CFA News Update- September 6, 2011
In the wake of a recent outbreak of antibiotic-resistant Salmonella Heidelberg in which at least 107 people in 31 states were sickened and one person died, the Safe Food Coalition has called on the U.S. Department of Agriculture (USDA) to declare certain strains of antibiotic-resistant Salmonella as adulterants and to prevent meat and poultry products contaminated with those strains from being sold to consumers. The coalition, which is coordinated by CFA, wrote to Secretary of Agriculture Tom Vilsack in support of a May petition by the Center for Science in the Public Interest. “Antibiotic-resistant pathogens pose a particular threat to consumers because they are resistant to many of the drugs normally used to fight infection,” said Christopher Waldrop, Director of CFA’s Food Policy Institute. “USDA should have a zero tolerance for ABR Salmonella and keep it out of the food supply.”
In a comment letter to federal financial regulators regarding the proposed rulemaking on credit risk retention and the definition of a “Qualified Residential Mortgage (QRM),” CFA called on regulators to delay action until after the Consumer Financial Protection Bureau has had a chance to finalize related rules requiring mortgages to be underwritten based on a borrower’s ability to repay. “Risk retention is one means of creating more accountability and alignment in the financing system,” wrote CFA Director of Housing Policy Barry Zigas. “But we do not believe it alone is adequate to ensure safe securitizations. Far more important, we believe, is close regulation of mortgage underwriting, appraiser licensing and regulation, the compensation models through which loan originators are paid, servicing requirements focused on effectively and swiftly resolving delinquencies, and the product features that can be offered to consumers.”
Those issues are addressed in CFPB qualified mortgage (QM)/ability to repay rules. “Once the rules for underwriting mortgages have been fully established we believe it will be easier to develop a consistent approach to the QRM, and regulators will be better able to assess the value of incorporating the QM requirements by reference as the QRM standard, a course of action that would greatly simplify the system while restricting the use of the types of mortgage features that we believe caused the greatest damage to the mortgage system,” Zigas wrote.
The letter also addresses specific features of the proposed rules. While praising the proposed QRM definition for excluding “product features with proven negative credit impacts,” the letter expressed concern over the inclusion of “certain underwriting standards that we believe will do significantly more harm to consumers than is justified by the benefits their inclusion may provide.
In particular, we are deeply concerned with the proposed requirement that only loans with a down payment of 20 percent of more may qualify for the QRM exemption.” CFA urged regulators to remove loan-to-value and down payment requirements from the QRM definition.
One year after the Federal Reserve required banks to get customers’ permission to charge overdraft fees on debit card transactions, fees charged by banks have not dropped, according to an updated survey released in August by CFA. While some banks have modified the order in which they process payments from accounts, most banks continue to pay the largest transactions first, which can drive up overdraft revenue at the expense of struggling families. “Consumers need stronger protection from abusive overdraft fees and practices,” stated CFA Director of Financial Services Jean Ann Fox in a press release on the survey. “Regulators should prohibit banks from manipulating payment processing order to drive up overdraft fees and should require banks to offer consumers the lowest cost overdraft coverage for which they qualify. Banks should be prohibited from charging for overdrafts triggered by debit cards that can be denied at no cost to consumers,” she added. Fox called on consumers to write to the Office of Comptroller of the Currency urging that agency to strengthen proposed guidelines for bank overdrafts.
Credit rating agencies and unregulated over-the-counter derivatives are almost universally agreed to have played key roles as enablers of the 2008 financial crisis whose after-effects continue to plague the nation’s economy. But recent proposals from the Securities and Exchange Commission (SEC) to improve regulation in these areas fall well short of what is needed to deliver the sweeping reforms promised by the Dodd-Frank Wall Street Reform and Consumer Protection Act. “When Congress enacted Dodd-Frank, we warned that we would only realize the benefits if regulators were willing and able to learn from the past and adopt tough regulations to implement the new law,” said CFA Director of Investor Protection Barbara Roper. “Unfortunately, these rules do not meet that test.”
In a comment letter submitted jointly by CFA and Americans for Financial Reform, the groups praised the agency for sound proposals to improve the transparency of ratings, but they criticized its provisions to reform the operations of rating agencies. Because Congress failed to change the conflict-laden business model of the major rating agencies, “much is riding on the effectiveness of the Commission’s rule proposals to implement the regulatory requirements in Dodd-Frank,” the groups wrote. “In particular, with its provisions on conflicts of interest and internal controls, Dodd-Frank gives the Commission potentially powerful tools to address the effects of that issuer-pays conflict even if Congress chose not to act directly in the near term to address the cause of the conflict. It is absolutely imperative that the Commission make good use of this authority to deliver the sweeping reforms demanded both by the scope of the abuses at the ratings agencies and the severity of their impact on the financial system,” something the groups argue that the SEC’s proposed rules fail to do.
The Commission’s proposed business conduct rules from security-based swap dealers and major security-based swap participants are even weaker. These provisions of the legislation were enacted by Congress to address evidence of pervasive abuses in the derivatives market and, in particular, to counteract swaps dealers’ willingness to prey on less sophisticated market participants. But the Commission’s proposed rules “are neither consistent with congressional intent nor commensurate with the severity of the problems they are intended to address,” CFA and AFR wrote in a joint comment letter. “Indeed, unless they are dramatically strengthened, they will do little to change the abusive practices that Congress targeted when it gave the Commission broad authority to regulate business conduct” in this market.
“The Commission is under intense pressure from some in Congress to back off in its implementation of Dodd-Frank,” Roper said. “But we’ve been down that road before, and it does not end well. It is essential that the Commission stiffen its resolve and revise these rules to deliver the tough rules that the situation demands.”
As Hurricane Irene carved a destructive path up the East Coast, CFA issued advice to consumers on how to file insurance claims for storm-related damage. "Families will have to dig deeper into their pockets because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other policy limitations," warned CFA Director of Insurance J. Robert Hunter. “This liability shift to consumers may take some by surprise, since disclosures are often buried in renewal paperwork that consumers may not understand or even read,” he added. “Because so many consumers experienced claims problems in the wake of Hurricane Katrina, we urge homeowners dealing with losses caused by Hurricane Irene to be vigilant with their insurance companies to ensure that that they receive a full and fair settlement.”