Senate Republicans on Tuesday killed a new rule that would have made it easier for Americans to file class-action lawsuits against big Wall Street banks.
Vice President Mike Pence cast a critical vote to break a 50-50 tie, giving the Street its first major victory since the Trump administration took office in January.
Implications for consumers
In the regulatory overhaul following the housing slump, Congress directed the Consumer Financial Protection Bureau (CFPB) to write the rule preventing financial firms from imposing arbitration when consumers wished to band together in class-action cases to resolve disputes.
For years, financial companies have included class-action waivers in new contracts offering a consumer financial product or service. The arbitration clauses forced consumers to waive their rights to join class-action lawsuits.
CFPB’s proposed rule, issued in July, would have banned financial institutions from inserting such clauses in standard contracts. Consequently, it would have restored individuals’ ability to pool resources and fight against banks and credit card companies in court.
“Tonight’s vote is a giant setback for every consumer in this country,” Richard Cordray, the director of the consumer bureau, said in an emailed statement to MagnifyMoney. “Wall Street won and ordinary people lost.”
He added, “As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.”
When a company includes a mandatory arbitration clause in a contract, it generally means disputes will be handled as individual cases in small claims court or settled outside the court system, through arbitration. A neutral third party — an arbitrator or panel of arbitrators — listens to the arguments and decides on a resolution.
Arbitration is said to be faster, simpler and cheaper than litigation. But opponents of arbitration say its downsides include questionable neutrality on the arbitrator’s part, a lack of transparency and a lack of recourse. For example, in a court case, a losing party could appeal — an option that doesn’t exist in arbitration.
The CFPB argues that reducing consumers’ options to private arbitration or an individual lawsuit makes it easy for companies to avoid accountability for actions that can affect thousands or millions of people.
The Trump administration and Republicans have pushed to curtail the CFPB as part of a broader effort to weaken the Obama administration’s tighter federal grip over financial institutions.
The arbitration rule had sparked a political firestorm in Washington. Over the summer, members of the Senate Banking Committee pledged that they would take the unusual step of filing a Congressional Review Act Joint Resolution of Disapproval to overturn the CFPB rule.
Rep. Jeb Hensarling, D-Texas, introduced a companion measure in the House.
Under the Congressional Review Act, Republicans had about 60 legislative days to overturn the rule. In ensuing months, financial institutions and their Republican allies in Congress joined forces, making serious efforts to block the arbitration rule.
The Treasury Department on Monday released a report against the rule. “The Bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest — its two statutory mandates,” according to the report.
On Tuesday, the White House applauded the move by Senate Republicans.
“The evidence is clear that the CFPB’s rule would neither protect consumers nor serve the public interest,” the White House said in a statement. “Rather, under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.”
Republican lawmakers are under pressure to put out new tax reform legislation by year’s end, but to make that happen, they need ways to pay for the hefty tax cuts proposed so far.
A proposal from President Trump calls for tax cuts for taxpayers at every income level, a reduction in the corporate income tax to 20 percent from 35 percent, and the end of the estate and alternative minimum taxes, among other things.
So far, implemented as is, the plan would add $1.5 trillion to the federal deficit, according to the Tax Policy Center. The deficit is the amount by which total government spending exceeds tax revenues for the fiscal year.
Such calculations have Republicans scrambling to figure out a way to achieve tax reform without adding to the deficit.
This week, Republicans lawmakers were rumored to be considering offsetting the cost of their tax cuts by reducing the 401(k) contribution limit for workers. (Trump swiftly denounced that plan on Twitter.)
At the moment, workers under 50 are able to contribute up to $18,000 in pre-tax dollars each year to a 401(k) retirement account. The amount is tax-deductible and reduces the overall amount the worker pays in annual federal income tax. The tax-deductible contribution limits are set to rise to $18,500 and $24,500, respectively, in 2018.
The Wall Street Journal reports Republican house leaders were considering a plan that would cut annual tax-deductible contribution limits on 401(k)s and, possibly, IRAs, down to just $2,400.
Workers would need to place any amount they’d like to save above that limit in a Roth IRA, which would be a boon to the federal government. Contributions made to Roth accounts are taxed immediately, not when the benefit is drawn out as with 401(k)s, so it would be one way to drive up tax revenue in the face of tax cuts.
On Oct. 23, Trump tweeted, “There will be NO change to your 401(k).”
There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!
Started by the IRS in 1978, retirement savings plans like the 401(k) and Individual Retirement Account (IRA) have been financial staples among middle-class families. And as pension plans have been phased out over time, defined contribution plans like the 401(k) plan have taken their place as a principal retirement vehicle for those families.
The proposed limit could prove costly to many Americans, as they are likely contributing above $2,400 annually to a 401(k) retirement account. According to Fidelity Investments, the average 12-month savings rate for 401(k) accounts in 2016 reached a record high of $10,200.
The notion of cutting back the amount workers can contribute, tax-free, to retirement accounts is understandably unsettling to many workers and members of the asset management community. That’s in part because, as Trump has noted on Twitter, 401(k) contributions allow many middle-class Americans a tax break.
Here’s how it works. For this example, we based our estimates on 2016 income tax brackets.
Let’s say Robin is head of her household and drew a base salary of about $55,000 in 2016, placing her in the 25% tax bracket. She deferred 15% of her pre-tax income, or $8,250, to her 401(k) retirement account. Her $8,250 contribution reduces her annual taxable income to $46,750.
That newly calculated income not only dropped Robin to the 15% tax bracket, but she also saved nearly $1,700 in federal income taxes.
The administration’s tax plan reduces the seven existing tax brackets to just three — 12, 25 and 35 percent (with a possible fourth tax bracket for the highest-earning individuals). But the plan did not specify income ranges. As of this writing, it is unclear which incomes would fall into which bracket.
