Taxpayer Abuse Prevention Act

Mr. President, Senator Smith and I have worked together successfully on several issues within the last year to defend and improve our Nation's health care safety, including on an amendment to the Medicare prescription drug bill addressing community health center payments within Medicare that passed by a vote of 94-1. However, none of these initiatives have been more important than the legislation that we are introducing together today, along with a list of 13 other senators--7 Republicans, 5 Democrats, and 1 Independent, 7 of which serve on the Senate Finance Committee--to create a Bipartisan Commission on Medicaid.

Joining Senator Smith and I as original cosponsors are: Senators Snowe, Jeffords, Santorum, Kerry, DeWine, Durbin, Chafee, Lincoln, Collins, Nelson of Nebraska, Voinovich, Corzine, and Coleman.

I will not go into the specifics of the legislation, as Senator Smith has explained how the Commission would be formed and would operate. Instead, I will take the time to explain why it is that the formation of commission is so important.

Medicaid is a critically important health care safety net program that provides health care services to over 50 million low-income children, pregnant women, seniors, and people with disabilities.

In New Mexico, Medicaid is the single largest payor for health care. All told, Medicaid covers the health care costs of more than 400,000 New Mexicans--nearly one-quarter of our State's population.

Although the least expensive to cover, those who benefit most from Medicaid are nearly 300,000 of New Mexico's children. Of the various populations covered, children represent almost two-thirds of all our State's beneficiaries, which is the highest ratio in the Nation according to data from the Kaiser Family Foundation.

However, Medicaid is much more than just a safety net program for children from low-income families. It also serves low-income adults and pregnant women. It also serves senior citizens and people with disabilities who receive the bulk of their health care through Medicare but who still rely on Medicaid for a substantial share of their benefits and cost-sharing assistance. Medicaid also provides critically needed funding to support our Nation's safety net providers, including disproportionate share hospitals.

In the President's budget that was just released, the administration has proposed cutting Medicaid by $60 billion over the next 10 years. Secretary Leavitt recently testified in the Senate Finance Committee that he believes ``Medicaid is flawed and inefficient.''

There are others that believe Medicaid is not working and that costs are spiraling out of control and so the program needs dramatic overhaul.

In contrast. there are also those that will attest that there is absolutely nothing wrong with Medicaid. I firmly believe neither point of view is correct.

First, Medicaid is far from broken. The cost per person in Medicaid rose just 4.5 percent per year from 2000 to 2004. That compares to a 12 percent rise in the annual cost of premiums in the private sector. If that is the comparison, Medicaid seems to be about the most efficient health care program around, even more so than Medicare.

The overall cost of Medicaid is going up largely, not because the program is inefficient, but because more and more people find themselves depending on this safety net program for their health care during a recession. When nearly 5 million people lost employer coverage between 2000 and 2003, Medicaid added nearly 6 million to its program. Costs rose in Medicaid precisely because it is working--and working well--as our Nation's safety net program.

Consequently, as noted previously, Medicaid now provides health care to over 50 million low-income Americans, including one-quarter of all New Mexicans.

This is precisely why I so strongly oppose block grants or any arbitrary caps on Federal spending for Medicaid. If we had caps in 2000 and Medicaid could not have responded to the economic downturn, we would have 50 million uninsured today. Medicaid is a Federal-State partnership and an arbitrary cap of the Federal share to States is nothing more than the Federal Government trying to shift all risk to States.

On the other hand, it is also not true that Medicaid is not in need of improvement. The administration is rightly concerned about certain State efforts to provide ``enhanced payments'' to institutional providers as a significant factor in driving Medicaid costs. Secretary Leavitt, in a speech to the World Health Care Congress on February 1, 2005, referred to State efforts to maximize Federal funding as ``the Seven Harmful Habits of Highly Desperate States.'' As a result, he called for ``an uncomfortable, but necessary, conversation with our funding partners, the States.''

Unfortunately, Medicaid reform driven by a budget reconciliation process is not a dialogue or conversation. It is a one-way mechanism for the Federal Government to impose its will on the States. The administration's budget calls for $60 billion in cuts to Medicaid, including $40 billion that would directly harm States.

