CFA News Update - April 9, 2014

FCC Explores New Approach to Preserve the Open Internet

Responding to a U.S. Court of Appeals decision that overturned the agency’s broadband rules, the Federal Communications Commission (FCC) has decided to rewrite its Open Internet Order under the Section 706 authority outlined in the court decision. CFA filed a report last month as part of the initial comment process on the “Open Internet Remand” which analyzes the FCC decision.  According to CFA’s analysis, the FCC has picked the right place to start the effort to implement a Broadband Network Compact.  The report also outlines a comprehensive strategy to simultaneously pursue several other major elements of the compact, such as universal service and consumer protection.

“The FCC should assert the independent authorities and explore the powers it has under several of the new sections of the Telecommunications Act of 1996 Act to create a robust portfolio of tools to pursue the core goals of the Communications Act,” said CFA Research Director and report author Mark Cooper in a press release on the report. He called on the agency to:

  • Maximize the power of transparency under Section 706 to promote competition and provide consumer protection.
  • Develop regulation of reasonable network management to the greatest extent possible under Section 706.
  • Implement effective universal service mechanisms under Section 254.
  • Explore Title II with Section 10 forbearance for those goals of the Act that cannot be accomplished under the authorities and powers of sections 706 and 254, particularly for public safety, consumer protection and consumers with disabilities and privacy.

“The FCC can pursue all four of the options by conducting different proceedings on different schedules,” Cooper noted.

“The idea that the FCC would have split, even fragmented jurisdiction for different sections of the Act may seem odd, but that has always been a fact of life under the Communications Act,” Cooper added.  “If the 1996 Act were written differently, or the decision to classify broadband as an information service (which is now over a decade old) had not been taken, the terrain of decision making would be very different and the best strategy for writing the Broadband Network Compact might be different.”However, the court decision represents “the ‘new’ law that needs to be implemented, and until the Commission tries to do so, the courts will likely keep sending the Commission back to the drawing board,” Cooper concluded. “There is a long way to go to build the Broadband Network Compact, but this is a good start.”

CFPB Documents Payday Loan Debt Trap

A report released last month by the Consumer Financial Protection Bureau (CFPB) confirms what consumer advocates have long claimed, that although payday loans are billed as providing a short-term solution to consumer cash flow problems, they often result in long-term debt.  The CFPB report foundthat 80 percent of all payday loans are rolled over or renewed within 14 days.    “Repeat borrowing is a symptom of a borrower’s fundamental inability to repay a payday loan,” said CFA Director of Financial Services Tom Feltner in a press statement responding to the report. “We need the CFPB to issue a strong rule to ensure that short-term credit doesn’t become a long-term problem.”

Payday lenders rely on an unprecedented ability to collect loan payments using post-dated checks or electronic access to bank account, rather than examining a borrower’s income and expenses or existing debt burden.  With little or no consideration of a borrower’s ability to repay in making the loans, many payday loan borrowers lack sufficient income to repay the loan in full and  often resort to taking out multiple loans or refinancing the original loan and incurring additional interest charges.

The CFPB report found that the original loan principal is unlikely to be paid down during these back-to-back loan cycles.  Moreover, they found that states that require short breaks between loans have similar repeat borrowing patterns as states that do not. In addition, the report found that 15 percent of new loans result in a cycle of debt at least ten loans long.

“Regardless of the term or structure of a payday loan, if back-to-back usage is frequent and lenders have direct access to a bank account, borrowers are at risk,” said Feltner.  “Ability to repay, not the ability to collect, should be the standard going forward.”

Insurance Commissioners Urged To Bar “Price Optimization” Techniques

At a gathering of the nation’s insurance commissioners in Florida, consumer groups called upon regulators to stop insurance companies from using so-called “price optimization” techniques when setting rates and premiums.Price optimization is a data mining tool used by insurers to charge higher premiums to those consumers least likely to shop for a new policy in the face of a rate increase. In a letter to commissioners, CFA and the Center for Economic Justice (CEJ) noted that insurance companies appear to be using these techniques without disclosing that fact to regulators.

In their letter, CFA and CEJ charged that price optimization violates state laws that prohibit insurance companies from unfairly discriminating against customers by charging them higher rates even though they have the same risk profile as others who are charged lower premiums.  The practice also ignores the actuarial requirement that insurance rates be based on risk, the groups wrote.

“Price optimization is a new strategy to overcharge Americans who have to buy auto and home insurance policies,” said Bob Hunter in a press statement, CFA’s Director of Insurance and former Texas Insurance Commissioner.  “Despite the feigned innocence of the software developers and insurance executives behind these products, the tool is nothing less than an end-around critical consumer protection rules that are needed to ensure fair pricing of insurance products.”

The letter concludes by calling for a prohibition on the use of price optimization software and asks the regulators to focus on the growing use of data mining techniques by insurers which undermines consumer protection laws.  “We urge state insurance regulators to not only stop the use of price optimization, but to develop a modern regulatory framework for insurance risk classifications that recognizes insurers’ access to and increasing use of mountains of personal consumer information and protect consumers against unfair discrimination,” said CEJ Executive Director Birny Birnbaum.

CFA also released a consumer alert providing practical tips consumers can use to avoid over-paying for insurance as a result of price optimization practices.

Privacy Advocates Call for Data Breach Workshop

Four leading consumer and privacy organizations have called on the Federal Trade Commission (FTC) to convene a workshop to examine the consumer and business impact of data breaches.  “The Federal Trade Commission can play a key role in examining how best to address the data insecurity problem,” said CFA Consumer Protection Director Susan Grant.

In a letter to FTC Chairwoman Elizabeth Ramirez, CFA, Consumer Action, National Consumers League and Privacy Rights Clearinghouse praised the agency for its active enforcement program against companies that failed to adequately protect their customers’ personal information, but they warned that the “scope of the problem is massive and beyond the capability of any one agency to adequately address.

“The Target breach should serve as a wake-up call that more must be done to address the looming data insecurity disaster,” the groups wrote.  “This is no longer an issue that can be limited to discussion among cybersecurity experts.  It is now a threat to the entire economy. Addressing this problem will demand aggressive action by regulators, businesses, advocates and the general public.”

Toward that end, the FTC “should continue to be a leader in this debate,” they added.  “We therefore recommend that the agency convene a public forum, bringing stakeholders together to discuss strategies for combating the growing threat of data breaches.”

Consumer Assembly Showcases Diverse Speakers

Consumer advocates, policymakers, industry representatives, and members of the media gathered in Washington, D.C. in mid-March for CFA’s 48th annual Consumer Assembly.  The conference featured keynote speeches from: Rep. Chris Van Hollen (D-MD); Securities and Exchange Commission Chairman Mary Jo White;  Federal Communications Commission Chairman Tom Wheeler; Robert Weissman, President of Public Citizen; Norm Ornstein from American Enterprise Institute; Scott Keeter, Director of Survey Research with Pew Research Center; and Alan Rosenblatt with Turner Strategies.