For the purposes of this example, let’s assume that Robin’s income would still land her in the 25 percent income tax bracket.
With a 401(k) contribution limit reduced to $2,400, she would have been taxed on $52,600 at a 25 percent tax rate. That would have increased the amount she paid in federal income tax to $7,297.50 from $6,350 in 2016.
It’s unclear if the new tax bill will actually include a reduction in 401(k) contribution limits. But one thing that is clear is this: If the tax-reform measures are to pass, funding for more than $1.5 trillion in lost revenue to tax cuts over the next decade has to come from somewhere.
The plan proposes to reduce the tax burden on middle-class Americans by doubling the standard deduction Americans can make when filing their federal income taxes to $12,000 for individuals and $24,000 for married couples filing jointly. However, it would eliminate the option to itemize deductions instead of using the standard deduction. The proposed plan would also increase the child tax credit — currently $1,000 — by an unspecified amount and create a $500 tax credit for nonchild dependents, like elderly family members. These and other tax cuts may translate to big losses in federal tax revenue.
An independent analysis by the Tax Policy Center, a nonpartisan think tank, claims the new tax plan would reduce federal revenues by $6.2 trillion over the first decade, while federal debt could rise by at least $7 trillion in the same period.
The Trump administration recently issued two new rules that may increase the cost of contraception for millions of American women. The issued rules allow more companies to opt out of an Obama-era mandate that companies offer insurance providing birth control for women. Now, any company can be exempted from the mandate on moral or religious grounds.
The rule went into effect on Oct. 6.
Previously, only religious employers like churches or nonprofit religious groups — like some schools or hospitals able to prove they have religious objections to providing contraception coverage — could opt out of the mandate.
Since the health care law, a signature of the Obama White House, went into effect, out-of-pocket spending on prescription drugs has decreased dramatically. The majority of this decline (63%) can be tied to the drop in out-of-pocket expenses on the oral contraceptive pill for women, according to the Kaiser Family Foundation. After the mandate, more women have opted for more expensive, more effective, longer-lasting contraception options they otherwise wouldn’t be able to afford, like intrauterine devices (IUDs).
“It is going to be a significant problem for families around the country,” said Maggie Jo Buchanan, the Southern regional director for Young Invincibles, a nonprofit advocacy group for young adults. “People will be living on pins and needles just trying to figure out what is covered under their plan.”
How many women could the new regulations affect?
In its announcement of the changes, cast as protections for Americans’ conscience rights,, the Trump administration claimed that most women — specifically, 99.9 percent of the 165 million women in the United States — would not be affected.
Some women’s rights advocates and legal experts have disputed that math.
“The claim that 99.9 percent of women won’t be affected is quite inaccurate,” said Erika Hanson, a women’s law and public policy fellow at the National Women’s Law Center, a nonprofit organization that advocates for women’s rights, as recent research suggests the regulations may affect health care costs for millions of women.
Now that any employer can opt out of coverage, American women on employer-provided health insurance plans are at a higher risk of losing no-cost contraception coverage. Kaiser Family Foundation has reported that roughly 57.5 million women — about 59% of women ages 19 to 64 — received their health coverage from their own or their spouse’s employer in 2015.
“We all agree that the First Amendment and freedom of religion is an important Constitutional protection in this country,” says Hanson. “But that right does not give one the ability to impose their religious beliefs on someone else, especially when someone else is going to be harmed as a result of your religious beliefs.”
“We are hoping that companies worried about their bottom line will stand behind the birth control benefit and say, ‘We value our employees and are going to continue to provide this coverage,’” Hanson said.
How will I know if I am affected?
Since companies aren’t required to disclose to employees whether they have opted out, many women may not find out they are not longer covered until they get to the pharmacy counter.
“No companies or schools have dropped coverage yet. But also under the rule, we wouldn’t know” if they did, Hanson said. “They don’t have to do anything or tell anyone.”
12 Tips to lower your contraceptive costs
For those who are strapped for cash, losing no-cost contraception coverage may mean losing access to birth control altogether. Research shows that copays as modest as $6 may deter some women from purchasing contraception coverage.
Those affected by the rules will incur the costs of figuring out a way to afford birth control out of pocket.
Getting prescriptions directly from your doctor or OB-GYN may not be the most economical choice. “If you can’t use your health insurance coverage, it’s typically very expensive to go to your normal primary care physician and get a birth control prescription,” says Hanson.
Here are some other suggestions:
Go to a low-cost clinic
Try going a federally qualified health center for more affordable services. Women can find one nearby through the Health Resources and Services Administration. The program is run by the HRSA, a subset of the Department of Health and Human Services, and offers services based on income, whether you have health insurance or not.
Going with the generic brand of the birth control pill could help women save money. Generic brands usually cost less than the name-brand version, but use the same active ingredients. Women should ask their doctors about switching, however; some women may experience adverse side effects, or different effects than with the branded version.
Check here for a list of the name-brand contraceptive medications and generic versions.
Coupons can help
If someone is prescribed a more-expensive, name-brand drug, she may find savings through the use of coupons. Search online on websites like HelpRx or EasyDrugCard.com to find a coupon for contraception. Some brands, like Loestrin 24 Fe, offer discount cards. This product’s card — you can apply here — can help you pay pay as little as $25 per one?month prescription fill or three?month prescription fill. You can also get discounts for Yasmin.
Speak with your doctor
Women may also save money by going to a physician or clinic that offers prescriptions on a sliding, income-based scale. Physicians can sometimes provide more affordable coverage if a patient speaks to them about their financial situation. The doctors may also allow patients to bypass insurance and pay in cash.
