From the Dispatch

Payday Lending Abuses Reined In, As Colorado Joins Other States in Reform

Cristina Francisco-McGuire — Mon, 17 May 2010 12:37:16 -0400

The payday lending trap has been shorting working families to the tune of nearly $5 billion per year ever since the industry exploded onto the scene in the 1990’s. The number of payday lending institutions has jumped exponentially from 500 in 1990 to about 22,000 today (compared with 14,000 McDonald's), mainly targeting low-income African American and Latino communities.

But two weeks ago, Colorado enacted payday industry reforms, squeaking by with a one-vote margin in the Colorado House. Though lenders can still charge a $75 origination fee as well as monthly fees of up to $30 on top of interest, the bill addresses cycles of debt by capping APR interest rates at 45% and mandating that borrowers be given as long as six months to pay back loans.

Colorado’s joins sixteen other states and the District of Columbia which have already passed limits on interest rates for short-term loans, ranging from 17 percent to 60 percent.

Beyond Capping Interest Rates: A number of other reforms have been enacted or proposed in other states to prevent workers being bled dry by payday loans, including:

Oregon approved SB 993, which toughened existing predatory lending regulations by requiring any lender that derives more than 10% of its business from payday loans to acquire a license from the Dept. of Consumer and Business Services to conduct business, on top of the licenses already required by state and local law. The new law also creates new notice, reporting, and regulatory compliance requirements for payday lenders, the non-compliance of which can result in fines and other penalties.
Illinois’ HB 537 caps the APR on payday loans to 99%, indexes the loans based on the borrower’s ability to pay, and would require loans to be paid off in equal monthly installments with no balloon payments. After passing the House in April, it cleared the Senate in May and is waiting for a concurrence vote in the House.
The Ohio House passed HB209, which limits fees charged by payday lenders. Though Ohio already caps APRs at 28%, the fees were a way for lenders to get around regulations. Though it faces a tough battle in the Senate, Gov. Ted Strickland supports the legislation.
SB 193 passed both houses of the New Hampshire legislature, and establishes a 36% APR cap on all small loans under $10,000, including payday loans.
Though Iowa’s HF 2127, which would give payday lenders the option of capping the APR for loans at 36% or limiting the number of loans per borrower at six per year, was one vote short of moving out of a subcommittee, momentum is building. After 60 members of the Iowa Citizens for Community Improvement managed to shut down the operations of an Ace Cash Express in Des Moines in December 2009, Des Moines City Council members voted unanimously on May 13, 2010, to a six-month moratorium on new payday loan stores in the city.

Unfortunately, two states passed weaker legislation designed to appease the payday lending industry, throwing consumers under the proverbial bus in the process. Utah and Wisconsin both caved to threats that the industry would shed jobs with further regulation, approving bills that stopped short of requiring much-needed limits on interest rates.

Stopping Steps Backward: Advocates are also working to defeat legislation in California, AB 377, that would be a huge step backward, increases the maximum payday loan amount from $300 to $500 and allows lenders to charge consumers an APR as high as 459% for a two week loan. It would also establish de facto legalization of internet payday lending. It passed the Assembly in May 2009 and is awaiting a hearing in the Senate Judiciary Committee.

See the Center for Responsible Lending for more of the latest news on payday lending reform here. For a useful infographic on how payday lending works, visit The Consumerist.

Resources:
Center for Responsible Lending - Pay Day Lending
Coloradans for Payday Lending Reform
Consumer Federation of California, “CFC Opposes AB 377 (Mendoza) – Pro Payday Lenders, Anti Borrower”
Consumerist - How Predatory Lending Works, From Payday Loans To Rent-To-Own

Financial Reform: Keep State AGs and State Law on the Beat Against Predatory Lending Practices

Nathan Newman — Mon, 10 May 2010 12:22:39 -0400

As Congress debates federal financial reform legislation, a key priority for financial industry lobbyists remains gutting provisions that would strengthen enforcement by state attorneys general and stopping the partial restoration of state powers to regulate national bank abuses against consumers. As we detailed three years ago, much of the damage to communities from subprime lending might have been avoided if the Bush Administration had not been able to shut down most state anti-predatory lending laws early in the decade.

Strengthening state power to regulate abuses by national banks has been a priority for reformers from the beginning of the financial reform process. While the bill approved in the House and the current leadership proposal in the Senate are not as strong in preserving state enforcement powers as some early proposals, under them state attorneys general would still retain the power to enforce federal law against national banks. Federal authority to preempt state banking laws would also be more limited than under our current laws. One broad amendment to keep current bad federal preemption of state banking laws was rejected last Thursday, although most conservative Senators voted for it. (Note that "states' rights" inevitably lose out in conservative hands when corporate interests want federal power to trump state regulations).

Stopping Bad Senate Deals on Preemption: Newspapers continue to report on deals being negotiated between conservative Democrats and Republicans to undermine state regulatory authority, even as national consumer leaders continue to speak out against any further preemption compromises. A letter sent to Senators on Friday by Americans for Financial Reform, a coalition made up of over 250 consumer, labor and civil rights groups, highlights the key arguments for why expanding state authority is so critical, including:

"Help from state AGs is critical to ensuring that consumers have at least minimum protections against reckless Wall Street practices. In addition, consumers are much more likely to complain to, and get a response from, state-based enforcement agencies."
"States need to be able to address new problems before they spread nationally, without waiting for federal regulators to notice them and respond... States that had tough anti-predatory lending laws (until they were preempted) had lower foreclosure rates than states without those laws. After state laws were preempted, national banks made riskier loans."
"It is critical to require a case-by-case assessment of state laws for purposes of federal preemption rather than permitting state laws to be wiped out broadly without due consideration for each law... the protections in the bill against excessive preemption need to be strengthened, substantively and procedurally, to ensure that the [federal government] must undertake a serious inquiry and not a pro forma one."

With critical votes happening all this week, Americans for Financial Reform has an action page with key alerts and tools for contacting Congress to express the need for real financial reform, including keeping authority in the states to protect consumers from national bank abuses.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Elizabeth Warren and Attorney General Lisa Madigan Speak Out Against Preemption Deal
Americans for Financial Reform - Keep State Attorneys General On The Predatory Lending Beat: Oppose Amendments To Further Preempt State Authority

Public Employees Earn Substantially Less than Private Sector Counterparts

Altaf Rahamatulla — Thu, 29 Apr 2010 12:24:45 -0400

Refuting right-wing attacks on state workers, a new report by the National Institute for Retirement Security (NIRS) and the Council on State and Local Government Excellence (CSGE), Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years, demonstrates that state and local employees earn an average of 11 and 12 percent less, respectively, than comparable private sector workers.

In the past year, 42 states have either slashed public employee wages, required furloughs, imposed hiring freezes, or cut state workforce positions. The Center on Budget and Policy Priorities (CBPP) reports that since August 2008, state and local governments have eliminated approximately 192,000 jobs. These types of actions not only diminish the quality of public service provision, but additionally hurt working families.

With the economic downturn fostering a renewed interest in public employee compensation and privatization schemes, this report serves as a critical resource to push back against some of the misguided claims that target state workers' wages as a primary cause of budget shortfalls. Some of the most significant findings include:

On average, public sector jobs demand higher education levels compared to the private sector. State and local government workers are twice as likely to have a college or advanced degree.
Although pensions make up a larger share of public employees overall compensation, state and local workers' total compensation is 6.8 and 7.4 percent lower than comparable private sector workers.
The public-private wage gap has only widened in the last 20 years. As the graph below illustrates, state public employees of comparable skill levels were almost reaching wage parity with private sector counterparts in the late 1980s, but their relative pay fell sharply during the 1990s.

The report also analyzes states with large populations -- California, Texas, New York, Illinois, Michigan, Pennsylvania, and Florida -- and finds that this general wage dynamic exists across the country. As the authors point out, "[t]his recession calls for equal sacrifice, but long-term patterns indicate that the average compensation of state and local employees is not excessive. Indeed, if the goal is to compensate public and private workforces in a comparable manner, then the data do not call for reductions in average state and local wages and benefits."

Resources:
Center on Budget and Policy Priorities - An Update on State Budget Cuts
National Institute for Retirement Security and the Council on State and Local Government Excellence - Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years

No Crisis in Public Retirement Systems: Debunking the Hype and the Attacks on Employee Benefits

Nathan Newman — Mon, 22 Feb 2010 14:25:29 -0500

For years, right-wing groups have been beating the drums to roll back decent pensions and retirement benefits for American workers. At the federal level, Wisconsin Congressman Paul Ryan, ranking member on the U.S. House Budget Committee, proposed a "Road Map" plan to privatize social security, cut payments and slash Medicare benefits for all seniors.

Similarly, state-based conservative groups like the American Legislative Exchange Council (ALEC) have called for cutting public employee pension and health care benefits and replacing them with less secure 401k-style plans that would inevitably leave many retirees in poverty.

Yet despite these attacks and in the midst of financial meltdowns in the private sector, state public pensions are largely a success story, riding out the economic storm, delivering benefits to families, helping drive economic demand in state economies, and projecting solvency for decades to come.

Don't Believe the Hype: It's unfortunate that a report last week from the Pew Center on the States added to right-wing doomsaying about state retirement systems with its alarmist title, The Trillion Dollar Gap: Underfunded state retirement systems and the road to reform. In fact, the actual substance of the report paints a pretty positive story about fiscal responsibility by most states and highlights well-funded pensions with trillions of dollars in assets available to deliver benefits in coming decades.

