Protection policies promote stable income—whether from earnings or programs—to help households cope with realized financial risks and changes that come with life; they protect against losses in income. Two approaches to protection policy exist. The first is to bolster an individual’s self-protection, or savings. More savings—and more avenues to accessing savings, without penalties for withdrawals and high administrative fees—means more economic security. The second approach is to mitigate practices that tend to reduce income without offering benefits to the household or community, which this report calls capture.

Credit may fall into either category of protection policy. Access to credit helps bolster economic security, for example, through aiding in the purchase of a house or financing higher education. For individuals without sufficient savings, credit is a means of making it through a negative income shock. But not everyone has access to credit, and not all forms of credit or types of lenders are associated with good outcomes. Moreover, debt may be a form of economic insecurity to the extent that monthly income net of debt payments may not be sufficient to meet household expenses. The U.S.’s primary approach to balancing credit’s tradeoffs is through regulation of lenders.

Retirement savings are currently supported through income tax preferences for retirement savings accounts, such as IRAs, 401(k)s, and 403(b)s.³¹⁴Retirement accounts vary by who establishes them and when the tax preference occurs (among other things). The full list of those types with tax preferences can be found on the IRS page Types of Retirement Accounts, which is part of the large section on Tax Information for Retirement Plans. The Balance—a personal finance website—provides explanatory articles for the three most common types: Individual Retirement Accounts, 401(k)s, and 403(b)s.  Depending on the type of account, either the contributions to the account before retirement or the money taken out during retirement are not subject to the income tax, and the interest on the savings accumulates tax free.³¹⁵The tax code contains numerous exceptions to this general principle. Individuals may withdraw early with a penalty or withdraw early without a penalty if they meet certain circumstances. Individuals may also borrow from their 401(k) accounts in certain circumstances. Contributions were capped at $19,500 in 2021 but, if permitted by one’s 401(k) plan, may be as high as $26,000 for the fifty and older population (see “catch-up contributions”). The IRS has a Retirement Plans FAQ that details many of these scenarios. The Balance has guides to Early Distribution of Funds and 401k Loans. Although IRAs may be set up by anyone with access to a bank, 401(k)s and similar accounts must be established through an employer (including self-employers). Sponsoring a plan is voluntary; there is no requirement that employers contribute to these accounts. Currently 67 percent of employees in the private sector have access to a retirement plan at work; 51 percent of private sector employees participate in a plan.³¹⁶National Compensation Survey, Bureau of Labor Statistics, Employee Benefits, Table 1. Among nonretirees, 55 percent have a defined contribution plan and 25 percent have no retirement savings at all.³¹⁷Report on the Economic Well-Being of U.S. Households, 2020, Figure 36.

Current tax expenditures for retirement savings contributions benefit higher-income earners the most.³¹⁸See Tax Incentives for Retirement Savings, Tax Policy Center. In related findings, lower retirement savings are reported for individuals who are younger, Black, or Hispanic (Report on the Economic Well-Being of U.S. Households 2020, Table 30.) The Saver’s Credit encourages retirement saving among low- and middle-income earners by giving a partial tax credit for up to $2,000 in contributions, whether to a Roth IRA, traditional IRA, or employer account. This credit is available only for individuals with income less than $33,000 a year ($66,000 filing jointly) who are employees. Depending on income, the credit is 50 percent, 20 percent, or 10 percent of one’s total contribution up to $2,000.³¹⁹The income and contribution eligibility for the Saver’s Credit can be found on the IRS page Retirement Savings Contributions Credit (Saver’s Credit). The Balance also has an explanatory article, Retirement Saver’s Credit for 2021. Because the Saver’s Credit is nonrefundable, it can be used only to offset tax liability and offers little or nothing to many of the people with low and moderate incomes that it was designed to help.