Women looking for savings can compare prices at different retailers to save money. Call around to check the price of your prescribed contraception at pharmacies in your area. You may be surprised at how much prices will vary, especially if you aren’t covered by insurance.
Try a long-term solution
Using a longer-term contraception method like the IUD may help women save money on contraception. The IUD may cost more upfront — between no cost and $1,300, according to Planned Parenthood — but women usually save more in the long-run an IUD lasts the longest compared with other methods. For example, the median price of the Mirena IUD, is effective for up to five years and is $1,111, according to the doctor-database site Amino. That would put the monthly cost over that time at about $18.52. Meanwhile, the birth control pill costs uninsured women up to $50 per month.
Join a prescription savings club
Both insured and uninsured women may find significant savings by joining a prescription savings club like those offered through large national pharmacy chains like Walgreens, CVS or Rite Aid. Other companies, such as My Prescription Savings Card and Good Neighbor Pharmacy, offer savings programs consumers can use at various locally owned pharmacies or smaller pharmacy chains. There may be an enrollment or annual fee charged for a membership. Good Neighbor, for example, charges a $5 annual enrollment fee.
You may be able to earn a discount if you purchase more of the Pill at once. You may pay the same copay if you ask for a 90-day prescription as opposed to a 30-day supply. This also saves consumers time, as it cuts back the number of trips they will need to make to the pharmacy.
Use the mail
Consumers can also save simply by ordering medication through the mail. If the insurer has a long-term prescription program, women may pay a lower copay if they choose to have a 90-day prescription mailed, as opposed to picking it up at a pharmacy.
Try enrolling in a government program
Several government programs provide free or subsidized contraception for low-income women, including Medicaid, Title X-funded centers and some state-funded programs. Women having a tough time affording contraception coverage should check to see if they qualify for enrollment in these programs, enabling them to receive low-cost or free contraception and other medical services.
If you’re not in a long-term relationship, don’t engage in intercourse with the opposite sex often or don’t need contraception for other medical issues, you may not need to pay for birth control pills or other forms of short-term contraception like the Depo Provera shot. Women in this situation can speak with a primary care physician about getting off the contraception they now use, in favor of condoms to minimize the risk of pregnancy.
Financial reform is now being … reformed, and consumers could feel some of the proposed changes almost immediately. So what do the changes mean for your money? Let’s take a closer look, but first, a quick history lesson.
In 2008, in the wake of the economic collapse, Congress passed the most extensive financial reform package since the Great Depression. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was designed to give consumers more power and to keep banks from making the kinds of risky decisions that helped lead to the housing bubble.
Last week, House Republicans voted to undo many of the reforms put in place by Democrats in 2010. On a party-line vote, House Republicans passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, or the Financial Choice Act.
The Choice Act faces an uncertain future in the Senate. But Republicans have another path to enact much of what’s in the Choice Act.
The Senate Doesn’t Have to Act for Changes to Be Implemented
This week, the Treasury Department is releasing its own report on reforming financial reform, mandated by an executive order signed in the first few days of Donald Trump’s presidency. Many Choice Act provisions can be accomplished via administrative orders from Treasury, so it’s worth understanding the main tenets of the bill.
In general, Republicans have argued that Dodd-Frank rules have hurt banks, particularly smaller banks, which has reduced competition, ultimately hurting consumers.
“We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure the American dream is not a pipe dream,” Rep. Jeb Hensarling, (R-Texas), the driving force behind the bill, said in a statement.
Critics say the bill would recreate the pre-bubble atmosphere that led to widespread abuse and economic collapse.
“This legislation releases every bloodthirsty, greedy Wall Street super-predator back onto the American people to feast on our misery, like they did pre-Dodd-Frank,” said Rep. Gwen Moore (D-Wisconsin) during floor debate.
The bill repealing Dodd-Frank is more than 600 pages long. Many are devoted to back-end bank rules, such as how often institutions must pass “stress tests” to prove they aren’t at risk. But the bill also includes measures consumers would feel pretty immediately.
The law would essentially dismantle the CFPB and reconstitute it with far less power as the Consumer Law Enforcement Agency. Instead of having a single leader, it would have a commission — similar to how the Federal Trade Commission operates. Critically, it would not have a dedicated source of funding. Both steps would make the agency more subject to political whims.
The law also prevents the consumer agency from taking enforcement actions against unfair, deceptive or abusive acts and practices — a catch-all category that generally forbids fraudulent activity — significantly narrowing the agency’s ability to file lawsuits on behalf of consumers.
Public Complaint Database Targeted
The CFPB’s consumer complaint center is perhaps the most public manifestation of financial reform. As of March, 1.1 million complaints had been filed, each one requiring an answer from industry. The database is public, so it serves as a kind of search engine for consumers who want to learn about the background of the financial companies with which they do business. It’s a tool that CFPB employees and other regulators use to find potential patterns of abuse. Banks have complained that responding to every complaint — some are indeed frivolous — is a costly burden. More generally, critics say it’s unfair to publish unverified complaints against companies.
“Is the purpose of the database just to name and shame companies? Or should they have a disclaimer on there that says it’s a fact-free zone, or this is fake news? That’s really what I see happening here,’’ said Rep. Barry Loudermilk (R-Georgia) during hearings on reform that made clear elimination of the database would be a priority.
Single-Agency Regulation Changed
Prior to Dodd-Frank, consumer protection was split among 10 banking regulators. Many, like the Office of the Comptroller of the Currency, were unfamiliar to consumers. In some cases, such as with private student loan issuers or payday lenders, it wasn’t clear if any banking regulator had jurisdiction. The CFPB’s one-stop shopping to get redress — often through the complaint database — made obtaining answers easier. Through its various enforcement efforts, the bureau has returned $12 billion to 29 million consumers. Under the Choice Act, many enforcement responsibilities would be returned to their original regulators.
