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Health

How Obamacare Is Trying To Make It Easier For Poor Americans To Pay For Their Health Insurance

(Credit: Shutterstock)

Officials overseeing the implementation of the Affordable Care Act have proposed rules to require that insurance companies accept a variety of payment methods, including cashier’s checks, money orders, and re-loadable pre-paid debit cards. That’s expected to help millions of low-income Americans — many of whom don’t have access to credit cards and checking accounts — who will receive federal tax credits to purchase insurance through Obamacare’s statewide marketplaces.

The health law extends premium subsidies to American households making up to 400 percent of the Federal Poverty Level (FPL), or about $94,200 for a family of four.

But many of the people gaining insurance through Obamacare’s marketplaces will be relatively poor, since higher-paying jobs tend to come with employer-sponsored health coverage. That could wind up being a problem when they try to pay their monthly premium under the law, because a large number of lower-income people don’t have checking accounts or do business with banks, despite the increasingly electronic nature of money transfers.

CNNMoney reports that 10 million U.S. households don’t have bank accounts at all, and according to one study cited by Kaiser Health News, one in four Americans who will qualify for premium subsidies through the health law don’t have checking accounts or a credit card.

These Americans have to rely on the sort of alternative payment methods that federal officials are now encouraging. Critics may point out that some of these methods — particularly debit card transaction — carry transaction fees, and could lead insurers to pass the cost of those charges onto low-income Americans.

But as Kaiser Health News notes, another Obamacare consumer protection will shield consumers from potential price gouging by insurers: the so-called “80/20 rule” that requires individual and small group health plans to spend at least 80 percent of the premiums they charge Americans on actual health care, rather than administrative overhead or profit. Card transaction fees are considered to be administrative, meaning that insurers would have to include those costs as part of their 20 percent overhead limit.

Economy

Alabama Bankruptcy Deal Calls Attention To Wall Street Abuses

An agreement to resolve the largest municipal bankruptcy in U.S. history awaits a judge’s approval after officials in Jefferson County, Alabama approved the deal on Tuesday. The county, home to Birmingham, went bust in 2011 following the implosion of a complex web of bad deals and bribes between local officials and Wall Street firms including JP Morgan Chase, Goldman Sachs, Bear Stearns, and Lehman Brothers. While the proposed deal would erase most of the fees, penalties, and inflated costs the county owes to the firms that originated the predatory, graft-driven scheme, citizens of the bankrupt county will also face about a 30 percent hike in sewer fees over four years.

Combined with an earlier settlement, the pending bankruptcy deal would push JP Morgan’s balance-sheet losses on the Alabama sewer debacle to roughly $1.6 billion. But that eye-popping figure is unlikely to change the fact that the bank’s municipal debt business is still doing remarkably well.

While Jefferson slashed services and laid off about a thousand workers, JP Morgan registered record profits in quarter after quarter. Overall, its municipal-debt underwriting business has remained mostly unscathed by the Jefferson County scandal. The bank continues to be one of the largest players in the market, underwriting $64.7 billion worth of public debt offerings from 2009-2011. Even after JP Morgan employees openly discussed millions of dollars in bribes paid to local power brokers and extracted millions in fees on deals that turned a $250 million sewer project into a $3 billion expense for Jefferson County, local governments continue to give the firm their business.

The combination of flagrant bribes, predatory lending schemes involving Alabama’s largest city, and the readymade metaphor of a sewer system at the center of the story helped make the Jefferson County scandal national news. But it’s only one of dozens of tales like it, where local officials agreed to interest rate swaps and other long-term harmful arrangements that allowed Wall Street firms to extract massive profit from deals that bankrupted cities. Detroit has amassed nearly $4 billion in debt from such swaps.

The world’s biggest banks have been manipulating the rates underlying those swaps for years, as last year’s LIBOR scandal revealed, with the end result that borrowers go ever deeper into debt while lender profits climb. In the Detroit case, Wall Street has made nearly $500 million off of a city that’s so deep in the red that it’s slashing emergency services. One debt analyst estimated in 2012 that U.S. taxpayers have sent a combined $20 billion to Wall Street in fee payments stemming from swap agreements.