Options:

1. Exempt retirement account balances, up to a certain threshold, from asset tests. Some means-tested programs have asset tests.³²⁰A straightforward example of an asset test would be “you must have less than $2,000 in your checking account/cash in order to qualify for….” Programs differ in what they consider assets and what resources are exempt from counting as assets. Typically, at least one car is exempt, and the value of one’s home (up to a limit) is exempt. These tests were designed to ensure that only those with the least resources would qualify for benefits. Unfortunately, asset tests also discourage those receiving the program’s benefits from saving or encourage those trying to use the program to dispose of or even hide most of their assets.³²¹McDonald et al. 2005 review the literature on the impact of asset tests on savings and state that “both theory and the available evidence suggest that this disincentive can reduce and distort saving among moderate- and lower-income families.” Chen and Lerman 2005 acknowledge the role that asset tests play in targeting benefits to those with the least resources and lowest incomes, while drawing a similar conclusion from existing literature: “In general, the studies find that asset limits lower the net worth of potentially eligible low-income individuals and families.” Over time, the deleterious consequences of asset limits have been recognized, and many programs have eliminated asset tests or greatly reduced their use, but some asset tests remain. Supplemental Security Income has an asset test determined solely by the federal government. Supplemental Nutrition Assistance and Temporary Assistance to Needy Families have asset tests set by the federal government, but states can remove or amend them.³²²Grehr 2018 finds that “states that have eliminated asset limits have found that the resulting administrative cost savings significantly outweigh any increase in the number of families receiving benefits.” A 2017 issue brief by The Pew Charitable Trusts finds that, although lifting asset tests does not significantly increase savings among benefit-eligible populations, a number of positive effects were associated with lifting the tests. Benefit-eligible households in states without asset tests were more likely to have a checking or savings account, and households in states with eliminated or relaxed vehicle limits were more likely to own a vehicle and to have liquid/semi-liquid assets exceeding $500. The Pew brief also reports that lifting asset tests does not yield increased administrative costs or caseload growth. The most recent information on asset tests for program eligibility is produced by the Prosperity Now Scorecard.

This policy would, as a rule, not count retirement savings as assets up to a certain threshold, such as $100,000.

2. Require auto-enrollment in a retirement plan and require periodic retirement contributions on behalf of all workers into an employer plan or a certain defined contribution fund. This option would significantly increase the percentage of workers, including self-employed individuals and gig workers, who have some savings for retirement. It would encourage savings by making the default option for workers to contribute some percentage (depending on the policy) of one’s earned income to a retirement account, though an opt-out may be offered in case the worker cannot afford the contributions. Employers of W-2 employees would be required to make contributions of some percentage of each employee’s income with each pay period. Depending on the employer and how the policy is implemented, contributions might go to an employer-sponsored qualified plan, a federally maintained defined contribution fund, or a defined contribution fund maintained by an organization qualified under federal rules.

These mandated plans or funds would have to satisfy a range of tax qualification–and Employee Retirement Security Act of 1974 (ERISA)-like rules to assure that the contributions and earnings are managed in ways that benefit the workers, including investment rules and rules to assure that some portion of a worker’s retirement savings is annuitized to assure consistent, and higher, levels of income in late life. The rules might also include limits on fees and other expenses associated with managing the accounts to protect worker savings.

3a. Expand access to the Saver’s Credit and make it refundable. An increase to the adjusted gross income eligibility threshold ($33,000) and reduced administrative burden for taxpayers to claim the credit³²³The federal government might, for example, incentivize retirement account managers to notify participants and potential participants of Saver’s Credit eligibility dependent on one’s income and clarify for participants what information is needed in order to claim the credit. would increase the number of individuals who benefit from the Saver’s Credit. An increase in the percentage of contribution returned or an increase in the maximum credit ($2,000) would increase the impact of the credit as well. A refundable credit would ensure that eligible individuals with little to no tax liability would benefit. Further, a refundable credit would reduce the disincentive to save that comes from current consumption needs for low-income households; if individuals are refunded for a (large) portion of what they save, they will not experience overbearing short-term financial constraints imposed by saving.

3b. Expand access to the Saver’s Credit, make it refundable, and place any tax refund into the worker’s retirement account.

This option would implement option 3a and allow the Saver’s Credit to function as a savings match program, thereby increasing retirement savings by larger amounts for the lowest-income tax filers. If the obstacle to saving is having insufficient income, however, this design may not draw more individuals into saving than the alternative described in option 3a.