Payday, Arbitration, Auto Lending Rules Rolled Back
After years of study, the agency published rules last year to regulate the payday and title loan industries. Those rules would be eliminated. The Choice Act contains a provision that prevents any federal agency from “any rulemaking, enforcement or other authority with respect to payday loans, vehicle title loans or other similar loans.” (See how loans affect your finances by viewing a free credit report snapshot on Credit.com.)
The CFPB also has spent six years working to eliminate binding arbitration agreements that prevent consumers from filing lawsuits against corporations, requiring them to use arbitration for complaints instead. The Choice Act prevents the agency from making rules about arbitration.
The Choice Act also nullifies a 2013 rule that requires third-party auto lenders — sometimes called indirect lenders — to comply with the Equal Credit Opportunity Act. The rule was put in place because CFPB research alleged that some indirect lenders were charging high loan markups to minority groups.
Fiduciary Rule Eliminated
Efforts to undo reform would reach beyond CFBP rules, however. Another provision in the Choice Act would essentially eliminate the fiduciary rule requiring certain financial advisers to act in the interests of their clients. After a decade-long debate, the Labor Department is set to institute the rule this summer. It will take effect in January, and many financial firms are already abiding by it. The Republican legislation would remove the requirement.
“The final rule of the Department of Labor titled ‘Definition of the Term ‘Fiduciary’; Conflict of Interest Rule—Retirement Investment Advice’ and related prohibited transaction exemptions published April 8, 2016 … shall have no force or effect,” the legislation says.
Risky Mortgages Made Easier
The Choice Act also makes a wide series of changes to rules governing the way banks issue mortgages. The most obvious would be an easing of “qualified mortgage” rules designed to make sure lenders make good-faith efforts to ensure borrowers have the ability to repay home loans. Qualified mortgages don’t have risky elements such as balloon payments or negative amortization. Banks that offer qualified mortgages are exempt from more stringent ability-to-repay requirements. The Choice Act expands the definition of qualified mortgages, making it easier for banks to issue some mortgages.
Enforcement, So Long as the Industry Isn’t Harmed
Finally, and perhaps most importantly, the Choice Act requires the CFPB replacement to consider the impact of any potential enforcement actions on the financial industry when deciding to pursue action against a misbehaving company.
The new agency must “carry out a cost-benefit analysis of any proposed administrative enforcement action, civil lawsuit or consent order of the Agency; and … assess the impact of such complaint, lawsuit or order on consumer choice, price and access to credit products,” according to the legislation.
This dual role — enforcing consumer protections while also ensuring the safety and soundness of the industry — puts regulators in a tough spot. Suing a bank for mistreating customers can hurt the fortunes of that bank, and other banks that might be employing consumer-unfriendly tactics. That can make siding with consumers a serious challenge.
The CFPB was set up specifically to avoid this dynamic, and set up so that fighting for consumer rights was its main task. The Choice Act eliminates this “on-your-side” structure.
More details from President Donald Trump’s long-awaited education budget leaked to the Washington Post on Wednesday. The proposed plan would slash $10.6 billion from federal education initiatives, including after-school programs, public service loan forgiveness, and grants for low-income college students, according to the Post.
Here’s what we know so far:
This May Be the End of Public Service Loan Forgiveness
Trump has long promised to dramatically scale back the role of government in education, a plan heartily supported by Betsy Devos, the embattled Education Secretary appointed by the president earlier this year.
Among the programs on the chopping block is the Public Service Loan Forgiveness initiative. Implemented in 2007, the PSLF sought to reward student loan borrowers who took jobs in nonprofits or the public sector by allowing them to discharge their federal student loan debt after 10 years of on-time payments.
Over half a million students were enrolled in the program, and the first cohort would have been eligible for loan forgiveness this October.
Now, the future of the initiative is uncertain. There are no details on whether eligible students will be grandfathered into the program, as has been the case when previous student loan assistance programs were phased out. A Department of Education representative didn’t immediately return a request for comment.
Disgruntled college graduates took to social media Thursday to cry foul.
Raise your hand if you were counting on the Public Service Loan Forgiveness program.
Changes are Coming to Income-Driven Repayment Plans
As it stands there are five different income-driven repayment plans available to student loan borrowers. The proposed budget calls for one single IDR plan, which could potentially be good news for borrowers.
Typically, under the current IDR plans, borrowers are eligible to have their loans forgiven after 20 years of on-time payments, and their monthly payments are capped at 10% of their income. Trump’s new budget would decrease the payment period from 20 to 15 years but would increase the payment cap to 12.5% of income, the Post reports.
But advanced degree earners wouldn’t be so lucky. Trump’s plan would not only raise the income cap for borrowers who earned advanced degrees, it would lengthen the repayment period. IDR plan payments would be maxed at 12.5% of their income, up from 10%, and they would have to pay for 30 years rather than 25.
Low-Income College Students Could Lose Child Care Services
Trump’s budget would slash the entire $15 million budget for CCAMPIS, a federal grant program that funds on-campus child care services for low-income parents. Dozens of campuses received grants under the program.
$700 Million Cut from Perkins Loans
While Pell Grant funding remains untouched under the proposed budget, the plan would slash more than $700 million in funding from Perkins loans, according to the Post. Perkins loans are low-interest federal student loans for low-income undergraduate and graduate students.
Federal Work-Study Programs Scaled Back
The Federal Work-Study program offers part-time jobs to college students who prove financial need. Their earnings help cover their education expenses. Under the proposed budget, the program would lose $490 million, or about half its budget.