Where is the conversation in that? In fact, the States have a fair amount of complaint with Federal cost shifting to the States. While I certainly do not speak for the National Governors' Association or National Conference of States Legislatures, some of those grievances are rather obvious and I share them.

For example, according to data from Kaiser Family Foundation, 42 percent of the costs in Medicaid are due to Medicare dual eligible beneficiaries. These dual eligibles are also a major driver of health costs in Medicare and this is a prime example of where better coordination between Medicare and Medicaid could improve both programs. States have been calling for better coordination for years to no avail.

In the Medicare prescription drug bill that was passed by the Congress in 2003, the Federal Government imposed what is referred to as a ``clawback'' mechanism which forces the States to help pay for the Federally-passed Medicare prescription drug benefit. Although States will derive a financial windfall from moving dual eligibles from Medicaid coverage to Medicare, some of the States believe the ``clawback'' will cost them more than if they continued to provide prescription drug coverage themselves.

The prescription drug bill also impacted States financially in a host of other ways that went largely unnoticed, including those that increased Medicaid costs for dual eligibles as a result of increases in the Medicare Part B deductible and increased payments to the new Medicare Advantage plans. The law also required States to help enroll low-income Medicare beneficiaries into the low-income drug benefit.

In fact, the Congressional Budget Office, or CBO, estimated that States had $5.8 billion in added enrollment of dual eligibles in Medicaid due to what they refer to as a ``woodworking'' effect on dual eligibles trying to sign up for the low-income drug benefit discovering they are also eligible for Medicaid benefits. CBO further estimated that States had $3.1 billion in new administrative and other costs added by the prescription drug legislation.

States had no ability to ``have a conversation'' with the Federal Government about the imposition of such costs on them when the Medicare prescription1rrug drug bill was passed, but they should have and will have in our Bipartisan Commission on Medicaid.

Furthermore, due to a recent rebenchmarking done by the Department of Commerce's Bureau of Economic Affairs with respect to the calculation of per capita income in the States and the application of that data by the Centers for Medicare and Medicaid Services, or CMS, the Medicaid Federal Medical Assistance Percentage, or FMAP, many States, including New Mexico, will see a rather dramatic decline in their Federal Medicaid matching percentage. In fact, due to the rebenchmarking and other factors, 29 states will lose Medicaid funding in 2006 by an amount of in excess of $800 million. Again, this occurred with no dialogue or conversation.

Mr. President, I agree with Secretary Leavitt that there should be a conversation among all the stakeholders about the future of Medicaid and about what are the fair division of responsibilities between the Federal Government, States, local governments, providers, and the over 50 million people served by Medicaid. It is for this reason that the Bipartisan Commission on Medicaid includes all of those stakeholders at the table to have a full discussion and debate about the future of Medicaid.

It is our intent that the recommendations would not be focused on cutting costs but about improving health care delivery to our Nation's most vulnerable citizens. However, they are not mutually exclusive. In fact, both can and should be done.

There are those that will argue that a commission may not reach a consensus to make recommendations to

improve the Medicaid program and so is not worth the effort. I would strongly disagree and point to the fact that the National Academy for State Health Policy recently convened a workgroup they called Making Medicaid Work for the 21st Century that included many of the Medicaid stakeholders and came forth with a 78-page report with numerous recommendations with respect to eligibility, benefits, and financing. According to the report entitled Improving Health and Long-Term Care Coverage for Low-Income Americans, the workgroup attempted to ``assess areas where it would be most productive to focus on improvement in the program, and to develop consensus around recommendations for reform.'' I would underscore the emphasis of the workgroup on ``improving'' Medicaid and health coverage. This should be the primary and overriding goal of the Bipartisan Commission on Medicaid that we are introducing today.

Before closing, I once again thank Senator Smith, the other 12 Senate cosponsors, and the various stakeholders--State and local governments, providers, and consumers that have endorsed this legislation--in an effort, not to cut Medicaid, but to make it more efficient and effective in the delivery of care to our Nation's most vulnerable citizens.