As this Dispatch will emphasize, there is no crisis in most state retirement systems, even according to the numbers of the researchers demanding state leaders take unneeded action to cut the incomes of retirees. And despite the hype from a few carefully selected anecdotes of retirees gaming pension systems, the reality is that the overwhelming number of public employees receive pretty bare-bones benefits, in some cases not enough even to keep them out of poverty.

We do need a debate on public pensions, but one that sees protecting them as part of a broader campaign to restore retirement security for all American workers, especially in the wake of a stock market collapse that has revealed the empty promises of Wall Street in hyping 401k-style private accounts as a substitute for the guaranteed retirement income of social security and defined-benefit pensions. Public pensions are actually a key tool for driving economic growth in the states, both through the purchasing power of retirees themselves and through the direct investments of pension assets in job creation. Any reforms undertaken should be done to both enhance the positive economic role of retirement systems in our state economies and to increase equity among retirees to raise living standards for low-income retirees.

Please join us for a conference call on this issue this Friday, February 26th at 1 pm EST for a national conference call and online webinar to discuss the debate over funding state retirement systems and facts policymakers should know in making related decisions.

Table of Contents:

- The Non-Existent Public Pension Funding Crisis

- Most Public Employees Do Not Have Generous Retirement Benefits

- Pension Systems are Engines of Economic Growth

- Useful Pension Reforms States Can Take

- Conclusion

- No Crisis in Public Retirement Systems Conference Call Recording and Webinar Slides

The Non-Existent Public Pension Funding Crisis

When budgets are tight, stories about underfunded state retiree benefits make for good newspaper stories, but the details of the Pew study -- if you ignore their press release -- is actually a compendium of good news:

State employee pension plans are providing reliable post-employment income to millions of working Americans.
States have put away $2.35 trillion in assets in dedicated investment funds to cover expected costs for those benefits over coming decades.
According to best actuarial practices, aggregate state pension funds are 84% funded for expected expenses over the next thirty years, which is actually more than the 80% level recommended by most experts, including the U.S. Government Accountability Office.

As the Government Accountability Office wrote last year in a similar report:

[M]ost state and local government pension plans have enough invested resources set aside to pay for the benefits they are scheduled to pay over the next several decades… pension benefits are generally not at risk in the near term because current assets and new contributions may be sufficient to pay benefits for several years.

While at the end of fiscal year 2008, 21 states had funding levels below the 80 percent mark, some states below this mark will need to make adjustments to current defined benefit plans can address those issues and states have time to craft changes that will avoid unintended consequences and achieve long term plan viability. The report does note reason for concerns with regards to pre-funding retiree health benefit costs. However, unlike pension benefits, governments have the option to prefund health care or continue to pay as you go. As we all know, the challenge on all forms of health care costs has more to do with finding comprehensive solutions in health care.

Debunking the Crisis Rhetoric: The Pew study trades in the dauntingly large numbers involved in public pensions to create its headline-chasing hype out of all this good news.

Adding up projected costs for pensions and health care benefits, Pew calculates a thirty-year $1 trillion shortfall, but, when compared to total spending by states over the next thirty years, that $1 trillion "gap" projected by Pew is statistical noise likely to be dwarfed by all the other forces shaping state budgets. As the graph at the right indicates, if you just multiply total state spending projected for fiscal year 2010 -- roughly $1.5 trillion -- by the projected thirty years, the retiree benefits "gap" is tiny. And this overall state spending projection is highly conservative, since it ignores likely spending and revenue increases due to population and per capita income growth.

Retiree Benefit Costs Mostly Not Paid By Current Taxpayers: To heighten the sense of taxpayer anxiety over retiree benefits, Pew argues that its own hyped $1 trillion gap "amounts to more than $8,800 for every household in the United States." The problem is that even that $8,800 number, divided by thirty years, amounts to only $300 per year. Since employees already themselves pay for 40 percent of the per-investment contributions made to cover their retirement and investment income covers much of the rest, taxpaying households would be expected to pay something on the order of 25% of the $300 per year -- or roughly $75 -- to cover the retirement costs of teachers, nurses and other state employees.

This is just a projected cost and may never come to pass in any case.

To put this non-crisis in perspective, the Government Accountability Office said last summer, "our analysis shows that state and local governments on average would need to increase pension contribution rates to 9.3 percent of salaries— less than .5 percent more than the 9.0 percent contribution rate in 2006 to achieve healthy funding on an ongoing basis." Divided between employees and employers in whatever way negotiated, this is hardly an earth-shaking departure from the status quo.

To put these numbers in further perspective, back in the 1990s states had such strong investment returns that pension assets shot up so dramatically that many pension funds were over-funded (Pew 24). So when the current economic crisis passes, it is quite possible that the current hype about underfunding will just yield over-funded retiree funds.

Overall, Pew’s and other groups' attempts to inflame the issue of of pre-funding retiree benefits is not helpful. States are already mostly doing a good job on pre-funding pension obligations and have made inroads in pre-funding non-pension obligations such as retiree health benefits. The amounts needed to fund obligations may be large but can be set aside over time.

Resources:
Pew Center on the States - The Trillion Dollar Gap: Underfunded state retirement systems and the road to reform
U.S. Government Accountability Office - State and Local Government Retiree Benefits: Current Funded Status of Pension and Health Benefits

Most Public Employees Do Not Have Generous Retirement Benefits

Instead of using the hype around supposed underfunded retiree benefits to justify cutting pension income and health care for retirees, states should instead be discussing whether the modest pensions retirees do receive are enough to retain a strong workforce for our schools, public hospitals and other public institutions going into the future.

The basic numbers show that public pensions provide solid, but hardly overly generous support to most retirees and leave many retirees in need due to the low levels of support they receive. In fiscal year 2006, the last year for which the U.S. Government Accountability Office had full information, state and local government pension systems covered 18.4 million members and made periodic payments to 7.3 million beneficiaries, paying out $151.7 billion in benefits. That comes out to $20,780 per beneficiary per year. While modest, as the National Institute on Retirement Security has documented, defined benefit plans are key factors in many families in reducing the risk of poverty among the elderly.

Even those modest amounts were covered largely through investment returns, with public employees themselves contributing an average of 40 percent of non-investment contributions to their own retirement (Pew 10). In a number of states, public employees don't even qualify for social security, so funding pensions in those states or occupations is not a supplement to federal retirement benefits, but a complete substitute.

A few examples of retiree pension benefits from around the country:

California has the largest pension system in the country with 492,513 retirees receiving average monthly benefits of $2,101 ($25,212 annually) from the CalPERS system based on an average of 20.1 years of service.
Illinois: The average monthly benefit for current year retirees in Illinois was $2,574.36 ($30,888 per year) with average service of 25.4 years. Most employee groups pay 8% or more of their salary into the system. Those receiving social security receive less than that average-- $1,868.68 per month in the main State Employee Retirement Service (SERS).
Iowa: In fiscal year 2009, 89,847 retirees received an average monthly payment of $1,064 per month. Even those with more than 30 years of service received only an average of $2,071 per month. Current state employees paid $271 million out of their own paychecks (compared to $451 million by Iowa governments) for support of the system.
Louisiana: Notably, Louisiana public employees don't receive social security, so the average annual benefit they receive of $19,552 is often all they have to live on. Because of this, the Baton Rouge Advocate detailed in 2008 that many retired state employees live in poverty after decades of full-time work for the state.

According to AFSCME, the union which represents many state and local employees across the country, the average annual benefit for their retired members is $18,000 per year, which is a small gain from seven years ago, when the median annual benefit was $13,000 according to the Employee Benefit Research Institute.

A Few Anecdotes Don't Represent the Real Story on Retiree Benefits: While the media often focuses on the tiny minority of public employees who game the system to receive the occasionally outrageous benefits -- although usually nothing compared to extreme private sector bonuses and retirement packages -- those examples are exceptions and not representative of the norm. For example, the Orange County Register identified 24 retirees in the state that received benefits in excess of $200,000 per year, but they also noted that over half of retirees received $15,948 per year or less. As the Register noted, it's often just a handful of managers or a few other employees abusing the system that spike the overall dollar numbers, giving a false impression of the benefits available to most public employees in retirement.

The biggest mistake for policymakers would be to cut benefits for all retirees in response to news stories about a few outliers exploiting the system. In fact, such inequities for high-paid retirees may be statistically disguising the fact that other employees are receiving too meager retirement benefits; state leaders should consider raising the pensions of low-paid retirees even as they stop the abuses by others.

Public Employee Unions are Not Driving Underfunding of Retiree Benefits: Part of the rhetoric around high-paid retirees and the supposed public pension crisis is blaming public employee unions for pushing states into fiscal crisis. Yet as the graph below indicates, courtesy of the Center for Economic and Policy Research, there is zero correlation between the degree of state employee unionization and how well funded state plans are. In fact, New York state has the highest unionization rate in the country and the highest funding level compared to its liability of any state, while other high unionization states like Connecticut and Rhode Island share honors with low-unionization states like Kansas and Louisiana for falling somewhat below the 80% goal for pre-funding retiree obligations. What's clear is that budgetary factors quite unrelated to the level of public employee unionization are the main factors in how well states pre-fund their pension obligations.

Seeking equity in retiree benefits: Since public employees in most states make significant individual contributions to pre-funded pension systems, the real focus for state leaders should be ensuring that equity is achieved among retirees and that all retirees receive the income and support they need when they do retire. Policymakers should consider overall plan funding and sustainability, not across-the-board benefits cuts for future workers, in seeking to strengthen retirement systems for all retiring workers.