4. Eliminate pre-retirement distributions in separation from service and allow for limited pre-retirement distributions for certain hardships. A threat to the success of retirement savings, and the efficacy of tax expenditures that promote that saving, is leakage from retirement accounts, otherwise known as pre-retirement withdrawals.³²⁴The Impact of Leakages on 401(k)/IRA Assets, Center for Retirement Research. The Impact of Auto Portability on Preserving Retirement Savings Currently Lost to 401(k) Cashout Leakage, The Employee Benefits Research Institute. Under current law, employer-maintained plans and employees have the option to distribute retirement savings upon an employee’s separation from service with an employer.³²⁵See Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other Than IRAs for more information about rules around separations from service. The IRS states the following as exempt from the 10 percent penalty, which we refer to as separation from service: “Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.” Current policy allows for pre-retirement use of tax-favored retirement savings for nonretirement purposes. This policy is the largest source of leakage in the U.S. retirement system, thus reducing retirement security and using a government investment in retirement (via tax benefits) outside of its intended purpose.³²⁶Cashing Out: The Systemic Impact of Withdrawing Savings Before Retirement provides a literature review of the impact of withdrawals following separation from service. This study finds that, each year, between 6.5 percent and 9.5 percent of 401(k) participants “cash out” following a job change, resulting in $60 billion to $105 billion in lost savings annually.

Simultaneously, current policy either does not allow for or otherwise subjects most pre-retirement distributions (before age 59½) to a 10 percent tax penalty.³²⁷Internal Revenue Service. 2020. Retirement Topics: Hardship Distributions. The penalty creates a barrier to saving for low- and middle-income households who desire an access to savings in the case of an emergency or a “financial opportunity.”³²⁸Access to savings during an emergency such as a medical event or extended unemployment is generally less controversial. An Aon Hewitt testimony before the Senate in 2013 stated that “more than a third (34 percent) of African-Americans and 29 percent of Hispanics say the ability to take loans from their plans if they need the money is a ‘strong’ influence on their decision to invest in a DC plan, compared to 17 percent of Asian-Americans and 13 percent of Whites.” Proposals may also consider access to retirement savings for certain wealth-building opportunities, such as financing an education, starting a business, or purchasing a home. A related proposal is detailed in A Birthright to Capital: Equitably Designing Baby Bonds to Promote Economic and Racial Justice. Specifically, “4. Allowable Uses of Funds” on page 19 discusses how access to savings—in this case, to those accrued by a system of baby bonds—might be implemented to create the best wealth-building outcomes. Research shows, however, that when given low- or no-penalty access to retirement savings in some form, aggregate contributions tend to rise.³²⁹Mitchell et al. 2005 find that offering the option of a loan on one’s 401(k) does not raise overall participation rates, but contribution rates rise “by about 10 percent among non-highly-paid participants.” Moore et al. 2021 state that “the 401(k) system is de facto income and expenses insurance of the last resort…. Because other countries have better unemployment insurance and health insurance, they do not need as much pre-retirement liquidity in their pension system.” To this extent, improvements to income security outside of the retirement system are likely to increase retirement contributions. See the Labor and Benefit sections for more information on such improvements.

This option would both reduce pre-retirement leakages and increase retirement account contributions using changes to the laws governing pre-retirement distributions. Disallowing penalty-free retirement distributions following separations from service would reduce leakages, and increased access to retirement savings for select emergencies would promote increased contributions. Regarding the latter option, policy makers might, for example, limit distributions to a percentage of contributions made in the last three years and apply a small penalty tax, e.g., 5 percent, to recapture tax benefits to limit any opportunities for “gaming” the system.

Leakages from retirement accounts, otherwise known as pre-retirement withdrawals, are a threat to the success of retirement savings and the efficacy of tax expenditures that promote that savings.³³⁰The Impact of Leakages on 401(k)/IRA Assets, Center for Retirement Research. The Impact of Auto Portability on Preserving Retirement Savings Currently Lost to 401(k) Cashout Leakage,The Employee Benefits Research Institute. To the extent that policies might encourage pre-retirement savings, the likelihood of individuals drawing on retirement accounts prior to retirement will be reduced.

