CFA News Update - May 22, 2013

CFA Urges Up or Down Vote on Cordray Nomination

With Senate Majority Leader Harry Reid reportedly planning to press for a vote this week to confirm Richard Cordray as Director of the Consumer Financial Protection Bureau, CFA wrote to members of the Senate urging support for his nomination.  Cordray is currently serving as a recess appointee.

“Director Cordray is well-qualified and, since his recess appointment in January 2012, has earned wide and bipartisan praise for his leadership of the CFPB,” stated CFA Legislative Director Rachel Weintraub in a news release. “Business and financial leaders as well as consumer, community, civil rights, labor, and faith groups have commended the bureau for its deliberative, data-driven and transparent approach to consumer protection under his leadership.”

Republicans have used the Cordray nomination to try to force changes in the CFPB that would weaken the agency and undermine its ability to respond to harmful credit industry practices.

Under Director Cordray’s leadership, the CFPB has protected consumers from abusive mortgages, returned nearly half a billion dollars to consumers struggling with unfair credit card practices, stood up for students trapped in high-cost private education loans and protected military families against illegal foreclosures, Weintraub noted in her letter to the Senate.  “An up-or-down vote of the full Senate on Director Cordray’s nomination and confirming him to a full term will send a clear message that abusive practices such as these will no longer be permitted to flourish, putting consumers and the economy at risk,” she wrote.

As this issue of the newsletter went to press, reports emerged that Majority Leader Reid had changed his mind about pressing for a separate vote on the Cordray nomination this week and would instead return to the issue later this summer.

Americans Want More Information on Origin of Fresh Meat

As the U.S. Department of Agriculture (USDA) considers changing its country of origin labeling regulations in response to a World Trade Organization (WTO) challenge by Canada and Mexico, a new CFA poll finds that Americans continue to overwhelmingly support mandatory country of origin labeling for fresh meat and favor requiring even more detail about where animals were born, raised and processed.

According to the survey, 90 percent either strongly or somewhat support package labeling requiring the country of origin of fresh meat and nearly as many (87 percent) said labels should include information on where animals were born, raised, and processed. Finally, for meat that was processed in the United States, 90 percent said they want food sellers to indicate on the package label the country or countries in which animals were born and raised.

“These results demonstrate that U.S. consumers continue to strongly support country of origin labeling and want even more detailed information about where their meat comes from,” said Chris Waldrop, Director of CFA’s Food Policy Institute. “We urge the Administration to finalize its proposal and provide consumers with this additional information. The WTO should accept USDA’s changes to the COOL regulations as satisfactory.”

Need for Renewal of Terror Insurance Law Questioned

With Congress beginning consideration of the future of the nation’s terrorism insurance law – the Terrorism Risk Insurance Act (TRIA) – CFA issued a release earlier this month questioning the need for the law and urging Congress to consider the extraordinary growth and levels of the property/casualty industry’s surplus capital as well as the taxpayer subsidies this industry is receiving.

By the end of last year, this surplus had reached a near-record level of $586.9 billion, according to data released by the industry’s Insurance Services Organization. Prior to the 9/11 attacks, the industry’s surplus was only $326 billion. “The current industry surplus of nearly $600 billion dwarfs the $24 billion (in 2013 dollars) of insurer losses from 9/11,” said CFA Director of Insurance J. Robert Hunter. “The industry can easily afford the losses of up to $100 billion that the current act would cover.”

Meanwhile, the Congressional Budget Office has estimated that, from 2008 through 2012, the cost of the program to U.S. taxpayers was $3.1 billion, with an additional $3.3 billion expense projected through 2017. CFA estimates that the total subsidy from 2002 to 2012 was over $7 billion. The subsidy occurs because the federal reinsurance program in TRIA, which backs up the private insurers, is free.  No premiums are charged. Had actuarially sound premiums been charged, the Treasury would now enjoy over $7 billion in reserves to offset future terrorist attack costs, Hunter explained.

“We understand the desire of the insurers to keep a free reinsurance program and thus further expand their profits, but at a time of record-breaking federal budget deficits, we question the wisdom of providing multi-billion dollar subsides to an industry that can easily afford to insure many terrorist events even larger than 9/11,” he said. “If there are instances where it has been difficult to obtain insurance coverage, the Federal Insurance Office should work with appropriate state insurance commissions to examine and efficiently mitigate these deficiencies,” he added.

House Continues Efforts to Roll Back Wall Street Reforms

A series of bills to roll back Wall Street reforms have been working their way through the House of Representatives this month.  Last week, the House voted 235-161 in favor of a bill (H.R. 1062) to impose onerous new cost-benefit analysis requirements on the Securities and Exchange Commission (SEC).  Earlier this month, the House Financial Services Committee approved a series of bills to weaken crucial derivatives market reforms.

