CFA News Update - July 17, 2013

Senate Confirms Richard Cordray as CFPB Director

After nearly two years in which Richard Cordray’s appointment as director of the Consumer Financial Protection Bureau seemed to be hopelessly stalled, the Senate voted 66-34 Tuesday evening to confirm his nomination.  “With today’s vote … the Senate prioritized the interests of consumers,” said CFA Legislative Director Rachel Weintraub in a press statement. “Consumers need a confirmed director at CFPB to make sure that the Bureau’s work to date is not compromised and to ensure that consumers can make decisions about their financial future knowing that consistent and predictable safeguards are in place.”

When the CFPB was created as part of the response to the 2008 financial crisis, it was charged with ensuring that consumers were protected from financial abuses, levelling the playing field in the financial services market, and ensuring that financial institutions that offered safe and sustainable products and services were not placed at a competitive disadvantage.  It’s authority in certain areas was limited, however, until it had a director in place.  When Senate Republicans blocked a vote on Cordray’s nomination as part of an effort to force changes in the structure and funding of the agency, President Obama used a recess appointment to install him in the job.

Since stepping into the directorship, Cordray has won bipartisan praise, and the agency has shown itself to be responsive to consumer concerns.  Under his 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.

“The CFPB was created to ensure that consumers could borrow and save knowing they are being treated fairly,” said CFA Director of Financial Services Tom Feltner. “Consumer and community groups across the country worked tirelessly to reaffirm that mission and the need for Consumer Financial Protection Bureau with a confirmed director and independent funding.”

DOJ Prevails in E-book Price-Fixing Case

A U.S. District Court ruled last week that Apple conspired with publishes to fix the price of electronic books (e-books).  The Department of Justice, which brought the antitrust case, has already reached settlements with five publishers originally named as co-defendants.  CFA Research Director Mark Cooper said the decision was a big win for consumers.  “If we let companies get away with this type of price fixing, consumers will be denied a substantial part of the benefits of the digital revolution,” he said.  (Cooper’s more extensive comments on the wrap-up of the case is available here.)  Apple has announced that it will appeal the decision.  Meanwhile, the judge has ordered a new hearing to set damages.

SEC Allows Marketing of “Private” Offerings without Investor Protections

The Securities and Exchange Commission voted 4-1 last week to approve a JOBS Act rule allowing mass marketing of private offerings while deferring to the future any efforts to ensure that investors in these offerings are adequately protected.  Private offerings are exempt from registration and other requirements that apply to public offerings on the condition that they are sold only to investors who can fend for themselves without the protections afforded in the public markets.

“With this vote, the Commission has thrown open the doors to mass marketing of hedge funds and other so-called private offerings, knowing full well that it lacks the tools to provide effective market oversight and that the current rules are inadequate to ensure that only those with the financial sophistication to understand the risks and the wealth to withstand potential losses invest in such offerings,” said CFA Director of Investor Protection Barbara Roper in a press statement.  “It is a sad day for the Commission when it treats investor protection as an afterthought, something it may get around to addressing in the future if it can only find the will and the time.”

CFA and other investor advocates had urged the Commission to withdraw the rule and re-propose it, incorporating the modest additional investor protections recommended by investor groups, state securities regulators, and the Commission’s own Investor Advisory Committee.  They argued that this was necessary both to ensure that investors are protected and to rectify procedural abuses that the Commission had committed in advancing the rule.  Instead, the Commission voted to consider investor protections as a separate rule proposal.  “This proposal includes some, but not all, of the investor protections that should have been incorporated in the final rule,” Roper said.  “We strongly support their adoption.  Unfortunately, the SEC has a long history of proposing investor protection rules that it never gets around to finalizing.  We hope that this time will be different, but we frankly have little reason to believe that it will.”

Commissioner Luis Aguilar provided the lone “no” vote on the general solicitation rule, stating that, “both the process followed in proposing the amendments and the actual amendments being considered today come at the expense of investors and place investors at greater risk.”

