The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

That Illinois is experiencing a crippling budget crisis is old news. Illinois’s budget deficit has grown to $8.3 billion in the current fiscal year, including $5.5 billion in unpaid bills—a chronic problem for Illinois state government. In fact, of the five most populous states, Illinois, along with California, are facing the most immediate problems because the emerging gaps are opening in the current fiscal year.

One way that states have tried to plug these deficits is by cracking down on the collection of the sales tax on items bought on the Internet. It’s estimated that states will lose approximately $23.3 billion in 2012 from being prohibited from collecting sales tax from online and catalog purchases, and a six-year forecast puts this number at $52.1 billion lost. With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers, and other much-needed programs. The catch has been that several Supreme Court cases precluded states from requiring a retailer to collect the tax. These cases, which dealt with catalog companies, held that requiring out-of-state companies to collect different state and local sales codes was a violation of the Commerce Clause because it imposed unreasonable burdens on them. As a result, only states in which a company has a nexus, through the presence of retail outlets or distribution centers, can be required to collect sales taxes. Even though retailers were not required to collect the tax, purchasers were still required to pay it, however, few even knew of this obligation let alone paid it.

Yet, technology and the e-commerce boom have changed the landscape and the rationale behind the previous court decisions. As a result, New York enacted a law defining “nexus” or presence more broadly in order to be able to require internet sellers to collect sales taxes. Six other states—Rhode Island, North Carolina, Illinois, Arkansas, Connecticut and California—have followed New York's lead, adopting similar laws that require online retailers with sales affiliates based within their borders to collect sales tax. California's law also extends the obligation to collect sales taxes to online retailers that have subsidiaries or affiliated companies in the state. South Dakota and Colorado have also passed laws requiring online retailers to notify their customers that they owe the state's use tax on purchases in which sales tax is not collected.

Illinois and North Carolina were among the first states to enact an amnesty program. Illinois’s program allowed residents to pay sales taxes on items they purchased online from June 30^th, 2004 until December 31^st, 2010 without penalty, hoping to bring in some revenue. Unfortunately the program only brought in $10.2 million of the estimated $150 million lost in Internet sales tax revenue the state could have gained with a federal law mandating Internet companies pay a sales tax. North Carolina’s program, on the other hand, specified that if Internet retailers commenced collecting sales tax on products sold to North Carolina state residents the state would, in turn, forgive taxes, penalties and interest for periods, and it would not seek information about customers who bought from them.

Additionally, in March Illinois’s Governor, Pat Quinn, signed the Illinois Internet tax law (Public Act 096-1544), which requires online retailers that work with affiliates in the state to collect sales tax on purchases made by Illinois residents and businesses. By defining and expanding the meaning of “physical presence” beyond a warehouse, factory, or office, Illinois has basically said that, regardless of whether or not a company has a brick and mortar presence in the state, if the company uses websites (either their own or by contacting with affiliates in the state) to refer business to an online retailer, it is subject to the sales tax. This is equivalent to a call center or warehouse, both of which would be considered a sufficient “nexus” under the law.  

For years Internet companies like Amazon and Overstock.com vehemently opposed such laws. Not being required to collect sales taxes provided them with a business edge over brick and mortar stores. When New York passed its law, Amazon refused to collect sales tax and brought suit challenging it. It also cut its ties with its affiliates in New York and other states that had passed similar laws expanding the definition of “nexus.”

Yet, recently Amazon agreed to began collecting the tax in California. The reason for Amazon’s change of heart after battling so long against it appears to be two-fold. First, Amazon had more of a presence in that state that any other, and it had too much to lose to try to move its business operations. Amazon has a technology division in California that developed the Kindle. Second, there were simply too many jobs in California that it would have to move across state lines, like the company had been doing in the past to avoid such laws. Finally, the amount of revenue Amazon generated from California sales encouraged it to concede.

Amazon isn’t keen on cutting the same deal with other states—it maintains divisions in several other states where it currently does not collect sales tax, claiming that its e-commerce operations are a separate company. But now that it will be paying in one state it will be harder not to do it in others.

