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Report Gives California ‘B’ Grade for Allowing Debt Collectors to Push Families into Poverty During the Pandemic

FOR IMMEDIATE RELEASE

 Bank levy protections offered by California’s newly implemented SB 616, co-sponsored by Western Center, boosts California from ‘C’ grade in 2019

SACRAMENTO — As millions of families suffer job loss or struggle to pay bills during COVID-19, states have an important role in protecting them from seizure of essential wages and property to pay old debts, or to protect against seizure for debts that have already been paid or result from fraud or error. A new report from the National Consumer Law Center, No Fresh Start 2020: Will States Let Debt Collectors Push Families into Poverty in the Wake of a Pandemic?, surveys exemption laws to protect wages, assets in a bank account, and property from seizure by creditors in the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. The report gives California a ‘B’ grade, up from last year’s ‘C’, making it one of the most improved states in the country.

One significant reason California is recognized as one of the most improved states is because of Senate Bill 616 by Senator Bob Wieckowski, which protects the first $1,788 dollars in a person’s bank account from consumer bank levies; the law went into effect in September. Western Center proudly co-sponsored SB 616 with the California Low-Income Consumer Coalition, East Bay Community Law Center, and the California Asset Building Coalition; and earlier this month, Western Center honored Delilah L. Clay of Manatt, Phelps & Phillips, LLP’s Sacramento office for her pro-bono service, which contributed to the passage of the bill.

“In California, we like to say we lead the country with progressive policies,” said Jessica Bartholow, a Western Center policy advocate who has pursued consumer justice legislation for several years. “The reality is that when it comes to consumer protection, that hasn’t been the case. But things are changing, as evidenced by this year’s ‘most improved state’ recognition following the enactment of several new consumer laws. We’re combing the 2020 report to see what other states are doing and how we can emulate the better policies that are out there.”

Other improvements made in California include a new homestead exemption, which protects against home loss during bankruptcy, and establishes a new state entity charged with licensing debt collectors and protecting consumers from abusive and illegal debt collection practices. California also now prohibits foreclosures on a person’s principal residence for any consumer debt under $75,000, unless the home was collateral for the debt when it was accrued.

“By reforming their exemption laws, states will not only protect families from destitution but will promote economic recovery by enabling families to spend their money in state and local communities,” said Carolyn Carter, National Consumer Law Center deputy director and author of the report.

Strong exemption laws are important for many reasons, but particularly because weak protections exacerbate the racial wealth gap. Communities of color are disproportionately burdened by debt, subject to judgments in collection lawsuits, and subject to wage garnishment. Because of longstanding discrimination, Black and Latinx households have less wealth and less of a safety net to draw on during challenging times, like during a global pandemic.

Key recommendations from the report include automatic updating of exemption amounts for inflation, and making them self-enforcing, to the extent possible, so consumers don’t have to file complicated papers or attend court hearings (see report for the full list of recommendations). Model language for California to achieve these goals is provided in the National Consumer Law Center’s Model Family Financial Protection Act. The model law also includes steps the state can take to reduce the pervasive abuse of the court system by debt buyers.

California can prevent over-aggressive debt collectors from plunging families into poverty. Such protections also benefit the state by keeping workers in the workforce, helping families stay together, and reducing the demand on funds for unemployment compensation and social services. Overall, everyone benefits when consumers have the financial resources to improve their earning power and pay off debt in a way that honors their humanity.

For more information on NCLC’s body of work related to fair debt collection, visit: www.nclc.org/issues/debt-collection.html. For a PDF of this release, click here.

Contacts:

Jessica Bartholow, Western Center on Law & Poverty – jbartholow[at]wclp.org

Stephen Rouzer, National Consumer Law Center – srouzer[at]nclc.org

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About Western Center on Law & Poverty: Through the lens of economic and racial justice, Western Center on Law & Poverty fights in courts, cities, counties, and in the Capitol to secure housing, health care and a strong safety net for low-income Californians.

The nonprofit National Consumer Law Center® (NCLC®) works for economic justice for low-income and other disadvantaged people in the U.S. through policy analysis and advocacy, publications, litigation, and training.

 

 

 

 

 

 

 

 

Column: A new California law is kicking in that will help keep debt collectors at bay

“When SB 616 was signed into law by Gov. Gavin Newsom last October, the Western Center on Law & Poverty estimated the average Californian owed $15,100 in non-mortgage debt, including medical, student, auto and credit card obligations.