We wait. The final proposed budget is still set to be released May 23, and the particulars could still change. After that, it will have to pass muster with lawmakers in Congress. To write a letter to your representatives, contact them here.
In his first speech to Congress Tuesday night, President Donald Trump outlined the overhaul he and his administration plan to make to the Affordable Care Act, known as Obamacare.
The proposed new health care plan now heads to the Congressional Budget Office and could face more changes as Democrats and Republicans battle over it in the House and Senate.
Trump urged Congress “to save Americans from this imploding Obamacare disaster.”
The president promised to repeal and replace Obamacare. Here are five key ways he plans to dismantle the current health care system.
You could be in a high-risk pool if you have a pre-existing condition
“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the health care exchanges,” Trump said in his speech Tuesday night.
A draft of revisions to the Affordable Care Act leaked to Politico on Feb. 24 references high-risk pools, although Trump did not discuss them in his speech.
States would have the ability to create high-risk pools for people with pre-existing conditions who are searching for health care. According to the draft, states would receive $100 billion over nine years in “innovation grants” that would be used to fund high-risk participants, news outlets such as CNN reported.
“High-risk pools would need a lot of taxpayer funding to work properly, experts say,” the Commonwealth Fund, a private nonpartisan foundation that supports independent research on health and social issues, tweeted after Trump’s speech.
You could receive a tax credit — even if you don’t deserve one
Tax credits and expanded health savings accounts could help Americans purchase their own coverage. It should be “the plan they want, not the plan forced on them by our government,” Trump told Congress.
Tax credits based on age, with the elderly receiving higher tax credits, would take the place of Obamacare’s income-based subsidies.
“For a person under age 30, the credit would be $2,000. That amount would double for beneficiaries over the age of 60, according to the proposal,” reported Politico prior to the speech.
The credits were also heavily criticized by some GOP members.
“So the headline is that the GOP is reducing subsidies to needy individuals when in fact, the growth of the taxpayer-subsidized reimbursements will actually increase,” Rep. Mark Meadows (R-N.C.) told CNN. “The total dollars that we spend on subsidies will be far greater. So you can be a millionaire and not have employer-based health care and you’re going to get a check from the federal government — I’ve got a problem with that.”
“What are tax credits & savings accounts going to do for those who don’t have money to spend on healthcare in the first place?” tweeted Advancement Project, a national civil rights organization.
Chris Rylands, a partner in the Atlanta office of Bryan Cave LLP, says many people are worried that the tax credits will make it difficult for low-income participants to afford coverage.
Under the current system, many individuals eligible for a subsidy are immune to price hikes in insurance because the government picks up such a large portion of the cost. The proposed Republican system might make them better consumers, says Rylands, whose practice focuses on employee benefits.
“However, given the complexity of health insurance plans and the opacity of the pricing of health care services, it’s not clear whether individuals can really become well-informed consumers,” Rylands says.
You could lose Medicaid
Trump said his changes would give governors the resources and flexibility they need with Medicaid “to make sure no one is left out.”
Under the Trump administration’s revisions, Medicaid would be phased out within the next few years. Instead, states would receive a specific dollar amount per citizen covered by the program. States would also receive the ability to choose whether or not to cover mental health and substance abuse treatment.
“Medicaid is the nation’s largest health insurer, providing coverage to nearly 73 million Americans,” tweeted the Commonwealth Fund after Trump’s speech. In a follow-up tweet, it said capping spending for Medicaid will reduce coverage rates and increase consumer costs and the federal deficit.
However, the Center for Health and Economy, a nonpartisan research organization, reported in 2016 that block-granting Medicaid in the states will lead to additional savings. H&E projects that the decrease in the use of Medicaid funds, by block-granting Medicaid in the states and the repeal of the Medicaid expansion, would be an estimated $488 billion from 2017 to 2026.
Rylands points out that this will not be a popular provision in Congress.
“What I heard here — although [Trump] didn’t say so in so many words — is that they want to try to turn Medicaid into a block grant program, similar to what was done with welfare reform in the 90s,” Rylands says. “However, I suspect many governors from both parties will not like this because it could mean states will pick up more of the tab for Medicaid.”
You could pay less for drugs
Trump proposes legal reforms to protect patients and doctors from unnecessary costs that make insurance more expensive and bring down the “artificially high price of drugs.”
Alongside medical device manufacturers and insurers, the pharmaceutical manufacturing industry is obligated by the Affordable Care Act to pay a yearly fee. It was determined the industry would pay $4 billion in 2017, $4.1 billion in 2018, and $2.8 billion each year after. However, proposed revisions to the Affordable Care Act include repealing the tax.
Some consumer advocacy groups are hopeful that repealing the taxes will reduce drug prices.
“From life-saving cancer drugs to EpiPens, high Rx prices push critical care out of reach for those who need it,” tweeted AARP Advocates, a nonprofit advocacy group for senior citizens.
You could purchase cheaper health insurance across state lines
“Finally, the time has come to give Americans the freedom to purchase health insurance across state lines — creating a truly competitive national marketplace that will bring costs way down and provide far better care,” Trump told Congress.
Under the current law, many states have the choice whether or not to allow insurers to sells plans between states. However, even when allowed, there isn’t much incentive for health care providers to do so.
Whether this proposed change will result in a healthy competition in the industry or in a race to the cheapest offer remains to be seen, says Rylands.
“This has the potential to undermine traditional state regulation of insurance … since it would allow insurance companies to sell into a state without having to comply with that state’s particular insurance laws,” Rylands says.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has been seen by many as legislation that helped dig the American economy out of the Great Recession by putting strict limitations on banks. Banks had to rein in their high-risk mortgage practices and meet stricter lending requirements.