In the meantime, legislators are realizing that federal legislation on the issue should be passed. Such legislation, the Main Street Fairness Act, (S. 2701 and H.R. 2701), was introduced in 2011 by Illinois’s own Senator Dick Durbin, and similar legislation was introduced in 111^th, 110^th,  109^th, and 108^th Congresses.

Similarly, the  Streamlined Sales and Use Tax Agreement coalition is trying to create a model uniform Internet  sales tax law. Thus far, at least 24 states have signed on to it: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

Technology has discredited the ”burdensome” excuse, and with budget deficits increasing and potential revenue sources limited Internet companies will not have the ability to evade collecting sales taxes much longer. With Amazon opening the flood gates by making a deal to begin paying the tax in California in 2013, states are sure to increase their pressure on companies as well as the federal government to pass the Main Street Fairness Act. 

This blog post was coauthored by Alison Terkel.

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When you picture a home health aide, what do you see?

Do you see someone sitting in a comfortable chair, chatting with a perfectly healthy companion while they both chortle at Dancing with the Stars? Or do you see a trained professional working with a patient—helping with essential daily activities such as dressing, bathing, medication reminders, walking, and transferring the patient from bed to wheelchair?

Most Americans recognize that home health aides fall into the second category. Unfortunately, federal law does not. Home health aides are excluded from the minimum wage and overtime protections of the federal Fair Labor Standards Act because of something called the “companionship exemption.” Designed in the 1970s, this exemption was slipped into the law to ensure neighborhood babysitters and sporadic workers would not be given federal employment protections. Unfortunately, the exemption has also excluded the professionalized home health aide workforce as well—many of whom work full-time.

Home health aides are trained professionals who do demanding work that is increasingly skilled. To work for home health agencies, home health aides must receive many hours of classroom training (which is regulated by state law) either through a home care agency or a private school. Their work encompasses everything from feeding, bathing, and toileting patients to assisting with medication and guiding patients through range-of-motion exercises.

The lack of minimum wage and overtime protections for home health aides hurts more than just workers. Consumers inevitably suffer as well. Because home health agencies are not required to pay home health aides overtime, home health aides work extremely long hours—even though many home health care agencies are for-profit corporations that charge customers considerably more than they pay their workers. This leads to a stressed-out, overtired workforce that is more likely to make mistakes. Unsurprisingly, the long hours and low pay also lead to heavy turnover among home health aides, which results in less continuity of care for patients.

A few years ago, the Supreme Court rejected efforts to dismantle the companionship exemption. The Labor Department has repeatedly signaled its willingness to write new regulations that would extend the Fair Labor Standards Act’s protection to home health aides (amending the regulation is on the Labor Department’s agenda for this year), but it has repeatedly failed to do so. Earlier this year, however, legislation that would end the companionship exemption was introduced in the U.S. House and Senate. 

In the meantime, states and localities are providing home health aides with relief. In some cities, such as New York, home health aides are unionized and covered by living wage laws. The states are also making progress. Many states require that agencies pay home health aides the minimum wage, and some require overtime as well. An article in the November-December 2011 issue of Clearinghouse Review: Journal of Poverty Law and Policy will explore the changing landscape of law and policy affecting home health aides and analyze a recent Pennsylvania Supreme Court case upholding a section of Pennsylvania’s minimum wage law requiring home health agencies to pay overtime to their employees.

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Debit card transactions have become a way of life. According to a recent Nilson Report, debit card use rose from 1% of transactions in 1995 to over two-thirds of transactions today.   Yet, for the over 38.7 million Bank of America debit card users such transactions will now cost more. Bank of America recently announced that it will charge a new $5 per month, or $60 annual, fee for its customers to use their debit cards for purchases. 