That amount is now almost certainly higher, said Jessica Bartholow, policy advocate for the Los Angeles-based nonprofit organization, which played an instrumental role in passage of the new law.

“It’s not hard to imagine that a lot of Californians are loading up their credit cards right now, just trying to get by,” she told me. “Once debt gets to a collector, they’ll go after it any way they can.”

Read More

 

Sen. Wieckowski Authors New Law To Protect Struggling Residents

“Jessica Bartholow of the Western Center on Law & Poverty, a co-sponsor of SB 616, agreed that the law will help families in these tough times.

“Amid the pandemic, Californians are falling behind on rent payments,” Bartholow said, “and they are using whatever credit they have left to keep their families from going hungry. Protection from aggressive debt collection is needed now more than ever. With the implementation of SB 616, people will have breathing room to catch up on bills without a zeroed-out bank account. SB616 also includes an exemption for FEMA payments to ensure fire victims keep their disaster payments so they can rebuild as intended.”

Read More

 

Analysis of Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act

Today, Congress passed a $2 trillion aid package, the third piece of federal legislation to address the COVID-19 pandemic. While this aid package includes some direct payments, expanded unemployment benefits, and additional help for low-income communities and the organizations that serve them, it was passed without important benefits and considerations raised to address concerns for the poorest Americans, especially those who are living in deep poverty, people who are disabled or advanced in age, and people who are undocumented. The bill invests significantly more government aid for corporate America than it does for the people hit hardest by the crisis. We are hopeful that the fourth aid package, expected to be worked on by leaders while Congress is in recess for the next couple of weeks, will address these significant gaps.

Western Center is working hard to make sure that both the missed opportunities in the CARES Act and additional investments are considered in the next COVID bill, and we look forward to working with California’s Senators and our Congressional Delegation to make sure that happens.

FINANCIAL SECURITY

The CARES Act expands eligibility and benefits for unemployment insurance, but it does not provide assistance for states to manage the cost of rising TANF (Temporary Assistance for Needy Families) caseloads, as was done in the 2009 American Recovery and Reinvestment Act (ARRA). TANF, known as CalWORKs in California, serves the poorest families with children by providing them a basic needs grant, work training and support, homelessness prevention, and subsidized employment. It is critical that Congress and the President provide increased funding for state TANF programs in the fourth COVID package. Unlike many states, California spends the bulk of its combined federal and state welfare funds on direct cash aid and supports to families. Still, it only serves approximately 60 percent of eligible families with a benefit, and in most cases, isn’t even above half of the Federal Poverty Level (FPL). As the needs increase and caseloads rise, the state may find it difficult to maintain the program at its current level. While California could receive about $1.6 billion for Supplemental Security Income recipients, and another $3.5 billion for the CalFresh (SNAP) caseload, we will need to keep working to make sure that national TANF investments include additional resources for low-income families to weather this storm.

The stimulus plan includes one-time income for many families and individuals, including very low income households. Unfortunately, the bill does not provide funding for households where one adult does not have a Social Security number (SSN). This means many households who pay taxes and may have American citizens or Legal Permanent Residents (LPR) in their households will receive nothing, despite the fact that payroll taxes are taken from their checks. Congress must address this gross inequity in the next COVID package; it will disproportionately deny aid to low-income workers of color, many of whom are essential workers on the front line of our service sectors.

For those families who are eligible, they will receive $1,200 payments for each adult and $500 for each child under the rebate program. These payments are available to households that filed a federal tax return for 2018 or 2019 even if the household payed no taxes. This is important because households with incomes under $25,000 are not required to file tax returns since they have no federal tax liability, so many do not routinely file taxes. As a result, many low-income families may not get a check unless they file a tax return by July 15th (the new extended tax filing deadline). This could prove challenging since many Volunteer Income Tax Assistance (VITA) centers and other tax preparers are closed during shelter in place, and most of them would have finalized 2020 activities as of April 15th, the regular tax filing deadline.

Currently, the IRS has information on its website on free options for filing taxes. The IRS is required to do a public education campaign on the rebates, which should provide more information on what people need to do to get the rebates. The federal government has discretion on how to get payments to people, so what the options are for non-filers (beyond filing a regular return) is yet to be determined and might differ for different groups. California will need to explore how it can assist low income households with filing returns so they can secure the resources needed to meet their basic needs. A summary of the rebate process can be found here.