Currently, around 40 percent of U.S. households do not have sufficient cash savings to meet an unexpected $400 expense.³³¹This figure is from the Economic Well-being of U.S. Households annual report (Figure 14) produced by the Federal Reserve. When the question was first asked in 2013, 50 percent of households said they could meet the unexpected $400 expense. By 2019 this portion had risen to 63 percernt. See page 21 for further discussion of the implications of the survey’s findings. Sixteen percent of adults cannot pay their bills in full in a given month.³³²This figure is from the Economic Well-being of U.S. Households annual report (Table 9 in 2020). Bills include rent, mortgage, water, gas, electric, credit card, phone, cable, student loan, car payment, and other unspecified expenses. In addition, 6 percent of adults are “unbanked;” they do not have a checking, savings, or money market account. An additional 16 percent were “underbanked;” they had an account but used alternative financial products.³³³This statistic is from the Economic Well-being of U.S. Households annual report (Figure 18 in 2020). Black and Hispanic individuals are overrepresented among those who cannot meet bills and who are un(der)banked. All of these statistics make clear why leakages from retirement accounts might take place.

Options:

1. Mandate an employer-sponsored automatic savings program. Rather than opting in to sponsor savings accounts, this policy would mandate that all employers³³⁴Whether or not self-employers are to be mandated to create an account and provide a minimum contribution from their own income is an important question. At the very least, self-employers may have the option to contribute to a saving account under this arrangement. (including contractors of workers currently outside the scope of “employees”) create a savings account for each worker and provide a minimum contribution from each worker’s earned income. These accounts are referred to as Emergency Savings Accounts (ESAs), sidecar savings, or rainy-day accounts, and they are intended to bolster savings and prevent retirement account leakage.³³⁵The tradeoffs of varying structures to implement an ESA are discussed in this exploratory paper. Mitchell and Lynne 2017 “explore the possibility of linking a short-term savings, or ‘sidecar,’ account to a traditional retirement account to better meet consumers’ short- and long-term financial needs.” Nest Insight is undertaking a multi-year trial with a “sidecar savings model” in which contributions are automatically deducted from payroll and allocated first to one’s liquid emergency savings account and, once the savings account cap is hit, then to one’s retirement account. Considerations for policy design include whether an opt-out is permitted, the tax treatment of contributions and any earnings on savings, whether to establish a contribution limit in these accounts, whether to regulate allowed uses of funds for nonemergencies (i.e., justifiable pre-retirement needs that are not emergencies), and whether unused funds can be used for retirement needs.

This option might be thought of as an alternative to allowing “for limited pre-retirement distributions for certain hardships” under option 4 in Promote Retirement Savings since allowing pre-retirement distributions from retirement accounts for emergencies would limit the need of nonretirement savings accounts.

2. Create a Universal Asset Endowment. A universal asset endowment is a savings account created at birth that is funded at the very least by an initial government contribution and to which annual contributions may be made. These accounts were originally proposed in 1991 as Child Development Accounts (CDAs),³³⁶Child Development Accounts, The Federal Reserve Bank of St. Louis. and have recently been proposed as American Opportunity Accounts,³³⁷2231 American Opportunity Accounts Act.  but are often referred to as baby bonds.

Under the category of universal asset endowment, this report highlights six key parameters: 1) the relation of the initial contribution to family income and/or wealth; 2) whether annual contributions are made by the government³³⁸The policies described here refer to federal government policies and actions, though states might be permitted to contribute to these accounts assuming administrative feasibility.; 3) if annual contributions are made by the government, the relation of annual contributions to family income and/or wealth; 4) whether individuals and families are permitted to make contributions in addition to government contributions; 5) the liquidity of the savings upon the account holder turning eighteen (that is, the extent to which the individual will be limited in the uses of the savings to such as for a college education, a trade school, a training program, a home purchase, a new business, or retirement, or is otherwise free to use the savings as they see fit); and 6) the tax treatment of contributions, earnings on the contributions, and distributions.³³⁹This short piece from the Urban Institute discusses the potential effects of Baby Bonds on wealth and wealth disparity.