CFA wrote to members of the House in advance of the vote on H.R. 1062, the “SEC Regulatory Accountability Act,” urging a no vote.  The letter from CFA Director of Investor Protection Barbara Roper states that, “H.R. 1062 is a regulatory ‘accountability’ act only if you believe that the SEC’s primary accountability should be to the securities firms it is supposed to regulate rather than to the public it is supposed to protect.  At a time when the agency is already years behind schedule in implementing rules to address root causes of the financial crisis, and months past key deadlines for JOBS Act implementation, this bill would further slow the already glacial regulatory process and further empower Wall Street interests to derail needed reforms.”

Similarly, CFA wrote to members of the Financial Services Committee in advance of their mark-up urging opposition the bills to roll back key aspects of the Dodd-Frank derivatives reforms.  The bills would:

  • weaken the cross-border application of Dodd-Frank derivatives provisions, making it all too easy for the large multi-national swaps dealers to evade appropriate regulatory oversight of transactions that would nonetheless expose U.S. markets and U.S. taxpayers to unacceptable risks (H.R. 1256);
  • remove meaningful regulatory oversight of inter-affiliate swaps transactions without any evidence that such a regulatory roll-back is either needed or justified (H.R. 672);
  • significantly expand the range of swaps dealing activities that could be conducted within federally insured institutions, forcing taxpayers to once again subsidize the cost of derivatives dealing by banks and exposing them to renewed risks (H.R. 992);
  • eliminate CFTC and SEC statutory authority to set capital and margin requirements for swaps transactions that qualify for the end-user clearing exemption, leaving the agencies powerless to act if subsequent events demonstrate that the current regulatory approach is exposing the system to excessive risk (H.R. 634); and
  • require a one-sided study of the “competitiveness” impact of the derivatives credit valuation capital adjustment while ignoring the potential benefits to the public of better capitalized derivatives (H.R. 1341).

In contrast to H.R. 1062, which got only minimal Democratic votes, all of these bills passed out of the Financial Services Committee with broad, bipartisan support.  “Each of these bills contributes in its own way to a return to the reckless disregard of systemic threats that just a few short years ago brought the global economy to the brink of collapse,” Roper said. “We are disappointed that so few members of the committee were willing to defend the safety, integrity, and transparency of our financial markets by opposing these ill-conceived bills.”

New Consumer Education Materials Offer Facts about “Phishing”

Last week, CFA and VISA released new consumer education materials on “phishing,” a common method of identity theft in which crooks, pretending to be from well-known companies, organizations, or government agencies, contact individuals and trick them into revealing their personal and/or financial information. According to the National Consumers’ League Fraud Center, phishing was the fourth most common scam reported in 2012.

The tips, Slam the Door on Phishing Scams, describe the most common tactics phishing scammers use, how people can protect themselves, and what to do if they become victims. CFA also released a short educational video. The materials are designed to assist consumers in identifying scams and avoid becoming victims.

“There are many variations of phishing scams and new ones pop up every day,” said CFA Director of Consumer Protection Susan Grant “If someone suddenly appeared at your door asking for your personal information, you’d be suspicious – and rightfully so. We want people to realize that it should be no different when someone approaches you online or by phone asking for that information.”

Many Americans Know Little About Credit Scores

A large minority of Americans know little about credit scores, according to a survey released this month by CFA and VantageScore Solutions.  “Credit scores have become so influential in the lives of most consumers that tens of millions are severely disadvantaged by their lack of knowledge about these scores,” said CFA Executive Director Stephen Brobeck. “Low credit scores will often cost car buyers more than $5000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs. And low scores are likely to limit consumer access to, and increase the cost of, services such as cell phone service, electric service, and rental housing.”

Asked a wide-ranging set of questions about these scores, between one quarter and two-fifths of survey respondents answered the questions incorrectly.  The following are among the key findings of the survey:

  • Two-fifths do not know that credit card issuers (40 percent) and mortgage lenders (42 percent) use credit scores in decisions about credit availability and pricing.
  • Two-fifths incorrectly believe that personal characteristics such as age (43 percent) and marital status (40 percent) are used in calculating credit scores.
  • Between one-quarter and one-third do not know when lenders are required to inform borrowers of the credit score used in their lending decision – after consumers apply for a mortgage (27 percent), when they are turned down for a loan (24 percent), and when they don’t receive the best price or other terms (35 percent).
  • Between one-third and two-fifths do not know that the credit scores of co-signers of a student loan are affected by that loan – improving if payments are made on time (38 percent) and declining with one late payment (31 percent).
  • More than one quarter do not know key ways to raise or maintain their scores – keeping credit card balances low (26 percent) and not applying for several cards at the same time (28 percent).
  • More than one-third (36 percent) incorrectly believe that credit repair agencies are always or usually helpful in correcting credit report errors and improving scores.

To help consumers learn more about credit scores, CFA and VantageScore Solutions have updated their interactive quiz – and – which has already been taken by more than 35,000 persons.  The press release also offers tips on how consumers can improve their credit score.