Resources:
NIRS - The Pension Factor: Assessing the Role of DB Plans in Reducing Elder Hardships

Pension Systems are Engines of Economic Growth

Beyond helping public employees themselves, policymakers should understand that pension and other retiree benefit programs are key engines for driving job creation in their states, both through direct spending on behalf of retirees and through pension fund investments in local businesses. Instead of the narrow focus based on fiscal fears and benefits cuts recommended by Pew and others, state leaders should step back to better understand how to enhance the positive economic role retirement systems play in their state economies.

State Governments are Neither Households nor Regular Employers: A common mistake in discussing state budgets is to discuss them with analogies to household budgets or to compare the government to private employers. But there is a crucial difference-- states spend money, but they also collect revenues based on the economic activity generated by their spending. When households or private employers spend money, the money is gone. But when a state spends money, at least part of the money goes to purchases on which the state collects sales taxes or property taxes, while the people or companies receiving the funds in turn generate more economic activity. And part of that economic activity returns to the state in the form of taxes that can, in turn, be reinvested to promote more economic activity.

For example, states spend money on the education of children partly in order to promote future economic growth that will in turn yield the tax revenue that will fund the retirement costs of future retirees. Spending by those retirees will go to hospitals, restaurants, and a range of other services that will employ the adults those children will have become. So pensions are never simple "costs" but are part of a broad economic system that sustains whole communities over time.

Direct Effect of Pension Spending in States: The National Institute on Retirement Security (NIRS) recently found that the benefits provided by state and local government pension plans have a significant economic footprint: 2.5 million American jobs and $358 billion in economic impact. As the study notes, public employee pensions are key economic drivers in many communities:

The steady, monthly benefit payments offered by public pension plans provide peace of mind and security for retirees, but local economies, in turn, benefit from the regular expenditures these retirees make on food, medical services, transportation, and even the occasional movie matinee. Public pension payments are vital to small communities and economies across the country where, due to lack of diverse local industries, other steady sources of income may not be readily found.

For each dollar paid out in pension benefits, $2.36 in total economic output was supported. Since taxpayer contributions are only a small part of funding for pensions, with investment earnings and employee contributions financing most of the benefits, the taxpayer dollars that are invested actually yield $11.45 in total economic output due to pension benefits for every $1 of taxpayer funding. It's hard to identify any public investment that leverages similar economic growth multipliers.

To put the costs of funding any "gap" in retiree benefits in perspective, NIRS estimates that pension spending by retirees generates $21.2 billion in state and local taxes annually-- with the federal government receiving $29 billion in federal tax revenues due to public employee pension spending.

Download fifty state fact sheets on the economic impact of state and local pension plans here.

Pension Investments Support Local Job Creation: The NIRS report only looked at the economic impact of the pensions directly paid to retirees, but pension funds also creatively use the investment money they hold to promote job creation in states across the country. As we described last month in the first of our State Job Creation Strategies series, states are increasingly using state pension fund investment dollars to provide capital for local job creation and business start-ups.

One study found that the California Public Employees' Retirement System's in-state investments fed an estimated $15.1 billion into in-state economic activity in 2006 and created 124,000 jobs-- more jobs than the construction or motion picture industries. Florida recently redirected $1.95 billion of the state's pension fund into direct investments in Florida's economy, while Indiana's public pension funds collaborated with state universities and various health-based companies to launch the Indiana Future Fund to support Indiana companies, especially in the life sciences and high technology arena.

Given the erratic investment patterns of the traditional banking industry, the $2 trillion plus in state pension funds may be an increasingly important source of capital for such local businesses.

Resources:
National Institute on Retirement Security - Pensionomics: Measuring the Economic Impact of State & Local Pension Plans and 50 State Fact Sheets
Progressive States Network - State Job Creation Strategies Part I: Finding the Money and Investing in Human Capital and Physical Infrastructure
CalPERS - CalPERS - An Economic Engine

Useful Pension Reforms States Can Take

Even if there is no immediate fiscal crisis facing public employee pensions, there are reforms worth pursuing for their own sake to improve pension fund performance and to increase equity between employees within the pension system. Improving the administration of retirement plans and ending the abuses by the minority of employees exploiting the system will both increase confidence in the retirement system and free up resources to improve benefits for the many retirees who are just getting by. Such reforms include:

Improve the Corporate Governance of Pension Systems: Overall, the National Institute on Retirement Security has found that public pension funds have done a better job than many private investment funds in managing both external investment challenges and internal conflicts over priorities. Still, to avoid some of the scandals a few funds have been involved with, the public employee union AFSCME has produced a report reviewing best practices by pension funds across the country, including specifying board member responsibilities, tightening ethical conduct, prohibiting insider trading and conflicts of interest, prohibiting campaign contributions, and disclosing communications.
End "Spiking": Pension benefits are supposed to reflect the employee’s salary level and are thus based on the worker’s wages in the final years of his or her employment. Workers have found ways to boost their salaries in those final years, greatly increasing the level of benefits to which they are entitled. One example of bill language to curb such abuses is Colorado's SB1, which would limit annual increases for final average salary formula purposes to 8%.
End Double-Dipping: Another abuse cited in pensions is "double-dipping" where retirees who are given their pensions then come back to work for a new salary, often the day after they "retire." A number of states are looking at reforms, including New Mexico, where the Senate recently approved SB 207 to require workers to sit out for 12 months following retirement before returning to government work–and then stop receiving their pensions for as long as they work.
Better Fund Retiree Health Care Benefits: The Governmental Accounting Standards Board (GASB) has set new standards over the last few years which call for employers, including public employers, to quantify and report on the size of retiree health care benefit liabilities. Many states, in the short time they have been required to disclose health care obligations for retirees, have done a good job of beginning to pre-fund these obligations. Those that have not have time to begin taking the responsible legislative actions needed to increase funds available to pay down future costs.

All of these reforms will make state retirement systems more effective and more equitable engines for delivering both individual benefits to retirees and supporting economic growth in their states.

Resources:
National Institute on Retirement Security - In It for the Long Haul: The Investment Behavior of Public Pensions
AFSCME - Enhancing Public Retiree Pension Plan Security: Best Practices for Trustees and Pension Systems

Conclusion

State public employee retirement systems, like Social Security and Medicare themselves, are success stories for governments that on a daily basis improve the lives of millions of retirees across the nation and remain engines of economic growth in the communities where those retirees live. Despite hype about supposed gaps in funding and some ideologically-driven attacks on public employees by the most conservative of those critics, state public employee retirement systems are in a solid financial state in most states.

As with any institution, intelligent reforms can improve their effectiveness, sustainability and equity, but policymakers should avoid allowing trumped-up fears drive them towards ill-considered benefit cuts or the dismantling of systems of defined benefit pensions that work well. Amidst financial institutions that squandered their resources and ripped off consumers across the nation, the continuing success of state pension systems is one more example of why funding solid, public sources for retirement security is so critical.

No Crisis in Public Retirement Systems Conference Call Recording and Webinar Slides

Progressive States Network hosted a national conference call and online webinar on Friday, February 26th at 1 pm EST to discuss the debate over funding state retirement systems and facts policymakers should know in making related decisions.

Speakers on the call included:

Gerri Madrid-Davis, Executive Director, National Public Pension Coalition
Kelly Kenneally, Communication Advisor, National Institute on Retirement Security
Nathan Newman, Executive Director, Progressive States Network

To read our related Dispatch, "No Crisis in Public Retirement Systems: Debunking the Hype and the Attacks on Employee Benefits", please visit http://www.progressivestates.org/node/24607.

To download a PDF of the webinar slides, click here.

Move Your Money: Investing Public Money in Local Banks and Credit Unions to Spur Growth

Altaf Rahamatulla — Thu, 28 Jan 2010 13:12:04 -0500

In an effort to stimulate local economic growth and free up credit markets, New Mexico Sen. Tim Keller and Rep. Brian Egolf introduced HB66, which would require the state to give preference to community banks and credit unions to manage the state's general fund operating cash depository account. Currently, Bank of America holds the $1.4 billion account.

Rep. Egolf explained that he was particularly motivated by Move Your Money, an exciting campaign that encourages individuals to transfer their money from banks that are "too big to fail" and begin using smaller community banks that are much more likely to reinvest those funds in the community. The initiative is additionally a rebuke of the reckless actions of major financial institutions that led to the recession and the vast sums of government dollars that have flowed to these companies since the downturn began. As Sen. Keller explains, "[r]ight now national banks benefit from our state's taxes, every dollar of our state funds we deposit with local banks is another dollar available for New Mexican businesses and working families' mortgages and small business loans."

Strengthening Pension Fund Accountability: In a similar vein, Sen. Keller has also introduced SB18 to reform New Mexico's Investments Oversight Committee. Partly in response to pension scandals and other instances of corporate abuse, Sen. Keller intends to prevent corruption and promote good government by strengthening accountability mechanisms. To do so, the bill would ensure that the decision-making power of the Oversight Committee is not centralized in the executive branch and mandates that public members, to be appointed by various legislative officials, join the board. The bill would additionally create an Alternative Investment Advisory Committee that would provide recommendations and review certain assets and investment choices of the state's retirement board.