Depending on the progressivity of the contribution structure, a universal asset endowment might significantly help close the racial wealth gap. A program of universal asset endowments might also be accompanied by improved financial education at early ages to ensure that the asset turns into a lifelong basis of wealth for every recipient.³⁴⁰The Eastern Band of Cherokee Indians, for example, administers a universal asset endowment within their tribe known as the Minors Trust Fund (Littledave, Sheyashe 2019, The Big Money). Upon turning eighteen, tribe members receive no-strings-attached disbursements which have grown to over $100,000 in recent years. To assist recipients in managing their wealth disbursement, the tribe has made an intentional effort to improve money management skills among the youth population. (See The Cherokee Preservation Foundation, Financial Literacy.)

3. Create “postal banking” to allow USPS to provide nonbank financial services. From 1911 to 1966, the U.S. Postal Savings Service offered savings accounts at post offices.³⁴¹Two short histories of the Postal Savings System: from USPS and from Mehsra Baradaran, a postal banking proponent. A reinstated postal banking service would offer nonbank financial services that would target unbanked populations. The USPS Office of Inspector General has proposed reinstating the service. ³⁴²Providing Non-Bank Financial Services for the Underserved, Office of the Inspector General, USPS.

It’s Time for Postal Banking. Harvard Law Review.

Lending is a complex and variable practice. The amount lent, whether the loan is secured against an asset such as a house, the value of that security, the borrower’s creditworthiness, how creditworthiness is determined, the interest rate, the payment schedule—these factors can vary with every loan.

For households that have difficulty obtaining credit or accessing bank accounts, borrowing may be costly. On the one hand, individuals may have limited means of obtaining credit to meet immediate needs and, on the other hand, the credit offered might lead to a high-interest debt cycle. A loan with a difficult repayment schedule is distinct from a predatory loan, in which borrowers are manipulated with regard to the exploitative terms of the loan.³⁴³What is a Predatory Loan? from The Balance and What is Predatory Lending from Nerdwallet provide introductions to the concept of predatory lending. The National Consumer Law Center has a resource guide for the two loan types often accused of being predatory, Payday and Installment Loans. Both the New York Times and the Washington Post have recently examined the effect of these types of loans on borrowers. Regulators and loan originators often disagree about what is a “loan of last resort” to a less creditworthy individual versus predatory lending. In any case, researchers have found suggestive evidence that payday lenders target communities of color.³⁴⁴The Center for Responsible Lending investigated the geographic concentration of payday lenders in California in its report Predatory Profiling. Six years later, the state of California released a report that came to a similar conclusion, The Demographics of California Payday Lending. The Morning Consult also found that Black households reported having more payday lenders and pawn shops in their neighborhoods in “It’s What We Call Reverse Redlining.”

Options:

1. Increase regulatory and enforcement capacity of the Consumer Financial Protection Bureau (CFPB) and require consistency in practice. The CFPB has been highly politicized since its creation after the 2008 Financial Crisis. Its creation consolidated the consumer protection authorities that had previously existed across seven different federal agencies within one agency.³⁴⁵Building the CFPB, CFPB. Since 2017, many prior regulatory policies and practices of the CFPB were reversed or abandoned.³⁴⁶One prominent example is the reversal of payday lending regulations. See CNBC for coverage. This policy would restore the regulatory capacity of the CFPB and require more consistency in policy and practice so that consumers have a well-defined and reliable set of protections.

2. Create a federal Fairness in Lending law. This option balances the need for credit among low-income households with fairness in lending grounded in limiting loans and associated fees and interest by an individual’s ability to make payments.³⁴⁷The Pew Research Center Consumer Finance Project has been leading in research and policy design in the area of small dollar loans. Their head explains the advantages of the Ohio law in Ohio’s Payday Lending Law Could Be National Model. A form of this law passed in Ohio in 2018 after a series of legal battles that failed to reform the Payday Lending industry. In Ohio, borrowers now have “at least three months to repay unless monthly payments are limited to 6 percent of the borrower’s gross monthly income,” annual interest is capped at 28 percent, monthly fees cannot exceed the lesser of 10 percent or $30, and total interest and fees are capped at 60 percent of loan principal.³⁴⁸Bourke, Nick. 2018. Ohio’s payday-lending law could be national model. The Columbus Dispatch.

