CFA News Update- May 17, 2011
The House Financial Services Committee approved three bills last week designed to undermine the ability of the new Consumer Financial Protection Bureau (CFPB) to stop abusive financial practices by significantly increasing the ability of financial regulators to block important consumer protection measures initiated by the CFPB, by changing the leadership structure of that agency to make it less accountable, and by preventing it from acting until a director is confirmed by the Senate. In a press statement released in advance of the mark-up, CFA Legislative Director Travis Plunkett criticized the bills for ignoring “the lessons that have been learned about the regulatory failures that triggered a housing and economic crisis and caused extraordinary pain for millions of Americans. The message that these bills send is that, once again, big banks and financial firms are more important to Congress than families who need a cop on the beat and common sense regulation to protect them.”
A coalition of consumer and community groups wrote to Committee members in advance of the mark-up alerting them to the dangers of payday lending and urging them to oppose proposals that would weaken the strong, independent Consumer Financial Protection Bureau needed to protect consumers from abusive practices used by these lenders. The letter was timed to coincide with a lobbying effort by members of an industry trade group representing payday lenders who use the Internet to deliver and collect triple-digit interest rate loans.
The Committee turned a deaf ear to opponents and passed all three bills. H.R. 1315, which was adopted 35-22, would allow a simple majority of bank regulators and others on the Financial Services Oversight Council (FSOC) to veto CFPB rules they deem to be inconsistent with safe and sound operations of financial institutions. CFA expressed concerns that this vague standard could be manipulated to stop significant consumer protection measures that might affect the profitability of financial institutions. H.R. 1121, which passed 33-24, would alter the leadership structure of the agency from that of a single director to a five-member commission.
These changes are unwarranted, Plunkett noted, as the CFPB already has unprecedented restrictions on its powers. For example, nowhere else in federal law can one set of regulators – in this case two-thirds of the members of the FSOC – veto the actions of another agency. The Dodd-Frank Act caps the amount of funding provided to the CFPB, a statutory limit imposed on no other financial regulator. And the CFPB is the only financial regulator that must comply with the federal Regulatory Flexibility Act, which allows small businesses to see proposed rules before the public does, adding months to the already lengthy rulemaking process.
The Committee also approved a bill (H.R. 1667) on a 32-26 vote that would require the CFPB to have a director confirmed by the Senate before it could exercise its authorities. This comes on the heels of a letter from 44 Senate Republicans stating that they would not vote to confirm any CFPB director, no matter who that person is, until the structural changes Republicans are seeking are adopted. In a press statement in response to the Republican senators’ letter, Plunkett said: “The measures that these Senators are demanding were all considered and rejected by Congress last year because they would give big banks extraordinary power over the Bureau’s operations and handcuff the only consumer financial cop on the beat that Americans have ever had. Enactment of these measures would virtually guarantee that the CFPB would be a weak and timid agency without the will or ability to curb the kind of financial abuses that caused the nation’s worst financial crisis since the Great Depression. They will also muddle decision-making at the CFPB, while expanding the power of disgraced banking regulators to stop strong consumer protections.”
Mark-up of a bill (H.R. 1573) to delay implementation of derivatives reforms was rescheduled for later this month. The bill has already been approved on a party-line vote in the House Agriculture Committee. “Bringing over-the-counter derivatives markets out of the shadows and into the light of appropriate regulatory oversight was one of the most significant achievements of the Dodd-Frank Act. This bill threatens to reverse that progress,” said CFA Director of Investor Protection Barbara Roper. “By delaying essential derivatives reforms for more than a year, this legislation would expose the financial system to great risk and tie the hands of regulators attempting to rein in those risks. As a result, this bill is bad for taxpayers, bad for investors and consumers, bad for the Main Street companies that rely on these markets to hedge their risks, and bad for the safety and stability of the financial system. Indeed, the only people likely to benefit from this bill are the Wall Street executives already raking in record bonuses and profits on the high-risk casino economy that effective derivatives regulation would help to shut down.”
