Thursday, April 9, 2015

North Carolina’s Government has Declared War on the Poor

North Carolina’s Government has Declared War on the Poor

Suppose for a moment that when you filled out your state income tax form this year, you discovered that the mortgage interest deduction had been eliminated.  Suppose the legislature had also enacted provisions making your mortgage loans significantly more expensive by jacking up fees and interest rates.  I suspect you’d be irate.  Even though many of us are relatively well-to-do and can readily afford to forego the deduction, this isn’t going to happen.

Here in North Carolina, we’re readily doing the same thing and more to the poor.  In order to compensate for the lost income created by lowering our top tax rate, our legislature repealed the Earned Income Tax Credit.  This is the very same credit that most Republicans endorse as the most appropriate way to fight poverty.  If you are a Reagan Republican, you are supposed to endorse the EITC.[1]   The working poor are facing a second nasty surprise because the marginal tax rate for many families went up when North Carolina flattened its income tax rates.

However, our legislature had a ready solution to the shortfall in income generated by their so-called tax reforms.  Last year they amended the Consumer Finance Act to allow lenders to make larger, higher interest, and lengthier loans to consumers.  I’ve written extensively on this subject (see for example, “Thank You for Your Service:  Consumer Finance [October 23, 2014]”).

This year our legislature seems intent on thrusting the working poor deeper into poverty.  Senator Gunn, the author of last year’s consumer finance amendments, is back with a  new consumer loan proposal called the “alternative rate installment loan.”  A consumer can borrow $300 to $1,500 for between six and eighteen months.  This kind of loan can be piled on top of a loan issued under the Consumer Finance Act.[2]

The bill tries to appear consumer-friendly by claiming to prohibit the charging of interest on these loans.  However, the proposed legislation allows the lender to charge a 10% nonrefundable investigation fee, plus an installment fee of 5% per month on balances below $500 and 4% on balances above $500.  To be clear, the investigation and installment fees are nothing more than interest payments.  Do you really think there’s much to investigate when someone with a poor credit score asks for one of these loans?  Lenders are going to charge 40% to 60% interest, so they’ll have plenty of room to absorb defaults without hurting their unconscionable profit margins.

Our legislature isn’t done making war on the poor and lining the pockets of lenders.  They also want to make it easier for those lenders to get their money back if the borrower defaults.  Senator Andrew Brock has introduced legislation to allow creditors to garnish 25% of a debtor’s gross wages less taxes.[3]  Historically, North Carolina has allowed debtors to shield 60-days of wages so long as they are necessary to support the debtor’s family.  If last year’s legislative session is any guide, these bills will pass and be signed into law by Governor McCrory.

I have one suggestion for Senators Gunn and Brock, who proudly list their religious affiliations on their campaign websites.  As you continue to wage war on the poor, you might consider Deuteronomy 15:11 (not to mention numerous verses in the Gospels):

Since there will never cease to be some in need on the earth, I therefore command you, “Open your hand to the poor and needy neighbor in your land.”


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