According to Bank of America, as well as other financial institutions that are considering similar fees, recent legislation has impacted their profits, and such fees are needed in order for them to remain profitable. Specifically, they blame the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) provisions regarding interchange or so-called “swipe” fees. As we have discussed in previous blogs, the so-called Durbin Amendment to the Dodd-Frank Act granted the Federal Reserve (Fed) the authority to regulate the amount of swipe fees (i.e., the fees that a card issuer can charge retailers for transactions involving their cards) to ensure that they are “reasonable and proportional” to card issuers’ costs. Although, about $16 billion in interchange or “swipe” fees were collected in 2009; averaging around 44 cents per transaction, a report issued by the Fed found that the median total processing cost for debit and prepaid card transactions was actually 11.9 cents per transaction. Thus, the Fed issued proposed regulations that would have capped interchange fees at 12 cents, starting in July. After receiving public comment, the Fed ultimately decided in its final rule to cap the maximum permissible interchange fee that a card issuer may receive for an electronic debit transaction at the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. This rule became effective October 1, 2011.

The new rules exclude banks with less than $10 billion in assets meaning it only applies to big banks, not community banks and credit unions. Yet, since this cap will cost large card issuers billions, they have been looking for additional sources of revenue. In addition to fees for debit card transactions such as the one proposed by Bank of America, debit card issuers are also considering “unbundling” (i.e., dividing debit card services into components and charging for each of them separately), as well as limiting the amount of debit card transactions. Free checking could very well be something of the past as well. Bank of America has already begun to charge $8.95 per month to open a new checking account with access to a teller and paper account statements. According to the latest data from economic research firm, Moebs Services, only about half of Wall Street banks are now offering free checking.

The fees and decline in free checking accounts has not gone unnoticed by the Obama Administration.  In a recent interview with abcnews.com and Yahoo President Obama called the $5 fee “not good business practice” and later added “this is exactly the sort of stuff that folks are frustrated by.” In the same interview the president urged lawmakers to confirm Richard Cordray, the nominee to lead the Consumer Financial Protection Bureau to ensure that the CFPB can prevent such arduous fees in the future. Vice President Joe Biden was also vocal about the subject saying the fee is another "tone deaf" move that the public is angry about. The administration is not alone in their opposition; many community leaders and advocates agree and have begun a petition against the fee at Change.org.

While everyone is up in arms over Bank of America’s new debit card transaction fees, clearly it’s low- and middle-class Americans who will suffer the most. In fact, account holders with a combined bank balance of over $20,000 or have a mortgage with Bank of America are not required to pay the monthly $5 fee. Low-income consumers who do not have large balances and more often than not, do not own homes, are therefore the ones being targeted by Bank of America. As Tom Feltner of the Woodstock Institute explains, banks will probably start competing at different levels in order to appeal to those with high balances, while those with low balances are the ones targeted to for extra fees. 

Under the rules, Bank of America can still charge 21 cents for debit card transactions and, since it only costs about 12 cents for the transaction, it will still make money, just not as much. And therein lies the crux of the matter—who gets to decide how much profit is enough? For too long, big banks have been the ones deciding this question to the detriment of the American public. The new regulations have taken the decision out of their hands, but of course banks are not going to give up that easy. So as they struggle to find other revenue streams, it’s up to us to ensure that consumers, especially not low- and moderate-income consumers, aren’t the ones forced to pay out.

This post was coauthored by Alison Terkel.

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Access to mainstream financial institutions is essential for building assets and ensuring a stable financial future. Yet, according to the Federal Deposit Insurance Corporation, 25.6%, or approximately 30 million Americans, are unbanked, meaning they do not have a checking or savings account, or underbanked, meaning that although they have a checking or savings account, they rely mainly on alternative financial services. Low-income households, with incomes of $30,000 or less, constitute 71% of unbanked/underbanked households, and minorities (54% of African American and 43% of Hispanic households) are more likely to be unbanked/underbanked.

Over 66% of unbanked Americans use alternative financial services such as payday loans, non-bank money orders, check cashing, and other high-cost, predatory financial services. The alternative financial services industry clearly targets these low-income and minority communities. As result, those who can least afford it are forced to use high-cost alternative financial services. 

To address this situation, Rep. Joseph Baca (D-CA) recently introduced H.R. 1909, which would create a charter for Federal Financial Services and Credit Companies or FFSCCs. The supposed purpose of the bill is to establish a safe financial market and provide services to the unbanked and underbanked. To do this, the Office of the Comptroller of Currency (OCC), which charters and regulates national banks, would create a special charter for FFSCCs. Financial institutions that provide at least two of the following criteria are eligible for a charter: (1) have a history of providing unbanked persons with financial products and services; (2) extend credit to consumers in an amount for $10,000 or less; or (3) issue reloadable stored value cards to consumers or small businesses. For instance, entities that issue money orders, send and receive money orders, provide check cashing, bill payment and/or tax preparation services could all apply for a charter.