I ask unanimous consent to have a copy of the Fact Sheet accompanying this legislation printed in the Record.

Mr. President, over the last several years as the economy came down from the high of the 1990s, we have seen how devastating it can be for workers when their companies declare bankruptcy. From the enormous Enron bankruptcy at the end of 2001 to the bankruptcies of Wheeling-Pitt and then Weirton Steel in my own home State, every bankruptcy has brought heartache for workers who had dedicated themselves to their employers. In many cases, employees and retirees have very limited ability to recover the wages, severance, or benefits they are due when their companies seek protection from creditors.

Workers deserve better. So today I am introducing the Bankruptcy Fairness Act to strengthen workers' rights in bankruptcy and to provide greater authority to bankruptcy courts to ensure a fair distribution of assets. I am very pleased that Senator Leahy, the distinguished ranking Democrat on the Senate Judiciary Committee is an original cosponsor of this bill.

Specifically, the bill will do three things. It will ensure that retirees whose promised health insurance is taken away receive at least some compensation for their lost benefits. Second, my legislation would allow employees to recover more of the back-pay or other compensation that is owed to them at the time of the bankruptcy. And lastly, it would provide bankruptcy courts the authority to recover company assets in cases where company managers flagrantly paid excessive compensation to favored employees just before declaring bankruptcy.

I first introduced this legislation in the 108th Congress. I am reintroducing

it because this issue is as important in West Virginia today as it has ever been. I am hopeful that as Congress considers any changes to bankruptcy law we will debate how we can better protect workers whose companies file for bankruptcy. I do not pretend to have all the answers. But I do know that we must do a better job of easing the burden that bankruptcy imposes on employees and retirees. And I believe that we can do so in creative ways that do not make it more difficult for companies to successfully reorganize and emerge from bankruptcy. I look forward to the ideas and suggestions of my colleagues.

In the simplest economic terms, employees sell their labor to their companies. They toil away in offices, plants, factories, mills, and mines, because they are promised that at the end of the day they will receive certain compensation. One of the most important types of compensation that workers earn is the right to enjoy certain benefits when they retire. Pensions, life insurance, or health care coverage are earned by workers in addition to their weekly paychecks. Yet, sadly we have seen many companies in the last few years abandon these promises when they declare bankruptcy.

More and more we see companies taking the easy road to profitability by abandoning commitments that they made to workers. For retirees who have planned for their golden years based on the benefits they have earned, losing health insurance can be a devastating blow. Retirees must have the right to reasonable compensation if the company seeks to break its promise to provide health insurance. Under current law, these retirees receive what is called a general unsecured claim for the value of the benefits they lost. As any creditor will tell you, a general unsecured claim is essentially worthless in most bankruptcies. It means you are at the end of the line, and there are not enough assets to go around. This law allows companies to essentially rescind compensation that retirees have earned with virtually no cost to the company. Of course that is a great deal for the company, but it is spectacularly unfair to the retirees.

Recognizing that so-called legacy costs are often an impossible burden for a company that is trying to emerge from bankruptcy, my legislation would still allow companies in some circumstances to alter the health coverage offered to retirees. However, it would require that the company pay a minimum level of compensation to retirees. Under this bill, each retiree would be entitled to a payment equal to the cost of purchasing comparable health insurance for a period of 18 months. Of course, 18 months of health insurance coverage is a lot less than many of these retirees are losing, but it can ease the transition as retirees make alternative plans, and it will discourage companies from thinking that terminating retiree health coverage is an easy solution. The retirees would still be entitled to a general unsecured claim for the value of the benefits lost in excess of this one time payment. This change would ensure that retirees, while still not being made whole on lost benefits, will at least receive some compensation for the broken promises.

Many active workers, too, have a difficult time recovering what is owed to them by their employer when the company files bankruptcy. Under current law, employees are entitled to a priority claim of up to $4,925. But that figure is usually not enough to cover the back-wages, vacation time, severance pay, or benefit payments that the employees are owed for work done prior to the bankruptcy. Congress needs to update the amount of the priority claim to ensure that more workers are able to receive what is rightfully theirs. The Bankruptcy Fairness Act would establish a priority claim for the first $15,000 of compensation owed to an employee.

