed up estimates of economic growth. But this year, tucked into the Department of Agriculture (USDA) subsection, the administration laid out a proposal to take away a chunk of the nutrition assistance many families rely on and replace it with a massive new food delivery program.

Under the proposal, households receiving $90 or more per month in Supplemental Nutrition Assistance Program (SNAP) benefits—which accounts for the vast majority of all of the households who currently participate in SNAP—will receive a portion of their assistance in the form of a box of pre-selected food. According to the USDA, which would be responsible for administering the program, the box would be filled with items like pastas, peanut butter, beans, and canned fruit, intended to “improve the nutritional value of the benefit provided and reduce the potential for EBT fraud.”

In effect, the proposal is a paternalistic spin on Blue Apron: Instead of being able to choose food based on their nutritional and family needs, SNAP households may get standardized boxes of food that the government chooses on their behalf. Hunger and nutrition experts have panned this as “costly, inefficient, stigmatizing, and prone to failure.” A 2016 USDA study found no evidence to suggest that households who receive food stamps need the government to select their food for them—their spending habits are almost identical to other households. (The only exception is baby food—SNAP households buy a lot more of it, because they’re twice as likely to have a child under age 3.) Replacing the food that people are buying for themselves with pastas and canned fruit is likely a nutritional downgrade. And, since the food is being delivered directly to families, it’s unclear whether families will get the opportunity to provide input based on allergies or specific nutritional needs—say, to account for a peanut allergy, or for all that baby food.

As for reducing EBT fraud, the Trump Administration is offering a complicated solution for a nonexistent problem: SNAP fraud is extremely rare, and the government spends about as much money looking for SNAP fraud as it actually finds in misused funds. (As a point of comparison, the Pentagon misplaces enough money every year to fund the entire SNAP program twice.)

The government spends as much money looking for SNAP fraud as it actually finds in misused funds

What’s more likely is that the proposal will become a giveaway to major agriculture companies. Creating this type of program will require a massive number of new government contracts for food, shipping, storage, and delivery. These contracts will have volume requirements that smaller farms will not be able to meet, but they’ll open the door wide to America’s “Big Aglobbyistsincluding those with close ties to Trump’s Secretary of Agriculture Sonny Perdue.

And given that this proposal is paired with a $214 billion cut over the coming decade—nearly one-third of total SNAP spending—as well as punishing time limits for workers who cannot find a job or get enough hours at work, it’s hard to believe this proposal is anything but malicious.

Considering Trump’s past statements on food stamps—and on poverty in general—it’s likely that malice actually is at the core of this. Remember the time that he said the only reason a protestor could be angry that he was talking about food stamps was because the protestor was fat? Or the time he said he “just doesn’t want a poor person” involved in decisions about the economy? The president sees his own wealth as the chief validator of his societal worth, and believes it makes him perfectly qualified to make choices about how low-income people live their lives. This SNAP proposal is the result of that line of thinking. It strips people of control over one of their most basic decisions—what they’re going to eat—and hands it over to a government agency. It flattens out the shades of humanity that go into our food—the garlic or chilis or cumin or fish sauce we use when we need to make dinner feel more like home, or the choice to splurge on a steak for your wife’s birthday dinner even if it means you’ll be scraping by for the rest of the month—and it replaces them with cans of fruit in a cardboard box.

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Analysis

How Trump’s Medicaid Restrictions Will Stop People From Voting

The Trump administration released its fiscal year 2019 budget today, and it doubles down on what the administration has already been doing to undermine Medicaid—including more than $300 billion in cuts to the program and a call to take health insurance from those who can’t find a job.

Last month, the administration began testing these policies at the state level. On January 11th, the Centers for Medicaid and Medicare Services (CMS) announced that states can now compel low-income people who rely on Medicaid to meet “work and community engagement requirements” in order to keep their health insurance. Within a day of making this announcement, CMS approved Kentucky’s plan to implement such requirements. The plan strips Medicaid coverage from most adults who fail to comply, including those who do not complete paperwork on time or report “changes in circumstances” quickly enough.

All told, Gov. Matt Bevin’s office estimates that around 350,000 Kentucky residents will be subject to the new requirements and 95,000 will likely lose their Medicaid benefits. But once those people are booted from the program, Kentucky is giving them a chance to get it back: through “a financial or health literacy course.”

Of course, this is not the first time that Americans have been required to meet economic standards or pass a literacy test to exercise their rights. Discriminatorily applied literacy tests, known for their impossible difficulty, were administered by election officials who were given immense discretion over who to test, what to ask, and how to assess the answers when (mostly black) citizens attempted to vote. Similarly, extractive poll taxes disenfranchised poor black populations (and sometimes poor whites) from the end of the 19th century until the advent of the 24th Amendment (1964) and the Voting Rights Act (1965).