Other States Moving Money: New Mexico is not alone in recognizing that investing in local banks and credit unions foster growth and assist working families:

Officials in Lake Oswego, Oregon plan to invest $1 million in local banks. The city's Finance Director, Ursula Euler, commented, "[i]t was really just an idea to show our support and goodwill toward the local economy and we wanted to balance that with an investment decision."
In his State of the City Address, New York City Mayor Michael Bloomberg outlined a plan to invest $25 million in tax revenue in local credit unions: "With Albany’s approval, we’ll also strengthen neighborhood-friendly credit unions, which reach out to customers who may have never had a bank account... It’s a relatively small amount of City resources, but it will have a big impact by allowing credit unions to make more loans to more low-income families." This idea was originally proposed by the One City/One Future collaborative, who presented several innovative development and economic policy suggestions for New York City in their report, A Blue Print for Growth That Works for All New Yorkers.

The initiative is not likely to harm major financial institutions, but would have substantial impact as an engine of local growth. State lawmakers should explore the prospects of investing state funds in community banks and credit unions as a means to spur development, create jobs, assist state residents, and take proactive steps towards shoring up battered economies.

Resources:
Drum Major Institute - New York City Moves the Money
Move Your Money - Will New Mexico Move Its Money?
Newsweek - Break Up the Banks Yourself
One City One Future - A Blue Print for Growth That Works for All New Yorkers

State Job Creation Strategies Part I: Finding the Money and Investing in Human Capital and Physical Infrastructure

Nathan Newman — Tue, 19 Jan 2010 12:59:28 -0500

The fundamental challenge in this recession is that the growth that preceded it was a mirage. Bubble era borrowing created a network of financial jobs, real estate jobs and construction jobs that collapsed with the end of the bubble. Many of those jobs will never return.

An extremely high proportion (75%) of job losses in this recession are permanent rather than temporary. States will need to nurture completely new industry sectors and the infrastructure to support those jobs, while the jobless will need retraining in new skills to participate in those sectors.

The Private Sector Can't Do it Alone: As the Economic Policy Institute wrote recently, "it is likely that unemployment will remain above 8% even two years from now in the absence of bold and decisive action to create jobs." With the credit crunch and the reduction in consumer demand, small businesses are experiencing tough times. In 2008, for example, 43,500 businesses filed for bankruptcy, up from 28,300 businesses in 2007 and more than double the 19,700 filings in 2006.

What's needed: As this Dispatch will highlight, the first step is to fund jobs that support long-term economic competitiveness, notably by investing in people and physical infrastructure. While the economic climate for profit-making business opportunities is more limited, investments in education, health care, transit and energy efficiency can create immediate jobs while strengthening building blocks for long-term growth.

Next week's Dispatch will be a second part of this series on how states can nurture startups, strengthen existing industry sectors, and promote green jobs in their states.

Mobilizing for a Federal Support for Jobs and State Fiscal Relief: As we highlighted two weeks ago, a critical part of job creation will be a new round of federal job creation and state fiscal relief. We are asking state legislators to sign onto a letter to promote this job creation plan at www.progressivestates.org/jobcreation or by emailing jobcreation@progressivestates.org. Advocates can sign onto a similar letter for organizations or use our handy online tool to contact their state legislators to let them know about the job creation letter and to encourage them to sign.

Resources:
Progressive States Network - Take Action: Additional Federal Job Creation and State Fiscal Relief Needed
Economic Policy Institute - American Jobs Plan: A Five Point Plan to Stem the U.S. Jobs Crisis
Center for Labor Market Studies (Northeastern Univ.) - The Great Recession of 2007-2009: Its Post-World War II Record Impacts on Rising Unemployment and Underutilization Problems Among U.S. Workers

Direct Public Money to Investments in Economic Growth

In the current economic and fiscal crisis, finding the funds for long-term investments is a challenge, but those investments will deliver both short-term jobs and long-term economic growth to turn state economies around. States need a balanced approach of revenue increases, bonds for long-term investments and tapping existing sources of state capital like state pension funds to marshal the capital needed for economic recovery.

Raise Revenues, Don't Cut Public Investments: The recession has made clear the hollowness of the bubble economy in many states, especially in some of the low-tax, low-investment Sunbelt states touted by anti-tax forces as exemplars of economic growth.

When measuring long-term economic competitiveness, states with some of the highest marginal tax rates on individuals -- from New York to Maryland -- were supporting some of the most innovative "new economy" industries in the country, according to a 2008 analysis by the Information Technology & Innovation Foundation. As we detailed last year, progressive tax increases to fund economic recovery are the better alternative to budget cuts. Many needed investments are in the fundamentals of education and infrastructure as well as in the nurturing of new sectors where private capital is unlikely to effectively step in. Increased tax revenue to fill in government and private sector gaps in investment is clearly needed.

Use State Bonding Authority: One obvious source for funding long-term growth projects are new bonds that can be paid back with the tax revenue yielded by greater economic growth. Especially where tolls or energy savings will directly return revenue to the state from bonded investments, legislative leaders are aggressively pursuing new bond investments.

The federal ARRA recovery plan provides a two-year 35% tax credit for state Build America Bonds, which is yielding record low interest rates for states that are issuing bonds. For example, Washington state received an interest rate equivalent to 3.52 percent on $500 million in bonds issued in October. To help municipal governments take advantage of lower interest rates and lower issuance costs, nearly a dozen states have created "state bond banks" to pool the loans of local governments.

A few examples of recent state bond discussions around the country include:

The Ohio House of Representatives has approved placing a $950 million bond issue on the May 4th ballot to renew for another five years the state’s largest economic development project, the Third Frontier, which invests in research and commercialization of technology in five industries sectors and created 41,300 jobs from 2003-2008.
Last week, the Washington State House Capital Budget Committee approved sending $861 million Jobs Act Bonds to voters in November to fund schools and colleges to fund energy upgrades. The sponsor, Rep. Hans Dunshee, estimates it would create 38,000 jobs and generate energy savings that will cover much of the interest costs.
Minnesota legislative leaders are proposing $1 billion in bonds to build and repair facilities around the state.

Use Pensions Funds for In-State Investments: Unwilling to rely on uncertain global investment markets to fuel economic growth, states are increasingly choosing to directly invest in local state businesses. Instead of giving away corporate welfare and subsidies, states can offer needed capital to create a financial stake in firms. If these businesses are successful, they return equity to taxpayers that can be reinvested in other projects.

Florida Governor Charlie Crist recently signed an economic stimulus plan for the state that redirects $1.95 billion of the state's pension fund into direct investments in Florida's economy.
Washington state held $1.4 billion in Washington-based investments at the end of 2008, using the money to leverage additional capital from other sources to invest in the state.
New York held $403.6 million as of March 2009 through its Common Retirement Fund with another $500 million available to invest in New York-based businesses.
The Invest Michigan! Fund features The Michigan Opportunities Fund and the Growth Capital Fund and is capitalized with $300 million from the state's pension fund.
In Indiana, the public pension funds collaborated with state universities and various health-based companies to launch the Indiana Future Fund, an investment fund designed to benefit Indiana companies, especially in the life sciences and high technology arena.

Avoid Privatization as a Funding Source: Given budget deficits, some states are being lured by the supposed "free lunch" offered by selling or leasing public assets to private firms with the promise of upfront private investment. Unfortunately, as we have detailed repeatedly (see here and here and here), privatization of public assets are inherently likely to ripoff the public to the benefit of private interests.

As detailed in a U.S. PIRG report last year, since governments can issue tax-free bonds at lower rates than private investors, "deals based on private capital are inherently more expensive than public financing." In 2008, Missouri was planning to use some form of privatization with investors to fund an ambitious plan to repair or replace 802 bridges. Now, the Missouri DOT is funding the entire project through the sale of government bonds.

Don't Waste Money on Direct Subsidies to Businesses: One general caution for states is to limit grants, tax credits and other giveaways to business. Instead use either direct equity investments or loans that are repaid in order to replenish the supply of public capital over the long-term.

States waste money competing for firms to cross the border from another state, rather than on fostering entrepreneurship and new jobs. A recent Good Jobs First report on high-tech deals by states notes that many are extremely costly. The poster children for bad deals are North Carolina's large subsidies to Dell Corporation, who took the money, but then sent the 900 jobs off-shore four years later and New York giving microchip maker AMD (later Global Foundries) $1 million in taxpayer funds for each job being created by the firm upstate. As the report states:

Tax reductions, exemption or credits “exert a very small marginal influence on corporate investment decisions because other cost factors such as labor, occupancy and other key inputs are far larger than taxes (or tax breaks)… For the vast majority of companies, tax breaks are windfalls, not determinants, and are therefore wasted.

Redeploy Wasted Corporate Giveaways to Real Public Investments: If states do a thorough review of ineffectual subsidies, costly contracting out, and tax credits, they can generate additional revenue that can be used for more effective job creation efforts. Progressive States Network has worked with allies to outline model Corporate Transparency in the State Budget legislation and set up a supporting campaign webpage to help achieve that goal.

As the rest of this Dispatch emphasizes, states can better invest scarce public dollars in upgrading the quality of the workforce and infrastructure, rather than engaging in costly bidding wars with other states for jobs.

Resources:
Information Technology & Innovation Foundation - The 2008 State New Economy Index: Benchmarking Economic Transformation in the States
U.S. PIRG - Private Roads, Public Costs: The Facts About Toll Road Privatization and How to Protect the Public
Council of Development Finance Agencies - State Bond Banks: Municipal Borrowing Made Easy
CALPERS - CalPERS - An Economic Engine
Good Jobs First - Growing Pennsylvania's High-Tech Economy: Choosing Effective Investments
Progressive States Network - Corporate Transparency in State Budgets

Invest in People- the Key Engine of Growth

In a global economy where the quality of the workforce increasingly determines the standard of living, investing in an educated and healthy population is key to promoting state economic growth.