Economy

Switzerland Reportedly Ready To Help U.S. Crack Down On Tax Cheats

Switzerland is close to striking a deal with the United States to resolve ongoing investigations into its banks regarding their role in tax evasion by wealthy Americans, but reports conflict on the details. According to the New York Times’ Dealbook blog, the agreement would include disclosure of the names of the tax evading bank clients to U.S. authorities. A Reuters story disputes that claim, saying the Swiss government will allow banks to disclose information about their own employees’ activities in aiding clients, “but not identities of clients except under conditions already authorized by bilateral agreements.”

Both outlets report that the agreement includes a one-time fine, perhaps as high as $10 billion, to be paid to the U.S. Treasury by the Swiss government (which would likely in turn penalize the banks in question to raise the funds). Investigations of Swiss banks have yielded both fines and client name disclosures in recent years, and the reported effort at a blanket settlement comes after the largest private bank in the country shut down after pleading guilty to charges in the U.S.

But the reported $10 billion blanket fine is less a drop in the bucket than a water molecule inside that drop. Tax evasion, in its various forms, cost the U.S. over $3 trillion from 2001-2010, according to a report by Demos (click to enlarge):

85 percent of that lost revenue, or $2.6 trillion, comes from individual tax evasion rather than corporate cheating. Demos adds that most of those individual tax evaders are in the highest income brackets, and typically underreport business income.

While it remains to be seen if the Swiss settlement will provide U.S. investigators sufficient information to track down individual evaders, the drumbeat of tax cheating crackdown news continues. Last week, the disclosure of Apple’s entirely legal tax avoidance schemes helped refocus policymakers from either side of the Atlantic on the need to reform corporate tax law.

Economy

Probe Of Bank Misconduct On Credit Card Debt Expands Beyond JPMorgan

An investigation into allegations that major financial institutions tried to collect credit card debts using some of the same potentially fraudulent and abusive paperwork practices that drove millions of wrongful foreclosures is expanding, according to the Washington Post.

The investigation had previously focused on JPMorgan Chase, which had fired a woman named Linda Almonte from its credit card collections team in 2009. Almonte alleged that the unit was instructed to sign off on erroneous documents that would then be used as the basis for legal proceedings against consumers in default. When Almonte filed a wrongful termination suit and sought whistleblower protections, regulators at the Office of the Comptroller of the Currency (OCC) began an investigation that led JPMorgan to drop at least $45 billion worth of credit card debt collection proceedings in the spring of 2011. The American Banker reported on the investigation in early 2012, sparking speculation that shoddy or outright fraudulent procedures around the key documents that govern debt proceedings were far more widespread than mortgage market abuses.

Two years later, the OCC is fueling that suspicion by expanding its investigation. While JPMorgan dropped its own court proceedings around the spuriously documented debts, the Post story on the expanded investigation notes that many smaller companies exist solely to buy such debt from the big banks for a fraction of their value, then attempt to collect themselves. These downstream debt buyers “often purchase just a spreadsheet of names” based on the banks’ records, meaning the dodgy JPMorgan practices alleged in affidavits did not necessarily cease to plague consumers when the high-powered bank dropped proceedings against them.

Automated signing of legal documents without proper review and over staff objections is relatively clear-cut, and activists frustrated by government inaction on other forms of Wall Street misconduct may find the credit card debt news heartening. In the housing market version of this same story, however, strong evidence of “robo-signing” fraud has still produced feeble settlements. The perverse incentives in those settlements have done more to help the banks than the wrongly foreclosed. The news that OCC is expanding the scope of the investigation into similar wrongdoing with credit card debt collection doesn’t guarantee a better ultimate outcome for credit card holders than the government secured for homeowners.

Economy

Home Prices Post Sharpest Rise In Seven Years In March

The American housing market posted its largest gains in seven years in March, according to the Standard & Poor’s/Case-Shiller housing price index released Tuesday. All 20 cities the index measures posted gains from the same point last year, led by Phoenix, where prices rose by 22.5 percent in the previous 12 months.

As this chart from Quartz shows, the Case-Shiller index has shown a steady gain in home prices across the country over the last year, as the market continues to rebound after bottoming out during the housing bust that sparked the Great Recession and dragging along in the years since:

The gains come for a variety of reasons, according to economists and analysts, who largely pegged the rises on the limited supply of homes available on the market. That supply is limited in part by the number of homeowners who remain underwater, owing more on their mortgages than their homes are worth. Rising prices could alleviate some of those problems while also pushing more homeowners to put their houses up for sale and encouraging builders to begin construction on new houses, analysts said.