95,000 Kentucky residents will likely lose their Medicaid benefits

These methods were incredibly effective at preventing black people from voting. They led to dramatic drops in black voter registration in the South, and in the states that were the most egregious offenders—like Louisiana—black voter registration decreased by as much as 96 percent over an eight-year span.

Of course, the electoral arm of white supremacy in the postbellum era stretched well beyond such tools (and all the way to violent repression). Nevertheless, taxes and tests stand out as especially contemptible because they officially codified a logic of exclusion aimed at those presumed unworthy of American citizenship.

On the surface, Kentucky’s new Medicaid rules don’t look exactly like poll taxes or literacy tests. But there’s an equivalent logic of exclusion that holds across both domains: Those who are unworthy—either because of their race or due to their inability to access decent jobs—are ousted. Their political and social rights (like the right to vote and the right to be healthy) are sacrificed on an altar built by those with power.

Since social rights like health care are connected to political rights like voting, undermining one deteriorates the other. When Medicaid recipients are made to jump through hoops to prove that they are worthy of health care, they quickly figure out where they stand in the American social hierarchy. And once that’s clear, they have a diminished desire to participate in politics.

I know this because I spent years studying Medicaid and wrote a book about the politics surrounding it. I had in-depth conversations with people who use Medicaid; I observed  Facebook groups filled with Medicaid beneficiaries who readily recounted their experiences; I examined thousands of responses to large national surveys; and I scoured administrative records that detailed the actions that people with Medicaid took when they had scuffles with the government. I got to know some of the people who will find themselves at the losing end of the new Medicaid regulations, and I discovered how Medicaid shapes their political choices.

Take Angie, for example. Michigan’s Medicaid program stripped her coverage for not completing paperwork that she never even received. After battling for several months with local bureaucrats, she finally got her benefits restored. But by then she knew who she was in the eyes of the government:

“It’s like you are uneducated and you just want to get these free services and somehow you are inferior to other people if you receive those benefits … Once they hear Medicaid its ‘oh, one of those people.’”

Alienated from the government, Angie stopped voting and trying to advocate for herself. “I don’t do politics,” she said. When we talked about why she wouldn’t appeal devastating benefit cuts, she explained that she was a “nobody” and that the “powers that be” would not bend very far for her.

Angie was hardly alone. Ahmad fought back tears when he told me about the bureaucratic hurdles he faced after losing a limb in Iraq. Again and again he had to re-certify his enrollment, refile paperwork and find new medication when the old ones were no longer covered by Medicaid. He was clear on what this implied about his social status. “They treat us like we are stupid animals; like we don’t know anything,” he says. “I feel like I’m nothing, because when you are in Medicaid, they do whatever. You have to be on their rules.”

Just as literacy tests were applied unfairly by the election officials who administered them, adding stipulations to Medicaid will create opportunities for racial inequity. Blacks and Latinos face more labor market discrimination, have a harder time finding quality child care, and—because of biases in the justice system— are more likely to have a criminal record. In the face of such barriers, work and health literacy requirements pose burdens that will fall disproportionately on people of color.

That brings us back to where we started. Both types of literacy testing are predicated on assumptions about who deserves access to fundamental social and political rights, like health care and voting. Both also reinforce racial and economic inequality, whether purposely or inadvertently. Most crucially, both lead to the erosion of democratic citizenship among Americans whose political power has long been systematically suppressed.

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Feature

Congressional Republicans Met in the Second Poorest State to Plot How to Hurt Poor People

Sammi Brown grew up in Charles Town, West Virginia. Raised in what she describes as a “barely 2-bedroom” apartment, she watched as both of her parents worked two, sometimes three jobs to put food on the table for her. “My dad worked second and third shifts so that he could walk me to the bus stop and be there when I got home,” she told TalkPoverty. “My mom worked multiple jobs … that’s kind of where I get my work ethic from.”

Brown became an organizer after seeing how challenging it was for her parents to provide basic necessities like food, housing, and health care when she was growing up. As a result, they often turned to programs like Medicaid and food assistance. “Eventually we did get off of those programs. We didn’t need them for my whole lifetime, but we were very much a working-class family,” she said.

I spoke with Brown just outside The Greenbrier, a tony luxury resort in the Allegheny Mountains, where weekend rates typically range from $358.00 to $628.00. At the time, it was playing host to nearly 300 Congressional Republican lawmakers, along with Vice President Mike Pence and President Donald Trump, who were all gathered for an annual policy retreat. Brown was one of the lead organizers for a protest—helping to bring in more than 500 activists, union members, and storytellers from across the country.

Image

Sammi Brown

Dominating discussions this year were cuts to a wide range of health, food, and housing programs—the very programs Brown turned to as a child—all in the name of “welfare reform.” Despite resistance from Senate Republicans, House Speaker Paul Ryan and the hard-right Republican Study Committee were making a Sisyphean effort to build support for a wide range of cuts this year—starting with Medicaid.

