DOL Proposes Sweeping New Protections for Retirement Savers
Much needed new protections for retirement savers moved one step closer to reality last week, when the Department of Labor (DOL) released for public comment a proposal to require all financial professionals to put the interests of their customers first when providing retirement investment advice. CFA hailed this important progress in a press statement. “Based on our initial review, it appears that DOL has done a masterful job of balancing competing interests in strengthening protections for retirement savers and providing the flexibility necessary to enable financial professionals who are compensated through commissions to comply with the rules,” said CFA Director of Investor Protection.
The rule would close loopholes in the current rules that enable many brokers, insurance agents, and others to escape the “fiduciary duty” that requires those who advise workers and retirees about their retirement accounts to act solely in their interests. At the same time as it takes steps to bring more financial professionals under the fiduciary standard, the DOL has proposed an exemption that would enable them to continue to receive commissions and other forms of transaction-based payments subject to conditions designed to ensure that investors receive appropriate protections.
“Industry lobbyists have said for years that they support a fiduciary standard for advice, as long as they can continue to receive commissions and other forms of transaction-based compensation. The DOL rule proposal achieves that balance, while putting in place meaningful protections to limit the harmful impact of the resulting conflicts of interest,” Roper said.
Specifically, financial firms and their advisers who receive such compensation would be required to enter into a contract with the investor in which they acknowledge that they are offering investment advice under a fiduciary standard and agree to provide recommendations that are in the best interest of the investor. They would also be required to have policies and procedures in place to mitigate any conflicts of interest. The rule release specifies, for example, that firms could not use such practices as differential compensation (paying advisers more to sell certain products), bonuses, quotas, or promotions to reward advisers for acting in ways that are not in the best interest of customers.
“Middle income earners and small savers, who need to make every dollar count, will benefit tremendously from this rule,” said CFA Financial Services Counsel Micah Hauptman. “They will have the peace of mind that when they receive retirement investment advice, that advice is in their best interest, not their adviser’s.”
CFPB Considers New Rules for Payday Loans
The Consumer Financial Protection Bureau (CFPB) has announced it is considering proposing rules that would end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans. Released at a March field hearing as a working draft, the proposal would require payday, auto title and installment lenders to review a borrowers’ ability to repay a loan in full and on time without additional borrowing. It promises to cover most of the high-cost credit market and ensure that lenders do not develop new products to evade a final rule.
“The evidence shows that payday loans are easy to get into and hard to get out of,” said CFA’s Director of Financial Services Tom Feltner in a press statement. “An objective assessment of a borrower’s ability to repay a loan based on their income and expenses promises to end the financial hardship that inevitably follows abusive lending.”
In addition, the CFPB’s proposal would limit lenders’ ability to use post-dated checks and electronic access to a borrower’s bank account to two attempts to collect a payment, which would reduce the number of overdrafts caused by repeated collection attempts. On the other hand, the draft rule proposal considers allowing lenders to forgo the review of a borrower’s income and expenses before making a loan. “None of this is set in stone, but giving lenders the option to make three loans in a row without requiring a straight-forward, common-sense ability to repay review should not be part of a final rule,” Feltner said.
Groups Urge Ban on Toxic Flame Retardants
Health, firefighter, consumer and science groups have filed a petition asking the Consumer Product Safety Commission (CPSC) to ban four categories of consumer products – children’s products, furniture, mattresses and the casings around electronics – if they contain any flame retardant in the chemical class known as organohalogens.
Organohalogens have been associated with serious human health problems, the groups write, including cancer, reduced sperm count, increased time to pregnancy, decreased IQ in children, impaired memory, learning deficits, hyperactivity, hormone disruption and lowered immunity. Children are especially at risk because they come into greater contact with household dust than adults. In addition, firefighter organizations have expressed concern that when consumer products containing these chemicals burn, the fire and smoke become more toxic.
“We urge the U.S. Consumer Product Safety Commission to grant this petition and take steps to ensure that consumer products such as children’s products, furniture, mattresses and parts of electronics do not contain a class of flame retardants, organohalogens, that have been associated with numerous and serious health problems,” said CFA’s Legislative Director Rachel Weintraub in a press statement. The vast majority of consumers are unwittingly exposing their children and their families to increased risks when they purchase and use these products.”
In addition to CFA, petitioners include the American Academy of Pediatrics, the National Hispanic Medical Association, the International Association of Fire Fighters, the Learning Disabilities Association of America, Consumers Union, the League of United Latin American Citizens, Worksafe, Dr. Philip J. Landrigan and the Green Science Policy Institute.
California Takes Lead in Energy Efficiency Standards
The California Energy Commission (CEC) is proposing new standards for computers and monitors that could save California consumers $430 million annually on electricity bills. Computers and monitors, when grouped together, are among the leading users of energy in California, and most sit idle, wasting energy and money while not in use, according to the Commission.
“There is no doubt that energy performance standards for these ubiquitous digital devices will save consumers money and are in the public interest in number of other ways,” said CFA’s Director of Research Mark Cooper in a statement to the Commission. “Standards for computers are long overdue. California is once again to be applauded for exercising leadership that is critically important to consumer pocketbook, national economic and environmental policy.”
Cooper noted that electricity consumption of digital devices is the result of a market failure. “Since electricity bills are aggregates of a month of consumption across a large number of electricity consuming durables, consumers do not see how much electricity any specific device consumes. And, because the devices are plugged in, there is little, if any, market pressure to improve the energy efficiency of these devices,” Cooper stated.
The use of performance standards is beneficial because they establish a minimum level of efficiency but they do not dictate the technology, Cooper stated. Additionally, performance standards work best when they address a clear market imprecation or failure, he said.
“The proposed standards pass our test with flying colors,” said Cooper. “The benefits far exceed the costs, and they are product neutral, technology-neutral, pro-competitive, responsive to consumer needs, responsive to industry needs.”