In most cases, employees have been working their hardest to help the company avoid the nightmare of bankruptcy, only to find that they will not be compensated for their services as promised. As we saw so clearly with the Enron case, employees are often left holding the bag when their company declares bankruptcy. In that case, employees were owed an average of $35,000 in back-wages, severance, and other promised compensation. They deserved to recover more than a mere $4,925 of what was owed them. Let me be clear, this bill does not establish any new obligation for a company to pay severance or other compensation to employees caught up in a company's bankruptcy. It merely ensures that employees can recover more of what is already owed to them through the bankruptcy process.

I understand that many creditors or investors are not able to recover what is rightfully owed to them in bankruptcy, but employees deserve protection that recognizes the unique nature of their dependence on their employer. Any smart investor diversifies his or her portfolio so that a bankruptcy at one company does not bankrupt the investor. Likewise, suppliers and creditors that do business with a company typically have many other clients. This is not the case with workers. They cannot diversify away the risk of working for a bankrupt company, and the financial hardship a bankruptcy brings is more devastating to the average worker than the average creditor or supplier.

Now, I know that some of my colleagues listening to this may be worrying that this legislation is insensitive to the needs of companies that are trying to reorganize in order to emerge from bankruptcy and go forward as successful businesses. I am fully aware that sometimes, too often in the real world, the bankruptcy process can help companies stay open and maintain jobs by restructuring obligations to creditors. Too many companies in West Virginia have had to go through the painful process of Chapter 11 reorganization. I completely understand the need to keep the factories open. And I have always worked side by side with companies to help them recover.

I will continue that important work, and I have included a provision in this bill to help bankrupt companies that are struggling to survive to recover assets that have been pilfered from the corporate coffers. In too many cases, company executives reward themselves even as their companies careen toward bankruptcy. The most egregious recent example is at Enron in 2001. In the days and weeks leading up to the bankruptcy filing, executives granted large bonuses to themselves and their favored employees. Millions of dollars were paid to a select group of employees just before the company declared bankruptcy. It is unconscionable that executives would grant themselves undeserved bonuses and then weeks later claim that the company did not have the resources to pay its rank and file employees.

My legislation provides bankruptcy courts greater authority to recover excessive compensation that was paid just prior to the bankruptcy filing. If the court finds that compensation was out of the ordinary course of business or was unjust enrichment, the court can recover those assets for the bankrupt company, ensuring that more creditors, employees, and retirees can receive what is rightfully owed to them by the company.

The reforms I have outlined are modest. They will not take the sting out of bankruptcy. By definition a bankruptcy is a failure, and it is painful for the company's employees, retirees, and business partners. But the Bankruptcy Fairness Act I am introducing today would make progress toward ensuring that bankruptcies are more fair to the workers who gave their time and energy and sweat to the company in exchange for certain promised compensation. And by helping a company recover assets that should not have been paid out as undeserved bonuses just before bankruptcy the bill ensures that more of a company's assets are paid to the employees, retirees, and creditors who are rightfully owed.

It is my hope that this legislation will receive serious consideration from my colleagues, and that this can open an important debate about how workers and retirees can be better protected from the ugly side of prolonged economic downturns. I ask unanimous consent that the text of the legislation be printed in the Record.

Mr. President, I am pleased to join with a number of my colleagues in cosponsoring the Bipartisan Commission on Medicaid and the Medically Underserved Act of 2005, which Senator Smith and Senator Bingaman are introducing today.

The Medicaid program provides essential medical services to low- income and uninsured children and their families, pregnant women, senior citizens, individuals with disabilities, and others. Last year, nearly 55 million Americans were enrolled in Medicaid, including more than 300,000 in Maine where one in five people now receive health care services through MaineCare, our State's Medicaid program.