According to reports from the retreat, it all came down to messaging. “You’ve got to get the framing or the phrasing right,” Republican Study Committee Chairman Mark Walker told Politico. “When we talk about ‘Medicaid reform,’ that’s not a great buzz phrase.” Lost on Walker was the fact that the cuts themselves are unpopular, not just the salesmanship.

It was ironic that the House and Senate Republican conferences chose this site for a conversation dedicated to slashing the safety net. West Virginia has the second lowest per capita income in the country. More citizens turn to Medicaid, Social Security, and food assistance than virtually anywhere else in the country.

Fatal drug overdoses in West Virginia dwarf every other state in the country

More than 500,000 West Virginians—nearly a third of the population—get health insurance through Medicaid, making it the state with the highest share of its population covered by the program. This includes the majority of all children in the state and more than three-fourths of nursing home residents. Congress’ proposed repeal of the Affordable Care Act, for example, would have taken away Medicaid coverage from 227,000 West Virginians by 2029—equivalent to nearly half of those currently receiving Medicaid in the state.

The state has also been ravaged by the opioid epidemic. Fatal drug overdoses in West Virginia dwarf every other state in the country. In 2016 alone, 818 people lost their lives to drug overdoses—a 400 percent increase from 2001. Nearly 9 in 10 involved at least one opioid. And, according to a report released days ahead of the retreat, drug wholesalers flooded one West Virginia town with more than 20.8 million prescription painkillers between 2008 and 2015. Nationwide, Medicaid covers about a quarter of all substance abuse treatment. But it is particularly critical in West Virginia. Medicaid covers up to 45 percent of medication-assisted treatment for opioid misuse in the state.

*              *              *

Local rallies have become almost commonplace in Trump’s America. Indivisible, for example, now counts more than 5,800 local groups (at least 2 in every Congressional district), many of whom hold local actions and confront members of Congress on a regular basis. Still, it’s rare to gather so many activists from across the country in a single place. But something about the topic of this year’s retreat drew a crowd.

David Stauffer travelled from Waynesburg, Pennsylvania—a working-class town about an hour south of Pittsburgh. His grandfather, father, and uncle all worked in the coal mines in Greene County. Stauffer tried to buck the family trend by enlisting in the national guard at 18. “I wanted to serve my country … there was no other jobs in Pennsylvania other than coal mining,” Stauffer told me. “My uncle was a coal miner. He said, ‘David, you don’t want to go to the mine.’”

Stauffer served as an air technician until he injured his knee on a fishing trip and was no longer able to serve. After he was discharged, he spent years working odd jobs—at the sheriff’s department in Waynesburg, at the mine as a security guard, driving trucks. But when his brother became ill and turned to Medicaid, he needed a full-time caregiver. “My brother is in a wheelchair for the rest of his life,” Stauffer said. “He needs a caregiver. I lost my job working security.”

He travelled some 200 miles to West Virginia because he’s worried about cuts to Medicaid. “Without Medicaid, [my brother] wouldn’t be able to survive,” Stauffer said. “He can’t have a job, because he has a medicine pump in his stomach … Trump’s hurting coal mining communities. He says he’s trying to help but he’s not. He’s harming us. And it’s wrong.”

*              *              *

Hector Vaca grew up in an immigrant family in New York City. “My parents had to work three jobs, each. Sometimes my dad had four jobs in order to raise four kids and just to keep a roof over our heads, continuing paying the mortgage,” he said.

“There was a time in my life when we lived on food stamps. This was before they were EBT, when they were still paper money,” said Vaca. “We’d have milk and bread in the fridge for like a day or two and we had to get creative with what we ate at the house … We couldn’t afford health insurance when we were little, so we depended on Medicaid.”

Image-1Hector Vaca

After the Great Recession hit, his father lost his job working as a car mechanic. Months later, he took his own life.

Vaca came to West Virginia because of his father’s death. “I do this … so that no other family would lose any more family members,” he told me. “We benefited from that system because we needed it, because my parents who were here with documentation worked hard and they deserved it.”

*              *              *

Coverage of policy debates, like most coverage of Trump and Congress, focuses mainly on the political consequences or the legislative jockeying. Little attention is given to the people affected—the organizer from West Virginia, the caretaker from Pennsylvania, or the proud son from North Carolina. Ignored is the shear breadth of economic challenges Americans face. According to a recent survey by the Center for American Progress,* 70 percent of voters reported having at least one serious economic challenge within the past year. Forty-two percent said they had trouble paying a credit card balance, and 48 percent of Americans said they had a serious problem “finding a decent job with good wages.”

Asked why so many people were protesting, Sammi Brown’s response was simple: “We have folks that are working multiple jobs. They’re doing everything they can—and they should have quality of life, but we’re not affording them that.”

Zahra Mion contributed reporting to this article.

*TalkPoverty is a project of the Center for American Progress.

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