President Donald Trump has begun the process to roll back parts of the legislation, which could eliminate the restrictions that banks had faced under Dodd-Frank. As recently as Feb. 3, Trump told business executives at the White House, “We expect to be cutting a lot out of Dodd-Frank, because, frankly, I have so many people, friends of mine that have nice businesses that can’t borrow money, they just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd-Frank.”
The executive order that Trump signed on Feb. 3 asks for a review of Dodd-Frank. Many of Dodd-Frank’s key provisions can’t be undone without legislation, and Democrats have vowed to do all they can to protect the law; however, with a Republican-controlled Congress, there is a possibility of dismantling the legislation.
Consumers and small business owners could feel the impact of Dodd-Frank’s potential rollback in three key ways.
Relaxed lending standards.
The subprime mortgage lending phenomenon caused a surge in defaults when the housing market crashed about a decade ago. Nearly 9.3 million homeowners experienced a foreclosure, short sold, or received a deed in lieu of foreclosure between 2006 and 2014, according to the National Association of Realtors.
Some legal experts worry that a rollback of Dodd-Frank could expose homeowners to the same lending risks they faced prior to the financial crisis.
“If Dodd-Frank is repealed, homeowners should expect to see a return to the ‘anything goes’ days of the 1990s and early 2000s,” says David Reiss, a law professor at Brooklyn (N.Y.) Law School. “There will likely to be a loosening of credit, but also a return to some predatory practices in some parts of the mortgage market,” he says.
When signed by President Barack Obama in 2010, the Dodd-Frank law created several government agencies, including the Consumer Financial Protection Bureau (CFPB). The CFPB, which was tasked with protecting consumers by regulating complaints, conducting investigations, and filing suits against companies that break the law, created the Ability to Repay and the Qualified Mortgage rules. The rules were meant to ensure that banks and mortgage lenders were only issuing loans to homebuyers who could reasonably afford to repay them.
“These are really rules that require lenders to pay attention to who their borrower is, to make sure their borrower can pay back a loan,” Reiss explains. “It sounds kind of silly to have a rule to tell lenders to make sure borrowers can pay back their loan, but before the financial crisis, it was pretty common.”
One of the popular ways to entice subprime mortgage borrowers before the recession was to offer teaser rates. Teaser rates, Reiss explains, made a mortgage appear affordable in its first six months or 12 months, with low rates and low monthly payments. Once the promotional period was up, the rates and payments would skyrocket.
The subprime mortgages and other loans with higher risk for consumers, which can be profitable to banks, had much higher rates of default, Reiss says.
Dodd-Frank legislators originally reduced and prohibited these exotic terms in order to suppress the turbulent market at the time. Repealing Dodd-Frank and its restrictions will not only bring back lenders’ old habits but return the market to a more volatile state, says Reiss.
While the potential abolishment of Dodd-Frank may be a shame in terms of the loss of consumer protections, there is a bright side, says Paul Hynes, a certified financial planner and CEO of HearthStone, a wealth management firm based in San Diego, Calif. Many lenders have complained that heightened regulations have only increased their costs and made it tougher for consumers to get access to much-needed financing. Since the recession, the homeownership rate in the U.S. has declined by 4.7%, from 68.4% in 2007 to 63.75% in 2016, according to the U.S. Census Bureau.
“The increased cost of compliance with Dodd-Frank may also go away,” Hynes says, “reducing the drag on the economy caused by these costs, and perhaps stimulating economic growth, higher wages, and overall increase in the standard of living for all Americans.”
Possible benefits for small banks and businesses.
The rollback of Dodd-Frank should have a positive impact on small banks that have felt the effect of the regulations much more heavily than their larger Wall Street and corporate counterparts, says John Gugle, a certified financial planner with Alpha Financial Advisors in Charlotte, N.C.
The costs of complying with Dodd-Frank for banks totaled more than $10.4 billion and 73 million hours in paperwork in 2016, according to the American Action Forum, a conservative nonprofit think tank in Washington, D.C.
Small banks, which used to be an engine for loan growth in their communities, have struggled with the costs to comply with Dodd-Frank, says Gugle, a member of the National Association of Personal Financial Advisors (NAPFA) policy committee.
“If you’re a small lender, and having to meet these increasingly rigorous regulations, you don’t have enough money or resources to throw at it,” Reiss says. “So I think the regulatory burden is felt more by the smaller institutions who are just trying to manage to keep the doors open.”
The Dodd-Frank rollback could make it easier for small business owners to qualify for small business loans. Since the recession, lending to small business owners has declined by 17%, according to U.S. Small Business Administration research. While larger banks have focused traditionally on investment and corporate banking, smaller banks have been a primary source of loans to local communities and businesses, and they were hardest hit by the recession.
“For smaller community banks, the increased compliance and regulatory costs have impeded their ability to lend,” Gugle says. “By lowering the regulatory burden, it would make it more cost effective for banks to make loans, but I am careful to point out that small businesses will still need to meet the stringent borrower requirements that banks will impose.”
Another recession? Not likely.
While many financiers and officials have advocated for the repeal of Dodd-Frank, the public is hesitant to remove the restraints on American banks.
In a survey of more than 1,000 people, California-based Personal Capital Advisors Corp. found that 84% were supportive of efforts to protect consumers’ financial rights and concerned about the lack of protections without Dodd-Frank.
Experts agree that a repeal will likely lead to risk-taking by banks, but contend that a recession is not immediately imminent.
If Dodd-Frank is repealed, Hynes, a NAPFA member, says he thinks the U.S. initially will see a “more robust economy, more jobs, and higher economic growth rates.”