Individuals who rely upon Medicaid-funded health services have no other option. Without Medicaid, they would join the ever growing ranks of the uninsured in this country, which now numbers an all-time high of more than 45 million Americans who lacked health coverage at some point last year. These two groups represent a total of 100 million Americans who would have no health insurance were it not for Medicaid coverage which reaches just over half of them. And to the extent that the Federal Government reduces its support for Medicaid funding, the numbers of uninsured Americans will rise at an even faster rate.

As Congress begins to consider the administration's Fiscal Year 2006 Budget, I believe we must take a balanced approach that is both fiscally responsible and reflects our long-standing commitments to provide health care for many of the low-income and uninsured through the Medicaid program. Although we face growing budget deficits and ever tightening Federal budgets, the Federal Government cannot simply abandon its responsibility to help states provide health care access to our most vulnerable citizens.

Today, Medicaid is the fastest growing component of State budgets, according to the most recent survey of the National Governors Association. Total Medicaid spending nationwide now averages 22 percent of State budgets, while State spending on all healthcare functions is approximately 31 percent. However, although its costs are increasing, the annual growth in Medicaid spending on a per capita basis is growing more slowly, at 4.5 percent a year, than the private sector where health insurance premiums have increased an average of 12.5 percent a year for the last 3 years.

The economic downturn which State economies experienced several years ago, and from which many States are only now emerging, has continued to leave many families jobless and without health insurance, forcing them to turn to Medicaid. This has put an enormous strain on the states already strapped with budget scarcities. Many States reduced Medicaid benefits last year and even more restricted Medicaid eligibility in an effort to satisfy their budgetary obligations.

In fact, the Chairman of the National Governors Association, Governor Warner of Virginia, and the Vice Chairman, Governor Huckabee of Arkansas, recently warned Congress that if Federal spending for Medicaid were capped and the number of Medicaid recipients increased sharply, States would face dire fiscal consequences. According to the Governors, total costs for State Medicaid programs are growing at an annual rate of 12 percent, and total Medicaid expenditures now exceed that of Medicare, due primarily to factors beyond States' control, especially the costs of long-term care: Medicaid now accounts for 50 percent of all State long-term care spending and pays for the care of 70 percent of those in nursing homes.

At this time, therefore, it is crucial that we continue to provide sufficient Federal funding for Medicaid, which has worked so well since it began providing care for some of our most vulnerable populations 40 years ago. We must proceed cautiously before making any significant changes in the program, and the Medicaid Commission established by this bill will ensure that necessary deliberative approach.

The concept of a commission to undertake a comprehensive review of the Medicaid program and recommend possible changes is similar to the commission which Congress established in the late 1990s, the Bipartisan Commission on the Future of Medicare. That commission examined various aspects of

the Medicare program to determine areas that should be modernized and later recommended a number of changes, including a prescription drug benefit. Those recommendations initiated the process of congressional debate and consideration of reforming the Medicare program, culminating in the Medicare Prescription Drug, Improvement, and Modernization Act which passed in 2003 and, among other reforms, included the new prescription drug benefit for seniors which will take effect next year.

The new Medicare prescription drug benefit will have a major impact on Medicaid since it will shift Federal expenditures for drug benefits currently provided by Medicaid for the ``dual eligible'' population-- those who are eligible for both Medicaid and Medicare--to Medicare. However, this will not lift most of the financial responsibility and burden of prescription drug costs from the States. Recent estimates by the National Governors Association show that currently 42 percent of all Medicaid dollars are spent on ``dual eligible'' Medicare beneficiaries, although they comprise only a small percentage of Medicaid cases, and they are covered by Medicare for other services.

The new prescription drug program includes a provision known as the ``claw-back'' which will require States to remit funds to the Federal Government, based on their inflation-adjusted 2003 per person Medicaid expenditures for prescription drugs for these beneficiaries. Although the percentage share of drug costs that States must pay for the dual eligibles will decline over time, from 90 percent to 75 percent, States will continue to pay the lion's share of dual eligibles' prescription drug costs. Many States are just now recognizing this fact and are looking for ways to accommodate these ongoing costs.