Invest in Education: One of the largest successes of the recovery plan has been preventing massive teacher layoffs and creating or preserving 250,000 education positions. Additional federal help will be needed to stave off reductions in the coming years, but it is a marked success that despite the largest downturn in post-war history, the core educational infrastructure of our nation has been preserved.

Why this is so important is highlighted by a number of recent studies that emphasize that investments in education have clear dollar returns to state governments.

Each new high school graduate yields a net public benefit of $127,000 or 2.5 times the cost of needed public investments, according to a Columbia Teachers College report. In fact, cutting in half the number of high school dropouts would yield $45 billion in extra tax revenues. High school graduates themselves will earn $117,000-$322,000 more in their lifetimes than dropouts, with female college graduates, for example, earning $800,000 more than dropouts.
As we detailed last spring, early education investments in particular show long-term economic payoffs. A recent Cornell University study found that funds spent in the early education sector have more stimulative effect on the economy than most other spending. Early education programs help parents take advantage of opportunities in the workforce and child care improves parents' productivity at work. One study by the business-backed Committee for Economic Development, estimated that for every dollar invested in preschool, there was an expected return of $2 to $4 in future societal benefits.

Part of youth education is giving them entry-level job training. The federal recovery plan helped revive summer youth job programs across the country, offsetting massive youth unemployment in the private sector. The Idaho Labor Department sponsored its first youth employment program in over a decade.

Support Worker Retraining: While training can't create jobs, it can ensure that workers who are unlikely to be reemployed in their old industry sectors have a chance to be reemployed somewhere else -- and that vibrant industries have the skilled workforce needed to expand in a state.

A Michigan Council for Labor and Economic Growth study found that a five percent increase in college-educated adults would boost economic growth by 2.5% over ten years and real wages by 5.5%. Similarly, studies show that just helping workers get their GED significantly boosts their employment in the long-term. Notably, a study by the National Skills Coalition (formerly the Workforce Alliance) found that even as unemployment mounted in summer 2009, 60% of employers still had trouble finding qualified applicants for the vacancies they did have -- emphasizing the lack of fit in skills between those laid off and the sectors where growth is likely to occur.

In our Dispatch Averting Layoffs and Revitalizing the Manufacturing Economy, we highlighted a range of best practices through which states can both work to avert impending layoffs and use rapid-response to help employees get new jobs or enter retraining programs as quickly as possible. These include Rapid Response programs used by some states to on-site contact with employees before layoffs, accessing training programs like Trade Adjustment Aid, working with communities to tailor training and placement programs, as well as promoting Peer Networks to train groups of workers during layoffs to collect information from fellow workers, help connect them with community services, promote job referrals, and work with community leaders.

Fund Health Care and Support the Safety Net: Health care and other safety net spending is not just a public expense; it is also itself an investment in economic growth. A healthier workforce means greater economic productivity and more years of productive labor. And the health care industry is itself a source of good quality jobs.

A few years ago, a Commonwealth Fund study estimated that labor time lost due to health reasons totalled $260 billion per year. And unhealthy workers often have lower productivity at work. In fact, because people are living and working longer, long-term economic growth is likely to be far higher than many current government projections, according to a recent study by North Carolina State University. "Spending on health care productivity, biomedical research and universal health care should be considered an investment that will eventually lead to increased economic growth," argues co-author Dr. Al Headen. The payoffs are likely to be more taxes paid, more consumer spending and far lower public expenditures on programs like Medicare than currently assumed.

Another remarkable accomplishment of the federal-state partnership in the last year has been not only preservation of basic health care spending for low-income families, but the expansion of SCHIP programs for children and COBRA subsidies for the unemployed. This is in sharp contrast to the recession in the early part of this decade when literally millions of people lost publicly funded health coverage. Maintaining health programs will continue to be a challenge for states -- and new federal funds are a key part of that solution -- but it should be considered a key part of long-term investments in a healthy workforce.

Integrate New Immigrants into the Economy: As we emphasized last week, keeping an estimated 12 million people in the shadows of the economy is bad for them, bad for native workers and bad for the U.S. economy. A recent report estimated that immigration reform that integrates new immigrants into the U.S. economy would create $1.5 trillion in added GDP over ten years and newly legalized workers would increase tax revenues by up to $5.4 billion in the first three years. Another study by the CATO Institute found that legalization would boost the incomes of U.S. households by $180 billion annually by 2019.

Across the board, the goal should be to maximize the productivity of all workers in our economy and produce the most economically competitive workforce in the world.

Resources:
Progressive States Network - Early Education Investments: Economic Importance and Policy Implementation
Columbia Teachers College Center for Benefit-Cost Studies of Education - An Excellent Education for All of America's Children
Workforce Alliance - Job Training is Key to Success of Jobs Bill: Analysis and Recommendations
Progressive States Network - State Action for the Unemployed
National Employment Law Project - Rapid Response Training Overview
Michigan's Human Resource Development Institute - Peer Networks
Commonwealth Fund - Health and Productivity Among U.S. Workers
Council for Labor and Economic Growth - Transforming Michigan’s Adult Learning Infrastructure
Center for American Progress and the Immigration Policy Center - Raising the Floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform
Cato Institute - Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform
North Carolina State University - Study shows health care spending spurs economic growth

Creating a 21st Century Infrastructure in the States

“As a country, we’re deluding ourselves if we think we have put enough into infrastructure," notes the Urban Land Institute. "We’ve been under-investing for 30 years.” As a percentage of gross domestic product, infrastructure spending actually has been declining since 1959. A 2009 American Society of Civil Engineers (ASCE) assessment calculates that $2.2 trillion is needed for infrastructure repairs and upgrades just in the next five years. In contrast, China has committed $259 billion to its plans for building the world's largest high-speed rail system -- with trains going up to 218mph -- and plans to add another half trillion dollars in the next few years for a total investment to $730 billion by 2012. That's more than the entire 2009 federal recovery plan.

The federal recovery plan had $132 billion for infrastructure of all kinds, from roads to transit to smart energy grids, but that's a tiny part of what is needed for the U.S. to retain global competitiveness.

More and Better State Transit: Focus on repairing existing infrastructure, strengthen gateway infrastructure in ports and cities which are the focus of global shipping and travel, and reconfigure suburbs to better integrate regional economies.

Public Transit Investments are a Key Job Creator: One clear lesson from the recovery plan, according to a recent report, is that money spent on public transit yields nearly twice the jobs compared to similar amounts spent on highway projects. This result is due to the fact that public transit spends less money on real land costs and supports vehicle manufacturing and maintenance jobs. It also especially helps low-income workers save money in getting access to jobs where transit integrates communities. One innovative, lower-cost transit approach is bus rapid transit (BRT), which builds separated lanes for larger buses that can move at speeds approaching subway lines. Pioneered in Ottawa, Canada and Adelaide, Australia, similar systems are spreading to Latin America, China, India and Mexico. In the U.S., Los Angeles and Boston have adopted BRT principles and Chicago will be inaugurating BRT service in 2010.
Integrate transit with land use planning: Building transit in the middle of sprawl does little to ease congestion; instead transit funding needs to be linked to development planning that integrates transit with access to jobs and retail. The Denver region is a notable success story in using transit and land use zoning to reclaim its urban downtown, adding a 122-mile light rail system, instituting a Bus Rapid Transit system to link to nearby Boulder, and linking the urban core to multiple town centers in the surrounding suburbs.
Strategically Apply User Fees to Fund Infrastructure: The Urban Land Institute emphasizes that more of the costs of transit infrastructure will inevitably need to be borne by consumers in the form of higher gas taxes, tolls and congestion pricing in urban areas. This needs to be combined with targeted tax relief to ease the burden on low-income families. The reality is that gas taxes in the U.S. are far smaller than European economic competitors, who use those revenues to fund far more robust transit upgrades across their continent.

Broadband and Smart Grid Investments: Despite the U.S. playing a key role in creation of the Internet, a study by the International Telecommunications Union found that the United States now ranks 17th in global broadband penetration. Lack of affordable broadband access undermines the international competitiveness of our communities and workforce. The $7.2 billion of direct broadband funding in the federal recovery plan and pockets of other funding for digital infrastructure throughout the ARRA also emphasized broadband as a catalyst for spurring job creation and economic growth.

A number of state legislators have created Broadband Strategy Councils to focus on using those and internal state funds to increase access to and adoption of affordable broadband. Beyond investing in physical infrastructure, increasing digital literacy is a key investment as well. During the 2008 legislative session Washington state passed SB 6438, which created a statewide high-speed Internet development process and established the Community Technology Opportunity Program (CTOP) that will provide resources for capacity-building and grant-giving to Community Technology programs that provide hands-on technology access and training to residents.

Water Systems: Many cities and regions are using old water systems desperately in need of repairs and upgrading. Nationwide, the U.S. Environmental Protection Agency (EPA) projects a $224 billion funding gap between 2000 and 2019 between what states are spending and federal requirements for water quality. Part of the solution are new policies to reduce wasteful water use, since per capita domestic water consumption in the U.S. is more than twice as much as most global competitors-- and more than four times the use by citizens of Great Britain and China.

In California, where some water bills can approach $500 a month, jurisdictions began to require retrofitting homes on resale. Development needs to be restricted in areas lacking water systems, since such growth just dumps costs on government and leads to underfunding water systems in established areas.