“The U.S. economy experienced solid growth, punctuated by occasional, more ‘normal’ recessions, from the end of the Great Depression, about 1940, until 2007 — without massive legislative imposition such as Dodd-Frank,” Hynes says.
Debate season has brought about quite a bit of talk about how Donald Trump runs his businesses and how the Clinton Foundation gets its donor dollars. Nav, a business score education organization, decided to run business credit scores for both The Trump Organization and the Clinton Foundation (you can view the full Nav report details here). The results might surprise you.
What’s a Business Credit Score?
Similar to your personal credit scores, business credit scores and reports suggest a way to determine the credibility of a company by looking into how it has handled debts and obligations in the past.
“Suppliers, vendors and even business partners can look up your business’s credit score, anytime they want, without notifying you and without your permission,” Gerri Detweiler, head of Market Education for Nav, said.
Businesses leave an information trail when using credit, which is collected by business credit reporting agencies. A business credit score could be determined by the use of business credit cards, repaying equipment leases or business loan, or working with creditors that report business activity to credit reporting agencies, Detweiler said.
According to the Nav report, many types of businesses rely on business credit scores similar to the way people rely on personal credit scores — these scores can determine interest rates and loan approvals. Lenders, vendors and suppliers may look up a business’ credit scores to make financing or trade credit decisions. They may also use the scores when determining whether to extend terms to a business, such as letting it pay for goods or services in 30 days (net-30) or 60 days (net-60). The U.S. government can also review business credit when a company applies for a large contract. Even potential business partners may look into a company’s reports before deciding to do business with it.
Business scores often take a harder hit because of late payments than personal scores. Delinquencies or slow payments, for example, might be reported if they’re only a day late for a business, compared to the 30-day grace period typically offered with personal credit, according to Nav.
According to Nav, The Trump Organization, Inc.’s business credit score is a 19 out of 100 as of Sept. 23, 2016, which puts it below the national average score by more than 30 points. The Nav report said the score indicates the Trump Organization “is very likely to default on its credit payments” and that “this will make it difficult to get financing.” It puts Trump’s Organization in a “medium-to-high risk” category.
What Hurt the Trump Score
“Derogatory information, including a tax lien, judgement and collection accounts are affecting the Trump Organization’s credit scores,” Detweiler said. Derogatory information can include things like bankruptcies, but Trump’s bankruptcies did not show up on the report — most likely because they were old or for other businesses he is associated with, Detweiler said.
“Payment status is the most important factor when it comes to business credit scores, accounting for approximately 50% or more of the score,” Detweiler said. The Trump Organization’s payment history shows it pays an average of 26 days beyond terms (DBT), compared to the national average of 12 DBT.
Up for Debate
Interestingly, the report also shows a tax lien, a judgement and three collection accounts, all of which ding the Trump Organization’s score, but the status of these is unclear.
The first, from the Environmental Control Board, said “paid in full, amount paid $0” and is dated 2015. Another is an account in collections reported by Altus Global Trade, which shows up twice: One appears to be closed and the other seems to be uncollected, according to the report. There’s no start date. The amount paid is listed as $0.
“This could be a duplicate, it could be resolved, it could be a mistake,” Detweiler said. “Just like personal credit, this is an illustration of why, as a business owner, you want to check your business credit report, and if it isn’t accurate, then you need to dispute it.” So, in effect, Trump or someone from his organization should dispute these items on his business credit report if they believe they are inaccurate. “If these items bringing down the credit score are mistakes, they could be fixed,” Detweiler said.
The other items are a state tax lien for $526, which shows as released and presumably was paid. (Note: Tax liens can stay on your credit report for a given number of years, even after they’re paid.) There was also a judgement regarding ABC Imaging of Washington, D.C., for $3,294 from December 2013.
Two separate things that worked in the Trump Organization’s favor are its business credit trail, which extends for more than 35 years, and that the bankruptcies weren’t on the organization’s report.
The Clinton Foundation Score
According to Nav, the Clinton Foundation’s business credit score is a 42 out of 100 as of Sept. 23, 2016, which puts it below the national average score by about seven points. The Nav report said the score indicates the Foundation is “somewhat likely to default on its credit payments” and that “this could make it difficult to get financing and the terms may be unfavorable.” It puts the Clinton Foundation into a “medium-risk” category.
What Hurt the Clinton Score
What works against the Clinton Foundation is that it is a relatively new organization and it is a foundation — its credit history only dates to 2013 and it has a relatively “thin file,” Detweiler said. Because it is a foundation, it may not use a lot of credit, so there may not be as many active trade lines as a regular business, she said. That’s because foundations are often funded through donor dollars. “According to the reports, the foundation has no derogatory information, low credit utilization, a mix of different accounts and a projected payment trend of zero days beyond terms,” Detweiler said.
“A good course of action to establish good business credit scores would be to take care of any delinquent accounts that are being reported, and — most importantly — make on-time or early payments in the future,” Detweiler said.
Even if you’re not running for president, it’s important to keep a close eye on your business’s credit reports to make sure they don’t contain errors and, if you do find any, you repair the problem.
Eliminating “carried interest” was something that came up a few times during Sunday night’s debate between presidential candidates Donald Trump and Secretary Hillary Clinton.
When Trump was asked what specific tax provisions he would change to ensure the wealthiest Americans pay their fair share in taxes, he responded that he’d get rid of carried interest, but lower the tax rate for those in the higher earning percentiles from 35% to 15%.
And Secretary Clinton responded later, “I’ve been in favor of getting rid of carried interest for years, starting when I was a senator from New York.”
So what the heck is carried interest? And would eliminating it really “ensure that wealthy Americans pay their fair share?”