Unanswered questions like these remain concerning the ultimate impact of the Medicare drug program on State budgets and Medicaid programs. One of the primary duties of the Medicaid Commission would be to review and make recommendations on the interaction of Medicaid with Medicare and other Federal health programs.

Moreover, the formula for calculating the Federal matching rate, known as the Federal Medical Assistance Percentage, FMAP, which determines the Federal Government's share of a State's expenditures for Medicaid each year, has also contributed to the Medicaid problems that States are facing. The FMAP formula is designed so that the Federal Government pays a larger portion of Medicaid costs in States with a per capita income lower than the national average. However, the formula looks back 3 years, to points in time that are not necessarily reflective of a State's current financial situation.

In fiscal year 2003, for example, the FMAP for that year was calculated in 2001 for the fiscal year beginning October 2002. The FMAP for FY 2003 was determined on the basis of State per capita income over the 3-year period of 1998 through 2000, when State economies were growing significantly. Yet in 2003, when this matching rate was in effect, a serious economic downturn was affecting many State budgets, and that downturn has contributed greatly to the growth of Medicaid for several years now.

We recognized this situation in the last Congress and provided for State fiscal relief by providing a temporary increase in the Federal Medicaid matching rate, which provided $10 billion in fiscal relief to States during fiscal 2003 and 2004, when we passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. But that fiscal relief has sunset.

One of the duties of the Medicaid Commission would be to make recommendations on how to make Federal matching payments more equitable with respect to the States and the populations they serve, as well as how to make them more responsive to changes in States' economic conditions.

The fact is, Medicaid and Medicare have complex responsibilities, financing, and interrelationships and that is why a Medicaid Commission is vital for the future state budgets and the Medicaid program as a whole.

I urge my colleagues to join us supporting this legislation to help sustain and improve this critical health care safety net for our most vulnerable Americans.

Mr. President, I rise to introduce the Taxpayer Abuse Prevention Act. Earned income tax credit, EITC, benefits intended for working families are significantly reduced by the use of refund anticipation loans, RALs, which typically carry triple digit interest rates.

According to the Brookings Institution, an estimated $1.9 billion intended to assist low-income families was received by commercial tax preparers and affiliated national banks to pay for tax assistance, electronic filing of returns, and high-cost refund loans in 2002. Fifty-seven percent of consumers who received RALs in 2003 earned the EITC. The Children's Defense Fund recently conducted a review of EITC refunds in eight states and the District of Columbia. In Texas, it is estimated that EITC families lost an estimated $251 million in tax preparation fees and high interest loans. EITC families had an estimated $82.6 million diverted to tax preparers in Ohio.

The interest rates and fees charged on RALs are not justified because of the short length of time that these loans are outstanding and the minimal risk they present. These loans carry little risk because of the Debt Indicator program.

The Debt Indicator, DI, is a service provided by the Internal Revenue Service, IRS, that informs the lender whether or not an applicant owes Federal or state taxes, child support, student loans, or other Government obligations, which assists the tax preparer in ascertaining the applicant's ability to obtain their full refund so that the RAL is repaid. The Department of the Treasury should not be facilitating these predatory loans that allow tax preparers to reap outrageous profits by exploiting working families.

Unfortunately too many working families are susceptible to predatory lending because they are left out of the financial mainstream. Between 25 and 56 million adults are unbanked, or not using mainstream, insured financial institutions. The unbanked rely on alternative financial service providers to obtain cash from checks, pay bills, send remittances, utilize payday loans, and obtain credit. Many of the unbanked are low- and moderate-income families that can ill afford to have their earnings unnecessarily diminished by their reliance on these high-cost and often predatory financial services. In addition, the unbanked are unable to save securely to prepare for the loss of a job, a family illness, a down payment on a first home, or education expenses.

My bill will protect consumers against predatory loans, reduce the involvement of the Department of the Treasury in facilitating the exploitation of taxpayers, and expand access to opportunities for saving and lending at mainstream financial services.

My bill prohibits refund anticipation loans that utilize EITC benefits. Other Federal benefits, such as Social Security, have similar restrictions to ensure that the beneficiaries receive the intended benefit.