Although unbanked/underbanked populations clearly rely on these types of alternative financial services, the solution to this problem is not to encourage such use by legitimizing these companies, but rather to help the unbanked/underbanked gain access to the mainstream financial system.

In other words, if the purpose of the bill is to ensure banking and credit opportunities, then why not do this within the current banking structure? For example, mainstream banks could be required to provide more small-dollar loans as an alternative to payday lenders. Providing access to credit for the 50 to 70 million of Americans who have no credit scored or have a thin file, by reforming the current credit system to make it more transparent and researching whether or not reporting non-traditional data such as utility bills and rental payments would be beneficial to those with limited credit data, is another solution. Similarly, reforming the Community Reinvestment Act (CRA) to make CRA exams more stringent and the penalties for low CRA scores stiffer is another solution. Funding BankOn USA, as President Obama requested in his 2011 budget proposal, would also provide low cost, mainstream checking and savings accounts, as well as financial education to low- and moderate-income individuals. These and similar programs are what is truly needed to ensure that low- and moderate-income individuals and minority communities have sound financial options and not just “chartered” fringe lending options.

Simply legitimizing payday lenders and other fringe financial services without reforming their products will not provide safe and viable banking solutions to the unbanked/underbanked. If the reason for creating a FFSCCs charter is to provide the OCC with the authority to regulate their products that’s one thing. Capping interest rates on payday loans and limiting fees on check cashiers would be a legitimate and laudable goal. But there is nothing in the bill that suggests this would be the case. Instead, it appears that the bill would create a two tiered financial market—the mainstream one for the wealthy and the special one for those less well off. In addition to continuing to ostracize the poor by leaving them out of the mainstream, such action would put the nation back 100 years into the “separate, but equal” era. Given that the racial wealth gap has continued to grow—it doubled between 2005 and 2009 such that white families now have 20 times the wealth of black families and 18 times the wealth of Hispanic families—why would we want to create a charter that would continue financial discrimination when there are so many options for providing high-quality, low-cost banking solutions to all?

Or perhaps the purpose of the bill is simply to give the OCC back some of the regulatory power that it lost under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Yet, between 1995 and 2007 the OCC issued only one public enforcement action against a large bank, even though it was the only regulator to have jurisdiction over the largest national banks in the country. Clearly, it is a bad idea to provide the OCC with more powers since it didn’t use its previous powers to properly regulate banks the way it should have. As a result, tax payers paid $700 billion to bail out national banks who were allowed by their regulator, the OCC, to engage in subprime lending, risky mortgage-backed securities, and other costly, unsound business practices. The OCC’s recently released revised preemption rules, which completely ignored the changes required under Dodd-Frank, demonstrate that the OCC still does not intend to place consumers first. Section 1044 of Dodd-Frank allows the OCC to preempt state consumer protection laws only if (1) they discriminate against national banks; (2) they prevent or significantly interfere with the exercise by the national bank of its powers, as stated in the Barnett Bank case; or (3) the state law is preempted by another federal law. Yet, the OCC’s proposed regulations implementing these requirements would permit the OCC to preempt laws if they merely “obstruct, impair, or condition” bank operations—a standard that is clearly broader than Dodd-Frank allows.

The Consumer Financial Protection Bureau was created to ensure that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services be fair, transparent, and competitive. It already has the authority to regulate financial products such as check cashers, debt collectors, and others as well as. And 74% of voters polled say they support having a single entity with the mission of protecting consumers from deceptive practices. So if the institutions mentioned in the FFSCC Act fall under the jurisdiction of the CFPB, and the majority of Americans want one bureau to regulate banking institutions, and thus far, the OCC hasn’t done enough to regulate banks, why would we pass a bill giving them another charter to regulate and legitimize predatory lenders?

This blog post was co-authored by Ali Terkel.

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