But even as the market improves, the news isn’t all good: Americans across the country are still struggling with foreclosures, underwater homes, and reduced wealth that came from losing their homes during the crisis. The big banks that played a hand in creating the bubble that burst and sparked the crisis, meanwhile, have successfully gamed settlements with the federal government that were supposed to hold them accountable and managed to avoid prosecution for their actions. That has led senators from both parties to call on regulators and prosecutors to get tougher on banks on behalf of homeowners.

Economy

Sen. Elizabeth Warren Questions Regulators’ Willingness To Prosecute Wall Street Banks

Massachusetts Sen. Elizabeth Warren (D) isn’t letting regulators off the hook for their lack of prosecutions of Wall Street banks in the wake of the financial crisis. After using her initial Senate Banking Committee hearing to press regulators about whether big banks are “too big to trial,” Warren is doing so again — this time in a letter to the Securities and Exchange Commission, the Justice Department, and the Federal Reserve.

The letter questioned regulators’ willingness to pursue settlements instead of prosecutions, and asked them to provide any analysis to justify that practice, The Hill reports:

“I believe strongly that if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial — either because it is too timid or because it lacks resources — the regulator has a lot less leverage in settlement negotiations,” Warren wrote in the letter.

“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law.”

Warren isn’t alone in her criticism: Ohio Sen. Sherrod Brown (D) and Iowa Sen. Chuck Grassley (R) pushed the Justice Department over the notion that big banks have become “too big to jail” in January, and Grassley accused regulators of giving banks a “get out of jail free card” for their involvement in the crisis.

Prosecutions for financial fraud hit a 20-year low in 2011, and regulators largely turned to settlements to punish big banks after the crisis. But various settlements have allowed them to avoid admissions of wrongdoing, and the largest of the settlements — the mortgage and foreclosure fraud settlements — have been rife with problems that have allowed banks to game their requirements while homeowners have struggled to access required assistance.

Economy

Lawmakers Take On ‘Too Big To Fail’ Banks In Bipartisan Bill

Ohio Sen. Sherrod Brown (D) and Louisiana Sen. David Vitter (R) Wednesday introduced legislation aimed at reining in “too big to fail” megabanks by imposing strict capital requirements and preventing them from structuring themselves to elude existing regulations.

The largest Wall Street banks are even bigger today than they were before the crisis, Brown noted in a floor speech in February when he renewed calls to break up large banks. In a new video explaining why he and Vitter introduced the legislation, Brown said the industry hasn’t learned its lesson from the crisis and that taxpayers shouldn’t be on the hook for banks’ risky practices again as they were when the financial system nearly collapsed in 2008:

BROWN: Did we learn our lesson after taxpayers had to bailout the megabanks in 2008? Well, since then, our banking industry has become even more — not less — consolidated. Ten large financial institutions merged into just four. These four behemoths are nearly $2 trillion dollars…larger than they were the last time we determined they were “too big to fail.” This growth didn’t come from innovative new products and services…it was built by the perception that these banks aren’t just backed by their investors, they’re also, unfortunately, backed by every American taxpayer.

Watch it:

The Brown-Vitter legislation would rein in banks by increasing capital standards — that is, the amount of money they have to keep on hand to manage the risk they take through investments and lending. The largest banks, those with more than $500 billion in assets, would be subject to a 15 percent capital requirement. That provision, which would apply to JP Morgan Chase, Citibank, and Bank of America, would force large banks to either hold more money to cover their risks or to reduce in size to avoid the capital requirements. Those standards are even stronger than the Basel III requirements sought by international regulators.

The legislation would also limit the taxpayer guarantee to traditional banking practices, leaving banks to rely on their own capital to insure the riskier practices in which they engage. That, Brown said, would prevent taxpayers from subsidizing the riskiest lending and trading practices that helped spark the financial crisis. “If megabanks want to be large and complex, that’s their choice,” Brown said. “But taxpayers shouldn’t have to subsidize their risk-taking.”

Economy

Draft Senate Bill Would Target ‘Too Big To Fail’ Banks With Higher Capital Requirements

Draft legislation authored by Ohio Sen. Sherrod Brown (D) and likely to be cosponsored by Louisiana Sen. David Vitter (R) would attempt to limit the size of “too big to fail” banks by imposing strict capital requirements and preventing them from structuring themselves to elude the rules.