My bill also limits several of the objectionable practices of RAL providers. It will prohibit lenders from using tax refunds to collect outstanding obligations for previous RALs. In addition, mandatory arbitration clauses for RALs that utilize Federal tax refunds would be prohibited to ensure that consumers have the ability to take future legal action if necessary.

I am deeply troubled that the Department of the Treasury plays such a prominent role in the facilitation and subsequent promotion of refund anticipation loans. In 1995, the use of the DI was suspended because of massive fraud in e-filed returns with RALs. After the program was discontinued, RAL participation declined. The use of the DI was reinstated in 1999, according to H&R Block, to ``assist with screening for electronic filing fraud and is also expected to substantially reduce refund anticipation loan pricing.'' Although RAL prices were expected to go down as a result of the reinstatement of the DI, this has not occurred. Use of the Debt Indicator should once again be stopped. The DI is helping tax preparers make excessive profits from low- and moderate-income taxpayers who utilize RALs. The IRS should not be aiding efforts that take the earned benefit away from low-income families and allow unscrupulous preparers to take advantage of low- income taxpayers. My bill terminates the DI program. In addition, this bill removes the incentive to meet congressionally mandated electronic filing goals by facilitating the exploitation of taxpayers. My bill would exclude any electronically filed tax returns resulting in tax refunds distributed by refund anticipation loans from being counted towards the goal established by the IRS Restructuring and Reform Act of 1998, which is to have at least 80 percent of all returns filed electronically by 2007.

Mr. President, my bill also expands access to mainstream financial services. Electronic Transfer Accounts, ETA, are low-cost accounts at banks and credit unions intended for recipients of certain Federal benefit payments. Currently, ETAs are provided for recipients of other Federal benefits such as Social Security payments. My bill expands the eligibility for ETAs to include EITC benefits. These accounts will allow taxpayers to receive direct deposit refunds into an account without the need for a refund anticipation loan.

Furthermore, my bill would mandate that low- and moderate-income taxpayers be provided opportunities to open low-cost accounts at federally insured banks or credit unions via appropriate tax forms. Providing taxpayers with the option of opening a bank or credit union account through the use of tax forms provides an alternative to RALs and immediate access to financial opportunities found at banks and credit unions.

I thank my colleagues, Senators Bingaman, Sarbanes, Dayton, and Durbin for cosponsoring this legislation. I also thank Representative Jan Schakowsky for introducing the companion legislation in the other body.

I ask unanimous consent that the text of the Taxpayer Abuse Prevention Act, support letters and an accompanying fact sheet from the Association of Community Organizations for Reform, the Children's Defense Fund, the Consumer Federation of America, Consumers Union, the National Consumer Law Center, the Center for Responsible Lending, and the text of the national summary of the refund anticipation studies done by the Children's Defense Fund be printed in the Record.

I urge my colleagues to support this important legislation that will restrict predatory RALs and expand access to mainstream financial services.

Mr. President, I rise to introduce the Taxpayer Abuse Prevention Act. Earned income tax credit, EITC, benefits intended for working families are significantly reduced by the use of refund anticipation loans, RALs, which typically carry triple digit interest rates.

According to the Brookings Institution, an estimated $1.9 billion intended to assist low-income families was received by commercial tax preparers and affiliated national banks to pay for tax assistance, electronic filing of returns, and high-cost refund loans in 2002. Fifty-seven percent of consumers who received RALs in 2003 earned the EITC. The Children's Defense Fund recently conducted a review of EITC refunds in eight states and the District of Columbia. In Texas, it is estimated that EITC families lost an estimated $251 million in tax preparation fees and high interest loans. EITC families had an estimated $82.6 million diverted to tax preparers in Ohio.

The interest rates and fees charged on RALs are not justified because of the short length of time that these loans are outstanding and the minimal risk they present. These loans carry little risk because of the Debt Indicator program.