3. Create an advisory committee to consider student loan forgiveness. Student loans currently total $1.7 trillion.³⁴⁹Many summaries and descriptions of student loan debt are available. Educationdata, a website that compiles education data from publicly available sources, summarizes student loan statistics. In researching the well-being of U.S. households, the Federal Reserve includes annual estimates of Student Loans and Other Educational Debt. When student debt forgiveness became a possible policy, the Brookings Institute released this Q&A guide, Who Owes All That Student Debt? Loans vary in size across numerous factors, such as the type of school (two-year, four-year, or graduate institution), and many reasons exist for the increasing amount borrowed and number of borrowers. In terms of loan amounts, size is not always correlated with inability to pay; individuals are more likely to be behind on a loan less than $14,000 than a loan greater than $14,000. A recent survey by the Social Policy Institute indicates that student loan forgiveness would heavily change the future behavior of current loan holders.³⁵⁰Roll, Jabari, and Michal Grinstein-Weiss 2018 discuss the findings of the survey, stating that

“student debt is strongly influencing decisions that can have large implications for household economic stability, e.g., emergency savings, and mobility, e.g., saving for a down payment on a home, starting a business, etc. In addition, student debt may be altering the structure of families themselves. Roughly 7 percent of respondents reported that they would be more likely to get married or have children if their student debt were forgiven, indicating that this debt burden is affecting even fundamental decisions about debt holders’ life trajectories.”

This policy would create an advisory committee to consider whether some portion of or all student loans should be forgiven and how that determination should be made. Policy may also address loans from schools that are associated with high default among their alumni or fraud and loans serviced by financial institutions that have been found to defraud customers.³⁵¹School fraud and servicer fraud are not the same thing. School fraud involves educational institutions that were found to have made fraudulent representations to their students, many of whom took out loans to attend. The large number of recent cases of educational institute fraud were Corinthian Colleges and ITT Technical Institute. The Department of Education has a time line of the decline for Corinthian and ITT, as well as student loan questions for former Corinthian and ITT students. The New York Times has coverage of the case against ITT and the case against Corinthian made by government prosecutors. Servicer fraud is when a financial institution that manages student loan repayments is accused of defrauding customers. In 2017 the CFPB sued Navient for deception, accusing it of having “illegally cheated borrowers of repayment rights.” The lawsuit was the result of years of research into issues related to student loan services, summarized in this report. Navient is the largest student loan service entity in the U.S. and was previously Sallie Mae. The CFPB lawsuit for mistreatment of borrowers is separate from the investigation of a whistleblower claim that Navient cheated the federal government; it was ordered to pay back $22 million to the federal government in early 2021. 

The private sector is not the only issuer of debt. In recent years, states and localities have increasingly shifted to a system of “offender-funded justice”—funding their law enforcement and court systems, and in some cases significant portions of overall local budgets, through fines and fees levied on individuals who come into contact with the criminal justice system.³⁵²For example, the city of Ferguson, Missouri, was revealed to have relied on raising municipal court fees and fines to make up fully one-fifth of its $12.75 million budget in 2013. The Department of Justice’s Investigation of the Ferguson Police Department found that its focus on revenue from police-issued fines led to unconstitutional practices and exacerbated racial disparities. One analysis found that people who went through the New Orleans’ justice system in 2015 paid nearly $12 million in fines, fees, and court costs.³⁵³Past Due, The Vera Institute of Justice. Examples include various types of “user fees” that get tacked onto a conviction, public defender fees for defendants who exercise their right to counsel, and “pay-to-stay” fees to offset the costs of time spent in jail. These types of user fees are separate from fines, which are the result of a criminal conviction.

On top of the underlying criminal legal debts imposed by statute, many states and localities assess late-payment fees, steep collection fees, and even fees for entering an installment payment plan. And all of these fees are separate from money bail. Criminal debt can be significant and can impose a hardship on families.³⁵⁴Who Pays? The True Cost of Incarceration on Families. Ella Baker Center for Human Rights, Forward Together, and Research Action Design. Further, in many states, individuals are not eligible to expunge or seal their criminal records until they have paid off all criminal debts. Outstanding criminal debt can also stand in the way of public assistance, housing, employment, access to credit, and even the right to vote.³⁵⁵Levine, Sam. 2020. Federal Court Rules Florida Felons Must Pay Off Debts to State before Voting. The Guardian.