The draft bill, which leaked Friday, would mainly target the six largest banks, since it would impose an even larger capital requirement on banks that exceed $400 billion in total assets, the Wall Street Journal reports:

The draft bill would require all U.S. banks to hold 10% equity capital and subject banks with more than $400 billion in total assets to additional capital surcharges based on the size of the institution. Importantly, the legislation would pull the U.S. out of the Basel 3 international capital accord.

It would also restrict banks from structuring themselves or their activities to avoid the new capital rules, and would prohibit government assistance for non-banks

The bill would also call on the U.S. to replace Basel III international financial regulations, which some financial reform advocates argue would not impose tough enough standards on large banks. Others have raised concerns that replacing Basel III would hurt international efforts to coordinate financial regulations.

Brown has been a strong proponent of reining in large banks, raising concerns over the Justice Department’s lack of prosecutions of Wall Street banks for their roles in the financial crisis. Criticism of “too big to fail” has risen in recent months among both Democrats and Republicans, and Federal Reserve Chairman Ben Bernanke said that such banks were “a real problem” that “needs to be addressed if at all possible” at a press conference in March. The Brown-Vitter legislation hasn’t yet been finalized and isn’t expected to be introduced until later in April.

Economy

For Second Straight Year, Florida Senate Committee Approves Bill To Speed Up Foreclosure Process

Florida’s Senate Banking and Insurance Committee this week approved legislation that would speed up the state’s foreclosure process, a move that would remove some protections for homeowners and could increase the likelihood of bank fraud. The committee, which passed the bill 8-2, passed similar legislation in 2012 that did not advance farther.

The bill is an effort to clear Florida’s backlog of foreclosures that piled up as a result of the financial crisis, but as we pointed out when it was introduced in February, it is likely to have unintended consequences that make it easier for banks to deceive homeowners or process unlawful foreclosures. Banks’ past efforts to speed up the process led to fraudulent techniques like robo-signing, and banks foreclosed on homes they didn’t own, homeowners that were seeking to modify their loans, or because of minor clerical errors the banks themselves had made.

While Florida does have a lengthy backlog of foreclosures, its process is not atypically long. The average Florida foreclosure takes more than 600 days to process, about the same length of time it takes the average home nationally to enter foreclosure.

Consumer advocates have pointed out many problems with the foreclosure bill. In addition to potentially inviting fraud, the bill would remove homeowners’ right to reclaim their property after an improper foreclosure. Instead, they would only be eligible for compensation.

Economy

Federal Reserve Chair: ‘Too Big To Fail’ Banks Still A Problem

Amid rising concerns about large banks from senators, Federal Reserve Chairman Ben Bernanke said Tuesday that “too big to fail” banks still pose a major risk to the American economy. Massachusetts Sen. Elizatbeth Warren (D) grilled Bernanke over the persistence of Too Big To Fail institutions during a Senate hearing last week, and at a press conference yesterday, Bernanke made it clear that he agrees with Warren that such banks are still a “major issue” that need to be addressed:

BERNANKE: I certainly never meant to say to Senator Warren, and I share her concern about Too Big To Fail, it’s a major issue. I never meant to imply that the problem was solved and gone. It is not solved and gone. … I hope that we’ll make progress against Too Big To Fail, because I agree with her 100 percent that it’s a real problem and needs to be addressed if at all possible.

Warren’s reputation as a critic of Wall Street followed her to the Senate, where she has questioned regulators over bank prosecutions and whether large financial institutions were “too big for trial.” But Warren isn’t alone: Ohio Sen. Sherrod Brown (D) and Louisiana Sen. David Vitter (R) are prepping legislation to reduce the size of large banks, and Brown and Iowa Sen. Chuck Grassley (R) have also pressed regulators and the Justice Dept. over the lack of prosecutions that creates the perception that banks have a “get out of jail free” card.

The largest banks, as this chart Brown displayed on the Senate floor last month shows, have only grown larger since the financial crisis:

The key focus for Bernanke right now, he said, was ensuring that rules included in the Dodd-Frank Wall Street Reform Act and other international guidelines meant to reduce the risk of Too Big To Fail banks were instituted properly.

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