Infrastructure Projects already approved: Some notable examples of integrated infrastructure investment programs around the country include:

Illinois Department of Transportation has $3.1 billion in committed projects in 2009. In addition, Illinois is creating a major “inland port” with the development of Union Pacific's new intermodal facility in Joliet that will create an estimated 7,000 jobs.
Iowa's I-Jobs program approved last year has created a three-year, $830 million investment in Iowa’s infrastructure using existing gaming revenue including public improvements, community colleges, veterans homes ($285 million), disaster recovery and prevention ($165 million), improving transportation infrastructure ($115 million), rebuilding universities ($115 million), improving environment and water quality ($80 million), and enhancing telecommunications and renewable energy ($35 million).
Oregon's Job and Transportation Act invests more than $1 billion to address all sectors of Oregon's transportation system, including roads, bridges, bike and pedestrian facilities, mass transit, railroads, ports and airports. Green aspects of the bill included multi-modal transportation, increased transit funding, planning for greenhouse gas reduction scenarios, a congestion pricing pilot project, and an urban trail fund for non-motorized vehicles and pedestrians.

The key to long-term growth is moving infrastructure investments from one-off projects towards integrated investments that connect them into a holistic plan for growth. As Robert Puentes of the Brookings Institution said this past year at a Congressional hearing, "the problem is that there is too little integrated decision making that crosses disciplines and joins-up solutions in infrastructure investments." To achieve maximum effectiveness, transit and other infrastructure investments need to be coordinated not only with each other, but also with land use and housing decisions.

Next Week: State Job Creation Strategies Part II: Supporting Innovation, Industrial Clusters & Green Job Creation

Resources:
Urban Land Institute - Infrastructure 2009: Pivot Point
American Society of Civil Engineers - Report Card for America's Infrastructure with State and Local Report Cards
U.S. PIRG, Smart Growth America, CNT - What We Learned from the Stimulus: And how to use what we learned to speed job creation in the 2010 jobs bill
Progressive States Network - Making Broadband a Key Part of States' Economic Recovery

Foreclosure and Anti-Predatory Lending Reforms

Julie Bero — Mon, 07 Dec 2009 11:54:08 -0500

There will be 2.4 million foreclosures in 2009 along with 9 million foreclosures between 2009-2012, according to the Center for Responsible Lending (CRL). CRL also estimates that 69 million homes will lose property value because of nearby foreclosures for a total property value loss of $502 billion.

As part of our Multi-State Shared Agenda, the Progressive States Network is working with its partners and leading experts to promote reforms to stem the foreclosure crisis and put in place reforms to discourage predatory lending practices in the future.

Through coordinated, strategic support, PSN and our allies will be working to introduce and advance legislation to address foreclosure and predatory lending reforms, providing model legislation, policy analysis, messaging and more - all of which has been gathered and will be constantly updated on our Foreclosure & Predatory Lending web page.

Our policy staff are also available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting the Foreclosure Reform and Anti-Predatory Lending campaign through our website or by emailing foreclosure@progressivestates.org.

Table of Contents:

- Summary of Policy and Why It Matters

- Messaging on Anti-Foreclosure Policy

- Building a Campaign

- PSN Support in Your States

Summary of Policy and Why It Matters

Although record foreclosures are currently wreaking havoc in communities across the nation, the federal response has been weak and has so far failed to stem the rising tide of foreclosures. Many borrowers have little or no contact with their creditor prior to foreclosure, not to mention attempts to modify the mortgage.

Why Anti-Foreclosure Policy Matters: Mandating foreclosure mediation will bring the parties together, which will lower the number of foreclosures without allocating scarce resources. Requiring lenders foreclosing on homes to maintain those properties and giving foreclosed homeowners the right to remain in their homes as renters for a specific amount of time will keep vacant homes from contributing to blight, and help prevent homeowners from having their families' lives disrupted. By cracking down on illegal practices by predatory lenders, particularly giving whistleblower protection to front-line banking employees, states can stop the exploitation of moderate- and low-income communities.

Based on the best of state policies enacted and recommendations of national experts, the following are some key model provisions for alleviating the crisis for families and communities due to the foreclosure crisis.

Bill Summary: Summary of Foreclosure Prevention and Mitigation Legislation
Model Legislation: Mandatory Mediation Provision Tenant Rights in Foreclosure Whistleblower Protection for Employees of Financial Institutions Maintenance of Property The Right to Rent Act of 2009 from CEPR

Bill Summary:

Summary of Foreclosure Prevention and Mitigation Legislation

Model Legislation:

Key Provisions include:

Mediation Before Foreclosure: Mandatory mediation increases the chance that a mortgage will be modified so that the borrower can stay in their home, while not reducing the ability of the lender to refuse a modification request. By getting the opinion of a neutral party and forcing the lender to the table, foreclosures can be avoided.
Maintenance of Properties Before and After Foreclosure: Legislation would require banks to repair properties before a home can be foreclosed upon, a key measure to preserving communities. Requiring new owners to upkeep foreclosed property will contain the effects of the subprime foreclosure crisis since lack of upkeep on foreclosed homes brings down the appearance and property values of the surrounding area. Upkeep requirements and penalties can offset this burden on communities.
Notice to Tenants of Foreclosure: Legislation would require that tenants and others with interests in any building would have to receive notice of any pending foreclosure action. They would be given notice and greater protection from summary eviction with greater due process.
Right to Rent after Foreclosure: Instead of foreclosure leading to millions of vacant properties, this legislation would allow homeowners facing foreclosure the option of renting their home at fair market rate. People facing foreclosure would be allowed to stay on as renters even if the foreclosure goes through, helping them keep a roof over their heads. The proposal requires no tax payer dollars and would help preserve neighborhoods by keeping community members in their homes as long-term renters.
Whistleblower Protection: Legislation would protect the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers, which can help bring predatory practices to light. Such free speech protection is essential to bringing these practices to light. States should also empower workers to resist pressure to engage in illegal or unethical conduct when an employee reasonably believes the company "to be in violation of any law, rule, or regulation, or to be unfair, deceptive, or abusive and likely to cause specific and substantial injury to one or more consumers.” This will empower the employee to stop the bad practice right away by refusing to cooperate.

Messaging on Anti-Foreclosure Policy

Address the Financial Insecurity of American Families: Homeowners who thought themselves financially secure are now vulnerable in a way most never even contemplated.

Because federal reforms have been slow, state leaders have a political opening to take strong action to address these concerns.
Indeed much voter discontent is the result of anxiety from economic problems and voters should respond favorably to actions that are low cost, but effective, in reducing foreclosures and bankruptcies.

Tap the Public Anger Against Financial Institutions: Average Americans are absolutely incensed about what appears to be a rigged financial system where businesses destroy jobs and wealth, only to be rewarded with government bailouts.

74% of the public believes "The greed and risky decisions of banks and financial companies led to the financial crisis and recession" and that the government should crack down on them through regulations.
The current economic turmoil has also sparked a significant increase in populist sentiment, which continues to grow as major bad actors in the financial industry swing quickly to profitability and reinstate obscene pay structures.
A direct push on wayward financial institutions will bring predatory practices to light, reinforcing sentiment in favor of reform.

Requiring Buyers to Maintain Foreclosed Properties and Allowing Former Owners to Rent Them can Preserve Communities.

Foreclosures have a "spillover" effect by depressing the value of nearby homes—most owned by families who are paying their mortgages on time. This results in lower property values for homeowners and a reduced tax base for communities. During the period 2009-2012, the Center for Responsible Lending projects that foreclosures will cost 92 million U.S. families some $1.9 trillion in lower home values--an average of $20,300 in lost wealth per household.
Requiring lenders to maintain foreclosed property, and fining them if they don't, is a strong way to decrease the blight that the foreclosure crisis has brought to many communities. These laws also help cash-strapped municipalities that have taken on the burden of maintaining these homes themselves in order to preserve their neighborhoods and property values.
The potential costs of maintenance may deter foreclosures from happening in the first place.
As Dean Baker of the Center on Political and Economic Research wrote in the Los Angeles Times, "By keeping homes occupied, "right to rent" also would be a boon to communities that have been especially hard-hit by foreclosures. Often foreclosed homes are abandoned, with unkempt lawns, broken windows and other property damage." Keeping former owners in their homes as renters is a big step towards maintaining communities.

Whistleblower Protection for Bank Employees can Deter Bad Bank Practices: Protecting the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers can help bring predatory practices to light. Many tellers, loan officers and other retail banking employees report a culture of corruption with managers firing workers who don't engage in predatory practices. Many of these employees want to do the right thing and put a stop to these practices, which undermine the financial well-being of their clients, but fear of losing their jobs keeps them from doing so.

Building a Campaign

There are a few broad-based archives of policies adopted around the country to ease the foreclosure crisis, including:

Other Key Organizations Supporting Foreclosure and Predatory Lending Reforms: Americans for Fairness in Lending (AFFIL), National Consumer Law Center Foreclosure Prevention, ACORN Stop Foreclosures Campaign, DEMOS.

Key Information on the Foreclosure Crisis: The Impact of Bad Lending State-by-State (CRL), State by State Foreclosure Fact Sheets (CRL), Snapshot of a Foreclosure Crisis: 15 Fast Facts (CRL).

Overall Analysis of Reform: Beyond the Mortgage Meltdown: Addressing the Current Crisis, Avoiding a Future Catastrophe (DEMOS), Assets & Opportunity Special Report: Net Worth, Wealth Inequality and Home Ownership during the Bubble Years (CFED).