The Debt Indicator, DI, is a service provided by the Internal Revenue Service, IRS, that informs the lender whether or not an applicant owes Federal or state taxes, child support, student loans, or other Government obligations, which assists the tax preparer in ascertaining the applicant's ability to obtain their full refund so that the RAL is repaid. The Department of the Treasury should not be facilitating these predatory loans that allow tax preparers to reap outrageous profits by exploiting working families.

Unfortunately too many working families are susceptible to predatory lending because they are left out of the financial mainstream. Between 25 and 56 million adults are unbanked, or not using mainstream, insured financial institutions. The unbanked rely on alternative financial service providers to obtain cash from checks, pay bills, send remittances, utilize payday loans, and obtain credit. Many of the unbanked are low- and moderate-income families that can ill afford to have their earnings unnecessarily diminished by their reliance on these high-cost and often predatory financial services. In addition, the unbanked are unable to save securely to prepare for the loss of a job, a family illness, a down payment on a first home, or education expenses.

My bill will protect consumers against predatory loans, reduce the involvement of the Department of the Treasury in facilitating the exploitation of taxpayers, and expand access to opportunities for saving and lending at mainstream financial services.

My bill prohibits refund anticipation loans that utilize EITC benefits. Other Federal benefits, such as Social Security, have similar restrictions to ensure that the beneficiaries receive the intended benefit.

My bill also limits several of the objectionable practices of RAL providers. It will prohibit lenders from using tax refunds to collect outstanding obligations for previous RALs. In addition, mandatory arbitration clauses for RALs that utilize Federal tax refunds would be prohibited to ensure that consumers have the ability to take future legal action if necessary.

I am deeply troubled that the Department of the Treasury plays such a prominent role in the facilitation and subsequent promotion of refund anticipation loans. In 1995, the use of the DI was suspended because of massive fraud in e-filed returns with RALs. After the program was discontinued, RAL participation declined. The use of the DI was reinstated in 1999, according to H&R Block, to ``assist with screening for electronic filing fraud and is also expected to substantially reduce refund anticipation loan pricing.'' Although RAL prices were expected to go down as a result of the reinstatement of the DI, this has not occurred. Use of the Debt Indicator should once again be stopped. The DI is helping tax preparers make excessive profits from low- and moderate-income taxpayers who utilize RALs. The IRS should not be aiding efforts that take the earned benefit away from low-income families and allow unscrupulous preparers to take advantage of low- income taxpayers. My bill terminates the DI program. In addition, this bill removes the incentive to meet congressionally mandated electronic filing goals by facilitating the exploitation of taxpayers. My bill would exclude any electronically filed tax returns resulting in tax refunds distributed by refund anticipation loans from being counted towards the goal established by the IRS Restructuring and Reform Act of 1998, which is to have at least 80 percent of all returns filed electronically by 2007.

Mr. President, my bill also expands access to mainstream financial services. Electronic Transfer Accounts, ETA, are low-cost accounts at banks and credit unions intended for recipients of certain Federal benefit payments. Currently, ETAs are provided for recipients of other Federal benefits such as Social Security payments. My bill expands the eligibility for ETAs to include EITC benefits. These accounts will allow taxpayers to receive direct deposit refunds into an account without the need for a refund anticipation loan.

Furthermore, my bill would mandate that low- and moderate-income taxpayers be provided opportunities to open low-cost accounts at federally insured banks or credit unions via appropriate tax forms. Providing taxpayers with the option of opening a bank or credit union account through the use of tax forms provides an alternative to RALs and immediate access to financial opportunities found at banks and credit unions.

I thank my colleagues, Senators Bingaman, Sarbanes, Dayton, and Durbin for cosponsoring this legislation. I also thank Representative Jan Schakowsky for introducing the companion legislation in the other body.

I ask unanimous consent that the text of the Taxpayer Abuse Prevention Act, support letters and an accompanying fact sheet from the Association of Community Organizations for Reform, the Children's Defense Fund, the Consumer Federation of America, Consumers Union, the National Consumer Law Center, the Center for Responsible Lending, and the text of the national summary of the refund anticipation studies done by the Children's Defense Fund be printed in the Record.

I urge my colleagues to support this important legislation that will restrict predatory RALs and expand access to mainstream financial services.