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

Over the past 20 years, electronic deposit and electronic benefit transfers (EBT) have replaced paper checks for the delivery of public assistance benefits. EBT systems deliver government benefits by allowing recipients to use a plastic card to access their benefits through ATMs and point of sale (POS) devices located in select retail outlets.

One reason that EBT systems have become so popular is that states have found that they can save millions of dollars by "outsourcing" the provision of these benefits to big financial firms. In fact, JP Morgan is the largest processor of food stamp benefits in the United States.

JP Morgan has contracted to provide food stamp debit cards in 26 states and the District of Columbia. JP Morgan is paid for each case that it handles, so that means that the more Americans that go on food stamps, the more profits JP Morgan makes. Considering the fact that the number of Americans on food stamps has exploded from 26 million in 2007 to 43 million today, one can only imagine how much JP Morgan's profits in this area have soared.

J.P. Morgan also provides unemployment insurance benefit debit cards in seven states which is ironic since it, along with other big Wall Street banks, was a major contributor to the financial collapse that lead to tens of thousands of Americans becoming unemployed. 

It seems grossly unjust that the very Wall Street financial institutions that caused the recession and received bailouts from the U.S. government and tax dollars during the financial crisis are now making money off the recession and their victims again – low income families and taxpayers. Moreover, one of the programs that was on the chopping block during the debt debate was the food stamp program. In other words, Congress was prepared to cut food assistance to families, but did not even bother examining whether big banks’ profits from administering food stamp program benefits should be cut.

As part of the recent Wall Street reform, the Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB, which became operational on July 21^st, is now the sole federal agency focused on consumer protections. Among its responsibilities is supervision and enforcement with respect to the laws over providers of consumer financial products and services. As such, one of its early efforts should be to review the practice of continuing to allow financial institutions to profit off the very consumers they helped to defraud and deplete their assets in the first place.

To learn more about the CFPB visit its website.

To learn more about issues surrounding the electronic payment of public benefits you can view the Shriver Center’s webinar, The Next Frontier: in Public Assistance: Electronic Payment Cards.

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On June 30, the Senate passed the Wall Street Reform and Consumer Protection Act, which is designed to address the regulatory weaknesses blamed for the 2008 financial crisis and to protect consumers from future abuses by the financial services industry. The bill, popularly known as the Dodd-Frank bill, has finally made its way to President Obama’s desk after a year of debate, passing into law one of the largest financial reform overhauls in history since the Great Depression.

Ambitious in its scope, the 2,300 page bill will transform the way banks, credit rating agencies, and other financial institutions operate. Some of the major overhauls include: 

• Creating a financial oversight council that will monitor bank holding companies with assets over $50 billion, as well as non-bank financial companies the council deems a systemic risk to financial stability.
• Giving the Treasury Department authority to appoint the Federal Deposit Insurance Corporation (FDIC) as receiver of any financial company to deal with “too big to fail” entities.
• Merging the Office of Thrift Supervision (OTS) into the Office of the Comptroller of Currency (OCC).
• Requiring large hedge and private equity funds to register with the Securities and Exchange Commission (SEC), thus including them within federal oversight for the first time.
• Creating the Federal Insurance Office, which will monitor all aspects of the insurance industry and identify regulatory gaps that could lead to systemic risk for the industry and consumers.
• Changing the capitalization requirements of bank holding companies, including the establishment of counter-cyclical capital and leverage requirements so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction.
• Enacting rules to ban proprietary trading, holding or obtaining an interest in a hedge fund or private equity fund.
• Subjecting derivative markets to federal regulation and oversight for the first time.
• Requiring that every public company provide for non-binding shareholder votes on executive compensation.
• Authorizing the Treasury Department to establish progress standards for financial institutions that make an effort to provide alternatives to payday loans.
• Reducing the amount of the Troubled Asset Relief Program (TARP) from $700 billion to $475 billion.
• Enacting mortgage and anti-predatory lending reforms, including good-faith determination of a consumer’s ability to repay a loan, prohibition on steering incentives, limitations on high-cost mortgages, and appraisal requirements.
  

The centerpiece of the bill is the establishment of the new, independent Consumer Financial Protection Bureau (CFPB) with only one job: protecting consumers who buy financial products at banks and non-bank lenders, from mortgage companies to payday lenders.

The CFPB will have the authority to write and enforce consumer protection rules for banks and non-bank financial firms to ensure consumers are protected from unfair or abusive practices. Additionally, the CFPB will have the ability to examine banks and credit unions with greater than $10 billion in assets, all mortgage-related business (e.g., lenders, servicers, mortgage bankers) and large non-bank financial businesses (e.g., payday lenders, debt collectors and consumer reporting agencies).