Malfeasance of Subprime Brokers: For more specific information on the worst of the scams against home loan borrowers, see Steered Wrong: Brokers, Borrowers, and Subprime Loans (CRL), Predatory Lending Scams Targeting First-Time Homebuyers (NEDAP).

Effects of Subprime Mortgages on Communities: A number of reports detail the broad-based damage to communities from the foreclosure crisis, including Soaring Spillover: Accelerating Foreclosures to Cost Neighbors $502 billion in 2009 alone; 69.5 million homes lose $7,200 on average (CRL), Neighborhood and Individual Impact of the Subprime Mortgage Lending Crisis: Reporter’s Guide (AFFIL), Home Insecurity: A set of reports on neighborhoods in trouble due to foreclosure (ACORN).

On Importance of Whistleblower Protection for Banking Employees: For more on why free speech rights for bank employees can help blow the whistle on predatory lending practices in the future, see Protecting Whistleblowers (Public Citizen), Protecting Consumers and Workers Fact Sheet and Whistleblower Protections Archive (SEIU).

Racial and Other Disparities in Subprime Lending: A number of reports detail the racial and gender disparities involved in the lending industry, including:

Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages (CRL)
The Impact of the Home Equity Lending Market on Latino Consumers (NCLR)
Women are Prime Targets for Subprime Lending (Consumer Federation of America)
Foreclosure Exposure: A study of racial and income disparities in home shortage lending in 172 American cities (ACORN)
Foreclosure Exposure 2: The Cost to Our Cities and Neighborhoods (ACORN)
Paying More for the American Dream: The Subprime Shakeout and Its Impact on Lower-Income and Minority Communities (California Reinvestment Coalition)

PSN Support in Your States

PSN has already begun working with legislators and advocates to provide support for them as they introduce foreclosure reforms around the country. We'd like to work with many more!

Our policy staff are also available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting Foreclosure and Anti-Predatory Lending campaigns through our website or by emailing foreclosure@progressivestates.org.

As bills are introduced and sessions begin, PSN will provide ongoing resources and updates on foreclosure reform and anti-predatory lending legislation, as well as help coordinate strategy and information sharing with our partners among sponsors and advocates.

Compromise Preserves State Power to Protect Consumers from Abuses by National Banks in Proposed U.S. House Bill

Nathan Newman — Thu, 22 Oct 2009 12:31:07 -0400

Yesterday, the U.S. House Banking Committee defeated amendments that would have gutted provisions in law to restore state powers to protect consumers of national banks. Instead, the Committee approved compromise language that, while not as expansive in the protection of state legislation as the Obama administration had urged, is still a significant victory overall against large financial interests. By a vote of 29-38, the committee defeated a proposed amendment by Rep. Jeb Hensarling (R-Texas) that would have preempted all state regulation of national financial institutions.

As we detailed last month, the provisions to restore state authority to enforce consumer protections against abuses by national banks have been one of the most contentious parts of the new legislation (see also our conference call on the issue). The amendment that was approved would give the Office of the Comptroller of the Currency, which regulates national banks, the optional power to override the states, but only if it found that the state law “significantly” interfered with federal regulatory policies. Since under the Bush Administration, the Office of the Comptroller had claimed the right to preempt state law automatically without any evidence of interference with federal policies, this will be a significant change in legal standards.

Especially given the stated Obama administration strengthening of state regulation, this amendment should preserve the ability of states to promote stronger consumer fraud law, repossession, foreclosure, and collection law reforms applied to national banks in coming years.

Resources:
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Summary of Preemption and Relation to State Law Provisions in The Consumer Financial Protection Agency Act of 2009: H.R. 3126

Protecting State Consumer Protection from Preemption in Federal Financial Reform

PSN — Thu, 10 Sep 2009 13:22:24 -0400

As Congress moves to enact new federal laws governing financial institutions, Progressive States Action is teaming up with Americans for Financial Reform, a coalition of nearly 200 national, state and local consumer, labor, retiree, investor, community and civil rights groups to sponsor a conference call on why state leaders need to mobilize to protect state consumer protection laws from federal preemption. Currently, proposed federal legislation includes language that safeguards the ability of states to take independent action to protect consumers, but the banking industry is seeking amendments that would override state consumer protection laws and eliminate the ability of state and local prosecutors to act on behalf of consumers defrauded by financial institutions.

Please join us Tuesday, September 15th at 12 noon EST for this important discussion to highlight the need for state leaders to call for federal reform that treats states as partners in reform and honors a tradition of collaborative federalism in consumer protection. The call will bring together legislators and state organizational leaders from around the country to highlight the importance of including strong non-preemption language in federal financial reform legislation.

Please RSVP at www.progressivestates.org/conferencecallrsvp.

We also urge you to call and send a letter to your Congressional Representative urging that federal reforms include strong provisions to strengthen state authority to protect consumers from financial industry abuses. Send a letter to your Congressperson here.

The context of this call is that, in the wake of the financial meltdown that engulfed the country last year largely caused by fraud and predatory lending, Congress is now debating the Consumer Financial Protection Agency Act (CFPA Act, H 3126). The act would create a consumer product protection agency for financial products analogous to the Consumer Product Safety Board.

Crucially, in the current proposed version of the legislation, the ability of states to also enforce their own tougher lending laws against national banks will be explicitly protected. Keeping this provision in the bill is shaping up to be the big fight as the legislation moves through Congress. As the CFPA Act goes to markup this month in the House Financial Services Committee, the major goal of banks and their legislative allies is stripping states of the power to enforce not only federal law, but also their own state lending laws. Now the banks and their allies, which includes a large block of moderate Democrats on the House Financial Services Committee, want to block the robust state regulation that could have helped prevent the financial crisis from exploding in the first place.

The crucial non-preemption provisions in the current version of the CFPA Act include:

Federal law would preempt only inconsistent state laws and regulations, and only to the extent of the inconsistency. State laws and regulations that provide greater protection are not inconsistent.
Concurrent state attorney general enforcement authorized. State AGs can bring any action in court to require bank to produce records relating to investigation of state or federal consumer laws or to enforce applicable state or federal law as authorized by such law.
Bush-era rules preempting state regulation of national banks would be overturned. State consumer laws of general applicability, including UDAP laws, consumer fraud law, repossession, foreclosure, and collection law, would apply to national banks.
It would assure that states could, for example, limit negative amortization and protect the right of states to regulate terms such as prepayment penalties on all mortgages, including ARMs.

In order to preserve the anti-preemption language in the CFPA Act, state lawmakers and advocates will need to make clear to House Financial Services Committee Members that retaining the power of the states to enforce their own consumer protection laws against nationally chartered banks is imperative. Efforts to strip states of this power will be central to the committee markup process soon to begin. Without strong progressive support for states' rights in this area, we can expect any new national protections to come at the expense of what the states are already doing.

Progressive state legislators have a critical role to play in convincing their counterparts at the national level how important state enforcement of state laws is to your constituents. House members must be educated about the regulatory failings that led to the current crisis, how states were hamstrung and couldn't step in to protect consumers, and how this scenario will repeat itself if the financial services industry gets its way. Because state legislators are closer to the ground and are likely more aware of predatory lending practices and products in their districts, they have an important perspective to impart.

Resources:
Consumer Financial Protection Agency Act (CFPA Act, H 3126).
Americans for Financial Reform - Summary of Preemption and Relation to State Law Provisions in The Consumer Financial Protection Agency Act of 2009: H.R. 3126
Center for Responsible Lending
National Consumer Law Center
Consumer Federation of America - Testimony on the Consumer Financial Product Agency Act
Center for Responsible Lending - Making Consumer Protection Work

Table of Contents

- Why State Action is Crucial for Consumer Protection in the Financial Industry

- State Strategies for Protecting Borrowers in 2010

- Conclusion

Why State Action is Crucial for Consumer Protection in the Financial Industry

As we've written about before, aggressive federal preemption of state laws, especially those designed to protect consumers, is one of the legacies of our conservative governance that we must reverse if we are to make real strides in protecting Americans from a variety of corporate abuses.

For years before the recent mortgage meltdown, states were canaries in the coal mine, sounding warnings of fundamental problems in the mortgage market. But during the Bush administration the Office of the Comptroller of the Currency (OCC, which supervises national banks) began asserting that the National Bank Act preempted state enforcement of state lending laws against national banks. This created a regulatory vacuum in which sub-prime and other predatory lending practices grew largely unchecked. The Supreme Court overturned part of that ill-conceived theory in a case last term, Cuomo v the Clearing House Association and the Office of the Comptroller of the Currency, where, in a landmark ruling the court found that while the law prevents states from regulating the internal operations of nationally chartered banks, they remain free to enforce criminal statutes against subprime abuses and other predatory lending practices. The CPFA Act would build on that court decision to strengthen state oversight roles.

Why does state oversight matter?