Carried interest is essentially a share of the profits from investment funds that is generally treated as capital gains for tax purposes. That means this income gets taxed at a much lower tax rate (up to 25%). Carried interest typically is given to general partners of investment funds, who receive it in exchange for managing a profitable fund, according the Tax Policy Center.
According to the Center, some argue that that carried interest should be taxed at the 39% income tax bracket. Others argue that these fund managers take risks, just as entrepreneurs do, so they should be able to take advantage of the lower tax rates for capital investments. Still others defend the status quo, saying that corporate income already faces an unfair double taxation (saying that C corporations are subject to corporate taxes and individual income taxes when realized or distributed.)
The Heart of the Debate
“We’re just debating the characterization of that income,” says Martin Cantor, CPA and director, Long Island Center for Socio Economic Policy. “Is it capital gain income (and taxed lower) because it’s generated from an investment? Hedge fund managers say yes. Others say no, it should be characterized as earned income as a bonus for doing well. And that would be taxed at 39%. Those who are not making the money feel they should be paying more.”
Politicians are playing to the crowd during election season and when the crowd cries that the rich people are getting richer, they might not be taking into account that they’re getting richer because they’re taking big risks, explained Cantor.
“Some would say it’s their bonus over and above their salaries for making good investment decisions for all the investors, so it should be different,” says Cantor.
“This country is great because of capitalism,” said Cantor. “The fact of the matter is, we’re built on people who invest money and take risks for the profit motive. And if they take those risks, they get rewarded by having more income.”
But What Affect Would It Have if it Were Eliminated?
Taxing the carried interest as ordinary income wouldn’t generate a huge sum for the tax base, according to the Tax Foundation. It would raise $15 billion over the next decade, on a static basis.
“Carried interest represents only a very small portion of all employee compensation. Thus, the economic impacts of this tax change would be small,” according to the Tax Foundation website. However, the Tax Foundation also found that eliminating it could result in a net loss of 2,200 jobs.
The politicians didn’t talk about the rising debt levels of the average American household, whether people can afford their mortgages, or even the growing problem of identity theft. That doesn’t mean you should be ignoring how these issues can impact your personal financial situation by implementing good budgeting methods and not falling into debt. You can stay on track by getting a snapshot summary of your credit report, updated every 14 days, on Credit.com.
With only a few months left before he squares off against Hillary Clinton for the U.S. Presidency, Donald Trump’s plan to tackle college affordability is slowly beginning to take shape.
Trump’s plan rests on three main pillars — getting the federal government out of the student loan business, asking colleges and universities to put more skin in the game, and changing the way we determine how much students can borrow for school.
It’s the third leg of that stool that has education experts balking. Currently, students are granted aid (that includes federal student loans but also access to PELL grants and Perkins Loans) largely based on how much their family can afford to contribute. Under a Trump plan, students with the best odds of finding a job after graduation would get the most financial aid.
That means people who major in low-paying fields wouldn’t be allowed to borrow vast sums to finance their degree, Sam Clovis, co-founder of Trump’s Presidential campaign, said in a recent interview. It would be up to lenders and college administrations whether a History major should be able to borrow as much as an engineering major.
“If they choose to borrow the money, they have to pay it back. It’s that simple,” Clovis said.
Would a plan like this even work?
We asked three education experts to weigh in.
Taken at face value, Trump’s plan is fairly logical, but it would be practically impossible to implement, said Barmak Nassirian, a policy expert with the American Association of State Colleges and Universities.
“A snap judgment by a banker trying to assess somebody [based on their major] is almost borderline laughable,” Nassirian said. “You don’t know when you sit across from a student whether they’re going to complete their degree, whether they’ll switch their major or whether they’ll even get a job.”
There is a bevy of research out there on the return on investment of a college degree. There are even studies that have attempted to estimate the ROI of a pursuing certain degree at a specific school.
“A snap judgment by a banker trying to assess somebody [based on their major] is almost borderline laughable.”
But Trump’s plan would make it nearly impossible to determine aid eligibility for students with non-linear career paths. For example, some students start taking core college classes before they even declare a major, says Mark Kantrowitz, a student loan expert and publisher of Cappex.com.
Lenders would also have to figure out how to handle students who may start off with a lucrative major — say, petroleum engineering — but switch their major to something like social work or literature halfway through the year. Even students in potentially high-paying majors could find themselves in an awkward place.
“[It’s] unclear how to handle fields of study that initially have low income that increases significantly a few years after graduation,” Kantrowitz notes. He points to medical school graduates, who start out earning a relatively low salaries during their internship and residency programs, which can last three to five years.”
Humanities majors would clearly get an unfair shake if Trump’s plan were ever set in motion. Lynn Pasquerella, President of Association of American Colleges and Universities, defended the need for humanities while also acknowledging the need for education reform.
“My fear is that in our rush to prove the critics wrong, many [in higher education] fail to take seriously their underlying message—that higher education is too expensive, too difficult to access, and doesn’t teach people twenty-first century skills,” Pasquerella said.
“In order to restore public trust in higher education and destabilize the cultural attitudes at the basis of Trump’s policy proposal, we need to demonstrate in a more compelling way to those outside of the academy the extent to which we actually are teaching students 21st-century skills, preparing them to solve our most pressing global, national and local problems within the context of the workforce, not apart from it.”
There may be far better ways to decrease student loan borrowing than judging borrowers on their major. Students and their families should take advantage of resources out there to determine whether a certain degree or college is worth the price of attendance. A good starting place is the College Scorecard, published by the Department of Education. On that site, families can see the total cost of attendance of a given school, recent data on graduation rates and how many graduates struggle to repay their student loans.