“We couldn’t agree more,” Roper said, “and we are immensely grateful to Commissioner Aguilar for his tireless efforts on behalf of investors.  He alone has given more than lip service to the notion that the Commission has an obligation to look out for the interests of investors and that the capital formation process benefits when it fulfills that mission.”

CFA Calls for Greater Openness, Consumer Participation in Trade Negotiations

As negotiations for a Transatlantic Trade and Investment Partnership between the United States and Europe got under way last week, the Office of the United States Trade Representative (USTR) hosted a series of stakeholder engagement events “to ensure that multiple perspectives and a balance of views inform U.S. negotiating positions.”  CFA Consumer Protection Director Susan Grant delivered a presentation in which she expressed concern that the process could be used to weaken existing consumer protections, called for the creation of a Consumer Trade Advisory Committee, and urged that the negotiations be suspended until such a committee has been put into place and is fully operational.

“It is ironic that at a time when people around the world are clamoring for democracy, for their governments to be open and responsive to their needs, two of the most advanced democratic regions are embarking on trade negotiations that are not democratic, are not open, and are not necessarily responsive to the needs of the consumers who will ultimately be affected by them,” she said. “While events such as this and the stakeholder briefing scheduled for later today are helpful, it is impossible for consumer representatives to provide meaningful input in a secret process. We need to know exactly what is being negotiated and to be able to see and comment on the text in a timely manner.

“It is astonishing,” Grant added, “that there has never been the kind of integral link between consumers and the U.S. government on trade matters that has long existed for businesses through the Industry Trade Advisory Committees. We need a Consumer Trade Advisory Committee to provide a formal mechanism through which consumer organizations can confer with each other and participate in this process in a constructive and substantive manner.”

CPSIA Implementation Remains Top CPSC Priority

The implementation of the Consumer Product Safety Improvement Act (CPSIA) should continue to be of the highest priority for the Consumer Product Safety Commission (CPSC), CFA Legislative Director Rachel Weintraub said in testimony before the agency on priorities for fiscal years 2014 and 2015.  Weintraub applauded the agency for effectively prioritizing CPSC implementation.  “Never in CPSC’s history have more rules been promulgated and in such a short time period. Not only have many rules been promulgated but the rules themselves will have an important and positive impact on consumers,” she said.

In her testimony, Weintraub provided specific recommendations related to: CPSIA implementation, including, CPSC’s online consumer database, emerging hazards, enforcement, and critical on-going safety issues. Weintraub specifically urged CPSC to focus on the safety issues relevant to window covering safety, furniture tip over, adult bed rails, ATVs and ROHVs, upholstered furniture, and low income child safety.  “We support the CPSC’s existing priorities to strengthen its regulatory and enforcement efforts to fulfill its mission to protect consumers from hazards posed by consumer products,” Weintraub concluded. “We urge the Commission to address these issues as soon as possible as many pose urgent hazards to consumers.”

Privacy Groups Protest “Dragnet Surveillance Techniques”

Gathering in Washington in June for a conference on Computers, Freedom and Security, North American and European privacy advocates issued a joint statement protesting “the collection of personal data from Internet companies by the U.S. government and other dragnet surveillance techniques that impact the rights of Internet users.”  CFA was among those signing onto the statement, which calls on European Union policy makers to “defend this human right now, as an essential prerequisite for preserving privacy, freedom of thought and of expression in vibrant democracies.”

Europeans currently have significant privacy rights that U.S. citizens do not have, explained CFA Consumer Protection Director Susan Grant.  However, the European Union is currently reforming its general data protection framework for the private sector, and corporate interests have been lobbying to weaken those protections.  “In light of recent revelations about the nexus of corporate and government surveillance, it’s more important than ever for consumers on both sides of the Atlantic to have strong rights concerning the collection, retention and use of their personal information,” Grant said.