The House Commerce, Manufacturing and Trade Subcommittee gave voice vote approval last week to draft legislation that would seriously weaken the Consumer Product Safety Improvement Act (CPSIA). CFA joined with other consumer and health groups in urging the Committee not to pass the anti-consumer bill. Among other things, the bill would: delay implementation of the CPSIA’s provisions regarding lead in children’s toys and significantly narrow the products covered by those rules; seriously weaken the law’s requirements with regard to third-party testing of children’s products by requiring the agency to conduct a cost-benefit analysis and fulfill other requirements before it could require testing for most products; limit reporting to the new consumer safety database; and prevent retroactive application of crib standards, permitting cribs that fail to meet the safety standards to be used in child care facilities. The proposed bill “weakens, eliminates or alters significant provisions of the CPSIA, rendering them vastly less protective of the public health,” said CFA Senior Counsel Rachel Weintraub. “This proposed language moves the pendulum backward and removes existing protections, making our children vulnerable once again.”
Sen. John D. Rockefeller IV (D-WV) has introduced “Do Not Track” legislation (S. 913) that CFA Consumer Protection Director Susan Grant says would give Americans the right, and the right tools, to browse the Internet without their every click being tracked for marketing or other purposes. Under the bill, the Federal Trade Commission (FTC) would establish standards for implementing a simple, easy-to-use “do not track” mechanism that would enable individuals to indicate that they don’t want their personal information collected by online services. The FTC would also set rules providing for common-sense exceptions, such as when personal information is needed to provide a service that the individual requested and the information is rendered anonymous or deleted afterwards, or when the individual affirmatively agrees to the collection and use of personal information based on clear, accurate notice. “Right now, the privacy interests of individuals and the interests of advertisers and others who may want their personal information are woefully out of balance,” Grant said.” This legislation would enable the FTC to strike the right balance and ensure that online privacy is respected and protected.”
Members of Congress should allow the Securities and Exchange Commission (SEC) to move forward expeditiously on a rulemaking imposing a fiduciary duty on brokers when they give personalized investment advice, CFA Director of Investor Protection Barbara Roper stated in a letter to members of the House Financial Services Committee released last week. Roper urged members not to be swayed by misleading arguments from self-interested financial services industry groups seeking to prevent much needed improvements in investor protections.
“While CFA has long advocated a universal fiduciary duty for personalized investment advice, we understand that Members of Congress are likely to be concerned when they hear claims that imposing a fiduciary duty on brokers could increase costs to middle income and rural investors or cause them to lose access to valued products and services,” Roper wrote. In her letter, Roper analyzed the arguments in support of these claims and found that they:
• fail to recognize or acknowledge serious short-comings in existing regulatory protections;
• ignore aspects of the SEC proposal designed to protect the broker-dealer business model; and
• offer no data to support claims regarding increased costs under a fiduciary duty.
An attachment to the letter offers a detailed rebuttal of the arguments coming primarily from those brokers whose business is dependent on the sale of high-cost variable annuities.
“The SEC has proposed a way to move forward on fiduciary duty that maximizes investor protections while minimizing industry disruption. In doing so, it has won broad support from industry and investor advocates alike,” Roper wrote. “It would be tragic if opposition from a few industry members intent on maintaining the status quo were able to derail that progress. Despite the self-interested claims of certain industry members, it is the middle income investors who must make every dollar count who are most in need of these enhanced protections.”
The Federal Deposit Insurance Corporation (FDIC) issued an “Amended Notice of Charges for an Order to Cease and Desist” against Republic Bank & Trust of Kentucky earlier this month, detailing widespread legal violations in Republic’s refund anticipation loan (RAL) program and proposing a $2 million civil money penalty to be imposed against the bank. In a news release praising the action, CFA and National Consumer Law Center said it shows that RALs are unsafe and unsound. “We are pleased that the FDIC took strong and appropriate action against Republic and its tax preparer agents," stated CFA Director of Financial Services Jean Ann Fox. “FDIC enforcement of federal consumer and privacy laws will protect some of the most vulnerable taxpayers - low-income families that receive the Earned Income Tax Credit.”