Both the IRS and the state Franchise Tax Board (FTB) have long utilized tax intercepts to collect unpaid taxes from those getting tax refunds and Earned Income Tax Credit (EITC). According to the Tax Policy Center, the IRS will not be intercepting rebate checks to collect unpaid taxes. The Center also reports that the IRS has temporarily suspended interception of EITC payments for unpaid federal taxes. Click here for more on the IRS policy changes.

And today, after receiving a request from the Debt Free Justice Coalition, Western Center, and our Legal Services Allies, the FTB has announced it will use existing authority to immediately stop tax intercepts and all other debt collection practices (including bank levies and wage garnishments) for state government debt, with the exception of child support.

The CARES Act includes $900 million to help lower income households heat and cool their homes through the existing Low Income Heating and Energy Assistance Program (LIHEAP), and another $1 Billion to Community Services Block Grant (CSBG) to help communities address the consequences of increasing unemployment and economic disruption. These are flexible funds to alleviate poverty, so there will be great variation from community to community for how these funds are used.

FOOD SECURITY

The Cares Act provides $8.8 billion for child nutrition programs in the form of additional funding for food purchases and demonstration projects to increase flexibility for schools; $15.51 billion for SNAP; $100 million for food distribution to low-income households living on Indian reservations and participating Indian Tribal Organizations; $200 million for U.S. territories that cannot access SNAP (Commonwealth of Northern Mariana Islands, Puerto Rico, and American Samoa), in addition to annual block grant funding; and $450 million for commodities and distribution of emergency food assistance through community partners, including food banks.

The CARES Act investments in food security mainly support administration of existing benefits, and does not establish new benefits. It will help fund H.R. 6201 implementation, support caseworker staff needed to keep up with increases in applications and caseload, and fund waivers and other accommodations necessary to comply with COVID-19 stay-at-home orders and the impending recession that our economy will face. This is important not only because this workforce will be needed to help low-income Californians meet their basic needs, but also because the county social worker workforce is made up primarily of women of color.

We are disappointed the bill doesn’t include a needed benefit increase and pause on the implementation of Trump Administration cuts to SNAP food stamp benefits. We are committed to working with local, state, and national partners, as well as California’s U.S. Senators and our Congressional Delegation, to make sure the expected fourth COVID bill includes these investments and others that are necessary to address acute levels of hunger caused by extended school feeding and congregate meal closures, and prolonged stay-at-home orders.

HEALTH

Through the passage of the CARES Act, private health plans must cover COVID-19 testing free of charge. The CARES Act also requires health plans to cover vaccinations at no-cost when it becomes available. For older adults and individuals with disabilities, the CARES Act enhances several Medicare benefits, including coverage of COVID-19 vaccination when it becomes available, more flexible provision of telehealth services, and a three-month supply of prescription drugs. For Medi-Cal beneficiaries who receive unemployment benefits under this act, these payments will not affect their Medi-Cal eligibility.

The CARES Act requires price transparency for COVID-19 testing but does not place a limit on testing costs which may skyrocket as the demand for testing increases and testing supplies remain low. Consumers will also face challenges to accessing affordable coverage for COVID-19 treatment. The CARES Act contains no prohibitions on surprise billing, such as additional costs patients often incur when using emergency care services, and no measures addressing the high out-of-pocket costs that many patients will have to pay for COVID-19 treatment. Even with this third emergency act, the federal government still has not authorized state Medicaid programs to cover COVID-19 treatment for those who are uninsured and undocumented.

HOUSING

The CARES Act provides for (1) a forbearance period for borrowers with Federally-backed loans who are financially impacted by COVID-19, (2) a moratorium on foreclosures of Federally-backed loans, and (3) a moratorium on evictions from public housing or housing with Federally-backed mortgages. 

Under the CARES Act, borrowers with Federally-backed mortgages may request a forbearance on the loan if they are experiencing a financial hardship during the COVID-19 emergency. The forbearance can last for 180 days and may be extended at the request of the borrower. No fees, penalties, or additional interest will accrue for borrowers during the period of forbearance. The CARES Act also provides a moratorium on foreclosures of federally-backed mortgages. Borrowers with Federally-backed multifamily mortgage loans may obtain forbearance of 30 days, which may be extended, and during the period of forbearance, are prohibited from evicting a household solely for non-payment. Importantly, the Act provides a 120-day moratorium on eviction filings for most federally subsidized rental housing, as well as for any housing that has a Federally-backed mortgage or multifamily mortgage loan if the eviction is based on non-payment.  Borrowers curious about their mortgages can look up the information through Fannie Mae, Freddie Mac, or by contacting your own mortgage company.