Options:

1. Reform court-imposed, jail-imposed, and prison-imposed fees. This policy would limit the practice of “offender-funded justice” and require states to fund courts and court services mostly through their tax base.

2. Institute a sliding scale for criminal fines based on ability to pay. If the purpose of a fine is to deter people from breaking the law, then the size of the fine would scale with the person’s ability to pay, not just the offense.

3. Reduce fee and fine nonpayment penalties. Federal, state, and local governments should study the appropriate use of fines and fees and then remove or reduce fines and fees based on these analyses. Appropriate fines and fees should reflect fair treatment with regard to the amount that low-income individuals are able to pay.³⁵⁶The American Bar Association working group on building public trust in the American justice system found that, as of 2020, “about 10 million low-income residents owe more than $50 billion in often unaffordable additional costs” (American Bar Association, New ABA Study Captures Impact of Fines, Fees on the Poor). Fines and fees must function only as a deterrent to criminal behavior, not as a source of profit or a large source of state/local/municipal revenue.³⁵⁷The Fines and Fees Justice Center documents the economic insecurity and injustice brought by fines and fees across the U.S.

4. Reform the use of money bail. Bail is an amount of money that some individuals who are charged with a crime must pay to be released while they fight the charges. Bail is determined by the judge and is meant to ensure that the individual appears for their court date. Bail is returned to defendants when their case has concluded or the trial is over.³⁵⁸How Bail Works, How Stuff Works. Awaiting trial in jail because of inability to pay is something more likely to be borne by very low-income individuals and, regardless of current income, may have deleterious consequences for the person, who has not been found guilty.³⁵⁹Bail Reform,…, Explained, Vox, and What You Need to Know About Ending Cash Bail from the Center for American Progress discuss bail and potential reform. Illinois recently passed the Pretrial Fairness Act, which ends all money bail.The Prison Policy Initiative finds that 74 percent of the 470,000 individuals in city and county jail on a given day are being held there pretrial due to an inability to pay bail. This population is extremely low income; average annual income for men and women who cannot afford bail is $16,000 and $11,000, respectively. Inability to pay bail is also a racial issue, as 43 percent of the pretrial population in jail is Black. The PPI provides more data in its report Mass Incarceration: The Whole Pie 2020.  This policy would reform the use of bail so that it does not become a de facto punishment for the poor. Monetary bail is not the only means of guaranteeing that an individual meet their court date. Pretrial supervision, for example, would be an alternative to cash bail.

5. Reform child support. Child support is the financial support paid by parents to support a child or children of whom they do not have full custody.³⁶⁰The National Conference of State Legislatures has a Child Support Tutorial to introduce the legal and regulatory issues around child support. For many families, child support is handled through the family court system, with support amounts specified in a divorce decree or custody determination and claims of nonpayment settled through attorneys or resolved by a judge. For low-income families, child support becomes a matter of public interest. A custodial mother may be eligible for SNAP given her own income but would be ineligible if she received full child support. Under the 1996 welfare reform, child support enforcement was enhanced with the goal of making low-income families self-sufficient and showed initial success at doing so.³⁶¹Child Support Reforms in PRWORA: Initial Impacts, the Urban Institute.

Evidence shows, however, that rates are set too high for many noncustodial parents (often low-income men), preventing them from meeting payment obligations. They instead accrue debt, interest, and penalties such as loss of their driver’s licenses for nonpayment.³⁶²See Interest on Child Support Arrears, National Conference of State Legislatures, and Reforming Child Support to Improve Outcomes for Children and Families, the Abell Foundation. Additionally, if the custodial parent, often the mother, is receiving public benefits (TANF), child support is collected by the state, not the custodial parent, and the money collected is often not given to the mother but is kept by the state. The amount of collected child support that the state remits back to the custodial parent is referred to as the “pass-through,” and it varies by state.³⁶³Child Support Pass-Through and Disregard Policies for Public Assistance Recipients, National Conference of State Legislatures.