States can catch problems early, before they become nationwide: States are closer to the ground, and have been better able to see emerging issues and problems. For years before the recent mortgage meltdown, states were canaries in the coal mine, sounding warnings of fundamental problems in the mortgage market.
State laws provide useful data-points for federal policymakers: Congress has often looked to the states for workable solutions to take nationwide in consumer protection, as in other arenas. Iowa, for example, pioneered a legal framework for electronic funds transfers that was used as a model for the federal Electronic Funds Transfer Act in the 70s. Congress has looked to those state laws in crafting some of the current proposals. This is more than just saving Congress work. Without the creative input and local action of states protecting consumers we can expect financial institutions to remain several steps ahead of regulators, just where they have been for the years leading up to the current financial crisis.
States must be able to address local problems: Not all problems that arise locally are destined to metastasize to national problems. But that does not mean that states' hands should be tied by preemption. While a higher federal "floor" for regulation is needed, that federal floor should also assure that states have the right – and the responsibility and accountability – to address local problems. State enforcement of financial protections are necessary therefore because even when a predatory practice is identified by the feds, action is only taken when the problem becomes regional or national in scope, so the majority of predatory practices will not be curbed by the feds until many local families have already suffered.

Federal Enforcement is not Enough: Opponents use false arguments that "patchwork regulation" will add costs to banks which will then pass these costs to consumers, yet these are the same opponents who justify abusive fees imposed on consumers by those same banks. The egregious overdraft practices that strip an estimated $17 billion (and rising) from deposit accounts (hitting the elderly especially hard) have become industry standard. The reality is that the federal banking regulatory agencies issued “guidances” and “best practices” for these unfair, deceptive and wealth-stripping “conveniences," but did nothing to enforce them.

If we have learned anything from the recent financial meltdown, it is that trusting any single institution to safeguard the financial system is misguided. More eyes, both at the state as well as federal level, are the best guarantee that malfeasance and illegal activity will be stopped before the damage gets out of control. Even with a renewed federal effort to prevent abuses by national banks, there are almost 20 times as many enforcement personnel in the offices of state attorney general than there are at OCC. As a comprehensive report produced on behalf of the nation's state attorneys general details in analyzing the need to allow greater state enforcement in new legislation:

Like the existing federal regulators, no new agency created to protect consumers will ever have enough resources to comprehensively reform the financial marketplace across the entire nation. State authorities can maximize resources and bring a more localized focus to ensure widespread compliance with the new rules.

States therefore have a critical role to play in adding cops on the financial protection beat. It is clearly impossible for federal regulators to monitor the local practices of every national bank, so strengthening the role of the states is a key step to cracking down on consumer abuses across the nation.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Restoring State Authority: An Agenda to Restrict Preemption of State Laws
Center for Responsible Lending - The CFPA and Preemption: The Federal Floor and the Need for States to Be “First Responders"
Center for Responsible Lending - Respecting the Role of the States: Maintaining State Law as Backstop Protection Against Local Abuses
National Attorneys General Training and Research Institute - Sharing Enforcement of the New Financial Regulations

State Strategies for Protecting Borrowers in 2010

In addition to helping make sure that states' prerogative to enforce their own laws is protected in the CFPA Act, lawmakers should also consider improving their own states mortgage finance and predatory lending laws. The effects of the Great Recession will continue to be felt for years to come, but there are many steps that states can take, regardless of the outcome of CFPA Act negotiations, that will both help to ameliorate the current foreclosure and debt crisis, and prevent new damage from financial predators. Here are some of the most promising reforms.

Mandatory Mortgage Mediation: Requiring that banks or servicers go through a mediation process to attempt a workout of delinquent mortgages is a no-cost reform that should greatly increase the number of loan workouts lenders make. Most borrowers never have any direct contact with their lender before foreclosure is begun, in these situations there is little opportunity for a resolution short of losing one's home. Miami recently began such a program, and Philadelphia has kept thousands in their homes with mandatory mediation.
Anti-Blight Measures: Requiring lenders to maintain foreclosed property, and fining them if they don't, is a strong way to decrease the blight that the foreclosure crisis has brought to many communities. These laws also help cash-strapped municipalities that have taken on the burden of maintaining these homes themselves in order to preserve their neighborhoods and property values.
Own to Rent Statutes: Requiring lenders to allow borrowers whose homes have been foreclosed on to remain in their homes as renters for a specified number of years is another no-cost solution to the collateral consequences of the crisis - displaced families, broken communities, joblessness, and homelessness. Under this law owners would become tenants if they could afford market rent as determined by an independent appraisal.
Whistle blower Protection for Financial Services Workers: Protecting the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers can help bring predatory practices to light. Many tellers, loan officers and other retail banking employees report a culture of corruption with managers firing workers who don't engage in predatory practices. Many of these employees want to do the right thing and put a stop to these practices which undermine the financial well-being of their clients, but fear for their jobs keeps them from doing so. Statutory protection against retaliation for workers who file administrative or legal complaints, or testify in an administrative or legal proceeding regarding prohibited practices by the employer, are essential to bringing these practices to light.
Protections Against Engaging in Predatory Practices: States can go even farther in empowering workers to resist pressure to engage in illegal or unethical conduct by giving workers specific protection when they refuse to participate in, any activity, policy, practice, or assigned task that the employee reasonably believed to be in violation of any law, rule, or regulation, or to be unfair, deceptive, or abusive and likely to cause specific and substantial injury to one or more consumers.” This would empower the employee to stop the bad practice right away by refusing to cooperate, instead of having to wait until they made an official complaint to receive whistle blower protection.

Resources:
ACORN - Road to Rescue: How the Philadelphia Model Can Reduce Foreclosures
Chula Vista, CA - Abandoned Residential Property Program
Dean Baker, The Guardian - How to Solve the Housing Crisis
SEIU - Protecting Consumers and Workers Factsheet

Conclusion

One of the greatest problems contributing to the current crisis in the credit markets has been federal obstruction of state authority to protect consumers. New federal legislation should ensure that the states serve as a backstop against weak federal rules or lax enforcement in the future. States are more connected to conditions on the ground than a centralized federal agency. When one state passes a more protective law, that should be a red flag to the federal government that they need to evaluate whether there is a problem that requires a federal rule.

Ultimately, collaboration between states and the federal government leads to more effective oversight. Leaders in the states need to deliver that message to Congress.

Protecting the Unemployed from Abusive Credit Inquiries

Caroline Fan — Thu, 13 Aug 2009 11:40:45 -0400

As the economic downturn progresses, American workers are facing a disturbing rise in employers using credit ratings to determine job worthiness. According to a 2006 survey by the Society for Human Resource Management, the number of firms using credit histories to screen applicants rose from 25% in 1998 to 43% despite such inquiries often being discriminatory and even illegal. Even if they disclose a credit search request, companies often bury it within lengthy applications so applicants might not even be aware that they are authorizing a credit check. This downwards spiral makes it increasingly hard for job seekers to become employed and pay off debt.

Increased State Regulation of Credit Inquiries: In some states lawmakers have stepped up to protect workers. Washington state's HB 1546 mandates that searches of a candidate's credit history must be directly pertinent to the job. This year Hawaii legislators enacted HB 31 over the Governor's veto to prevent employers from discriminating in hiring or firing based on an individual's credit history or credit report, unless the position is a managerial or supervisory position, or it directly relates to an occupational requirement or the employer is an FDIC-insured financial institution. Moreover, a credit inquiry may only be made after a conditional job offer. Last year, California Governor Schwarzenegger vetoed a similar law (AB 2918), although it has been reintroduced for this session.

In 2009, chambers in Indiana (H 1250) and Ohio (SB 91) considered broad anti-discrimination in the workplace bills that would have prohibited credit inquiries, while the Connecticut House passed HB 5521 which would have put the burden on the employer to prove the necessity of a credit check for hiring. New York and Missouri both sought to limit the use of credit scores in job decisions. Texas tried to pass a version that simply pertained to state employees. Legislators in Michigan (HB 4578) have also introduced bills prohibiting companies from using credit history in making employment decisions.

“In my opinion, it’s discrimination,” said Representative Jon Switalski, the Democrat who proposed legislation in Michigan. “If you miss a few payments or you have medical debt, your skills as a pipe fitter or an electrician don’t diminish.”

Employers Violating the Law: Highlighting the relevance of these state laws, employee credit checks could violate federal law, as EEOC commissioners have testified, yet enforcement has been weak at the federal level. The Fair Credit Reporting Act (FRCA) requires an employee or applicant's written permission any time an employer hires a third party to conduct a background check. If an employer uses credit information to deny an applicant a job, fire a current employee, rescind a job offer or cancel a promotion, the FCRA requires the employer to provide the worker with a copy of their report and if the report influenced a hiring decision.

Unfortunately, too many companies do not comply with the law and simply provide an alternate excuse. Additionally, because credit histories tend to be fraught with discriminatory and inaccurate information to begin with, applicants from communities of color or low-income communities are at a disadvantage. According to a report by the National Consumer Law Center, even the Consumer Data Industry Association, the trade association of credit bureaus, testified that 22% of the 57.4 million consumers who ordered their own credit reports filed a dispute. And in the amount of time it takes to contest a report's accuracy and repair a credit rating, companies may have already hired others. Recently, Congress introduced US HR 3149 to prohibit the use of consumer credit checks by employers as part of the hiring or firing process, unless the job is at a financial services institution or involves national security or FDIC clearance. The bill is supported by labor unions, civil rights groups, fair housing advocates, and advocacy organizations for consumers, students, and women.

Historically, states have been at the forefront of tightening regulations and enforcement of fair credit reporting, but amendments made in 2003 removed certain preemption provisions. Ultimately, workers facing spiraling bill payments and one of the worst job markets in recent history should not be doubly burdened by invasive and discriminatory credit checks.

Resources:
Federal Trade Commission - The Fair Credit Reporting Act
Electronic Privacy Information Center -The Fair Credit Reporting Act (FCRA) and the Privacy of Your Credit Report
USA Today - 5 states challenge employer credit checks