The CARES Act also dedicates $4 billion to the expansion of the existing Emergency Solutions Grant program intended to be used for people experiencing or who are at risk of homelessness. These funds can increase shelter capacity, allow communities to reconfigure shelter space to adhere to physical distancing guidelines, deliver medical care to people who acquire the virus or may be at higher risk, and provide short-term rental or utility assistance so that people who have lost jobs or income don’t also lose their housing.  Although the funds can be used for emergency assistance, the needs of shelters (and creating alternatives to current shelter options) are so great that there is unlikely to be sufficient funds to address all the emergency needs that come with such high rates of joblessness. It is unclear how California will use this funding.

PRESS RELEASE: Governor Signs Bill Stopping Debt Collectors From Draining Bank Accounts

FOR IMMEDIATE RELEASE

New law will protect low-income consumers from losing vital basic income to debt collectors

On Monday, Governor Gavin Newsom signed state senator Bob Wieckowski’s Senate Bill 616, capping a three-year effort by the anti-poverty groups, local governments and labor unions across the state to provide basic protections for the bank accounts of low-income consumers. The bill’s co-sponsors – the East Bay Community Law Center (EBCLC), the Western Center on Law & Poverty, and the California Low-Income Consumer Coalition – cheered the Governor’s signing of a measure that will automatically set aside $1,724 when a debt collector seizes a consumer’s bank account.

Sharon Djemal, director of EBCLC’s Consumer Justice Clinic, saw the need to elevate the issue of bank reform to the California legislature after fielding calls from hundreds of clients who lost the ability to cover food, rent, and basic expenses in one fell swoop. “We’ve fought for this reform for so many years because for too long, our clients were completely vulnerable to the whims of debt collectors. When their bank accounts are emptied, our clients are thrown into a financial tailspin – and sometimes even into homelessness.” Djemal added, “This bill is a significant step toward providing some basic financial stability to low-income Californians.”

“Legal services organizations around the state have long testified about the great harm of the debt-collector-take-all status quo,” said Jessica Bartholow of the Western Center on Law & Poverty, a co-sponsor of the bill. “Our clients miss rent payments, suffer bounced check and overdraft fees and, eventually, walk away from traditional banking altogether as a result of these levies. The governor’s signature on SB 616 will change that.”

The $1724 set aside by the bill is the amount the California Department of Social Services (DSS) has determined is the monthly minimum necessary for a family to survive. The DSS updates the amount every year.

“Other types of assets are protected under California law, from wages to jewelry to art. The one that isn’t – or wasn’t until today – is bank accounts,” noted Ted Mermin, director of the California Low-Income Consumer Coalition. “This bill will encourage low-income Californians to keep their money in the financial system rather than enduring the dangers of becoming ‘unbanked.”

The bill also gives consumers the chance to go to court to get back any seized money beyond the cap that they need in order to survive. Debt collectors currently time account seizures to occur when consumers have just been paid, or have just received their federal earned income tax credit. SB 616 will help to limit the damage that occurs when debt collectors game the system.

The bill offers crucial protections to workers like farmworkers and substitute teachers, who rely on their savings during the off-season. One EBCLC client, Grace A., a substitute teacher, had her account cleaned out at the beginning of the summer. With EBCLC’s help she convinced a judge that the money should not have been taken from her account. However, even though she “won” in court, her money was not returned for five months. In that time she had to borrow from her retired farmworker parents in order to pay her rent – all because of a bank levy that never should have happened, but was legal under existing law. SB 616 ends this practice and resolves the issue by exempting a minimum basic amount.

The bill’s sponsors express their enormous gratitude to Senator Wieckowski and his team, to co-authors Senator Bob Hertzberg and Assemblymember Luz Rivas, to floor supporters Assemblymembers Buffy Wicks, Shirley Weber, and Rob Bonta, and above all to their clients, whose bravery in speaking up and fighting back inspired the multi-year effort that led to the passage of this long-awaited, much-needed bill.

 

Contact: Jessica Bartholow; [email protected]