Many child support reform proposals put first changing the way support is calculated, collected, and forgiven so that noncustodial parents do not get trapped in a cycle of low income and debt, as well as guaranteeing that all support paid goes to the child.³⁶⁴An overview of the issues and goals of child support reform can be found in the New York Times editorial Child Support vs. Deadbeat States, this overview Child Support Reform from Child Trends, and Transforming the Child Support System into a Family-Building System from the U.S. Partnership on Mobility from Poverty. Certain proposals call for a guaranteed monthly minimum of child support to be paid by the government if the noncustodial parent is unable to make payments, while maintaining a legal obligation on the noncustodial parent to make payments.³⁶⁵See Appendix D, 5-10, p. 432, of A Roadmap to Reducing Child Poverty for analyses of child support guaranteed minimums of $100 and $150 per month.

Policy, no matter how well designed, is not self-implementing, and in many situations, individuals may require legal counsel to, for example, make a complaint of wage theft or discrimination, leave a situation of domestic violence, or fight an eviction notice. The Legal Services Corporation (LSC) was established in 1974 and “promotes equal access to justice by funding high-quality civil legal assistance for low-income Americans.” LSC is a grant-making agency; its budget is redistributed to legal aid providers.³⁶⁶How We Work, Legal Services Corporation.

The total funding for LSC in 2020 was $440 million.³⁶⁷Legal Services Corporation, American Bar Association. LSC also received additional money in the CARES Act, a recognition of the importance that LSC plays in times of heightened economic insecurity.

Not everyone, or every situation, qualifies for representation from legal aid. Individual or family income must be below 125 percent of the poverty line, but it could be lower at certain providers; undocumented immigrants are ineligible in most cases, as are persons currently incarcerated.³⁶⁸Code of Federal Regulations, Title 45, Subtitle B, Chapter XVI, Part 1611: Financial Eligibility provides the regulations, but more explanation of who is covered by LSC can be found at What is Legal Aid? by the National Legal Aid and Defender Association, and Can LSC Grantees Represent Undocumented Immigrants? by Legal Services Corporation. Legal aid can provide assistance in areas of family law, housing and foreclosure, consumer issues, and employment and income maintenance. It is also available to military families. More than half of those seeking legal aid are turned away due to funding and capacity constraints.³⁶⁹Civil Legal Aid 101, Department of Justice.

Options:

1. Increase funding for the Legal Services Corporation (LSC). Legal aid, for many individuals, is the only option in legal representation, but inadequate LSC funding has for years forced legal aid programs across the U.S. to turn eligible individuals away for lack of resources. This proposal would increase LSC funding to a sufficient dollar amount to close the “justice gap”³⁷⁰See the Legal Services Corporation’s report The Justice Gap: Measuring the Legal Needs of Low-income Americans. and ensure that all income-eligible individuals are able to receive legal help in their time of need.

2. Remove some of the restrictions on uses of Legal Services Corporation funding. Legal aid programs that receive federal LSC funds are not allowed to assist in many types of cases, ranging from school desegregation litigation to class action suits. Meanwhile, if a legal aid program accepts even $1 in LSC funds, all of its funding is subject to LSC’s funding restrictions. This policy would remove or reform these restrictions, many of which are politically motivated, to enable legal service programs to meet their clients’ legal needs more effectively.³⁷¹Restricted activities for LSC funds are listed here: LSC Restrictions and Other Funding Sources. The Center for American Progress proposed idea for Legal Services Reform is here: Making Justice Equal. 

3. Expand the Right to Counsel. Unlike in criminal matters, the right to counsel—to have an attorney represent a person in court, even if they cannot afford one—does not apply to civil legal matters.³⁷²For an introduction to the right to counsel, see Right to Counsel from the Cornell Legal Information Institute. For an introduction to the Supreme Court case that extended the right to counsel to state felony charges, see Gideon v Wainright from the Georgetown Law Library. This policy would expand the right to counsel to apply to civil cases where basic human needs are at stake. Ensuring access to legal representation has been shown to reduce evictions in the localities that have adopted a right to counsel in eviction cases.³⁷³The National Coalition for a Civil Right to Counsel keeps track of where states and localities have expanded the right to counsel, Major Developments. Evidence that counsel reduces eviction is based on a pilot expansion of right to counsel in New York City, summarized at Expand the Right to Counsel. Background on the right to counsel and proposals to expand it are discussed in A Right to Counsel Is a Right to a Fighting Chance by the Center for American Progress.