This legislation is a victory for the Obama Administration and advocates for reform across the country, including the Shriver Center, who have been pushing for oversight since before the collapse of the housing market. Despite heavy lobbying from financial institutions against oversight and regulation, this bill demonstrates a commitment to protect Main Street from Wall Street abuses.These fundamental changes to the financial regulatory system, critical to protect Americans' financial well-being, will become law when the president signs the bill today. The Shriver Center applauds Congress and will continue working to help implement the new legislation. 

Susan Ritacca coauthored this article.

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Remember the show, Let’s Make a Deal, with Monty Hall? Well, it's back--sort of. For more than a year, Congress has been saying that it’s close to making a deal on legislation to overhaul America’s health care and financial systems. 

The original Let’s Make a Deal show was based on the show’s host, Monty Hall, offering deals to members of the audience. The contestants usually had to weigh the possibility of an offer being for a valuable prize, or an undesirable item. In its simplest format, a contestant was given a prize of medium value (such as a television set), and the host offered the contestant the opportunity to trade for another prize. However, the offered prize was unknown. It might be concealed on the stage behind one of three curtains, or behind "boxes" onstage, or within smaller boxes brought out to the audience.

Congress seems to have brought this classic TV game show back. “We’re close to a deal,” on health care legislation. “We’re close to a deal,” on financial reform legislation. 

Health Care Reform

The need across the country for health insurance reform has not abated. Americans agree that the nation's health insurance system is broken, but Congress still hasn’t sent a bill to President Obama to fix it. The current deal on the table is for the House to pass the Senate’s bill and then for both chambers to pass a budget reconciliation bill that resolves their differences. The proposed deal would ban insurance companies forever from denying coverage to children with preexisting conditions and from dropping coverage when an individual becomes sick. Insurance companies would no longer be able to randomly hike premiums or to impose lifetime or annual limits on the amount of care someone can receive. All new insurance plans would be required to offer free preventive care so that illnesses may be caught early. Young adults will be able to stay on their parents’ insurance policies until they are 26 years old. Uninsured individuals and small business owners would have the same kind of choice of private health insurance that members of Congress get for themselves. And individuals who do not have insurance coverage through a large group could be part of a bargaining pool that negotiates lower rates. Also, if an individual is ineligible for Medicaid but still can’t afford the insurance offered through the pool, she or he would receive a tax credit to assist with this cost. Finally, this deal would provide a new, independent appeals process if a claim has been unfairly denied.

It’s time for Congress to take the deal and make health insurance available and affordable for all.

Financial Regulation Reform

After the catastrophic financial crisis, President Obama called for the creation of an independent Consumer Financial Protection Agency, which would have as its sole mission the protection of consumers. It would create and enforce clear rules to ensure fairness of credit card terms and conditions, overdraft loan programs, payday and car title loans, and mortgages. In the fall, the House of Representatives passed legislation creating such a new Consumer Financial Protection Agency, which would provide the type of consumer protections that should have been in place all along. The Senate, however, has been debating the issue for months.

Specifically, Senate Republicans and the financial-services industry have opposed the creation of such an entity. Instead they would prefer that the Federal Reserve continue to be responsible for consumer protection as part of its regulation of nationally chartered banks. The central bank has always been responsible for the health of the nation's largest banks and the safety of American borrowers; however, its failures in both roles have been well documented. For years, the Federal Reserve primarily focused on monetary policy over bank supervision and often made consumer protection an afterthought. As a result, millions of American families have been left unprotected and financially unstable.

Additionally, the Federal Reserve only regulates banks, which would mean that the so-called shadow banking system of payday lenders, debt collectors, and loan originators and servicers would remain unregulated. The power of these entities has been demonstrated by the huge role they had in the current economic crisis. Allowing them to continue their predatory practices without being regulated would not be a deal on reform but rather a continuation of the status quo. Lawmakers have repeatedly said that they are close to a deal on this very divisive issue. Yet, proposals to let the Federal Reserve remain the primary regulator of consumer protection laws, is not a deal, it’s just the status quo. 

Well Monty, Where’s the Deal?

Congress seems to be weighing the possibility of whether reforming health care and financial systems will ultimately be valuable prizes, or undesirable items. Yet, rather than holding onto its existing undesirable prizes, Congress should choose Door #1, quality, affordable health insurance reform NOW and a dedicated agency to monitor and rein in the reckless behavior of financial institutions. 

Well Congress, where’s the deal?
 

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