In New Congress, House Prioritizes and Passes Anti-Consumer Legislation
The new Congress put anti-consumer legislation at the top of its agenda when it returned in 2017, with the House quickly passing a host of bills to roll back existing regulations and prevent future regulations from protecting consumers’ health, safety, and financial wellbeing. “These bills thwart necessary consumer protections in different ways but have the same unambiguous result of making it harder or impossible for much needed protections to be finalized,” said CFA Legislative Director Rachel Weintraub.
In its first weeks of action, the House quickly passed three broad anti-regulatory measures – H.R. 26, the “Regulations from the Executive in Need of Scrutiny Act,” or REINS Act, H.R. 21, the “Midnight Rules Relief Act,” and H.R. 5, the “Regulatory Accountability Act” – and two more targeted bills aimed at curbing the regulatory ability of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The REINS Act would give Congress what amounts to pocket veto authority over any “major” regulation, making it easier for special interest groups that oppose regulations to stop them when they aren’t successful in doing so through the regulatory process. Under the legislation, which applies to any rule with an economic impact of $100 million, the regulation could not take effect unless it was approved in its entirety, without changes and within 70 legislative days, from both houses of Congress. CFA wrote to Members of the House urging opposition to the REINS Act on the grounds that it would “undercut the ability of federal agencies to protect consumers from unsafe food, predatory financial products and schemes, and dangerous consumer products.”
The Midnight Rules Relief Act which would amend the Congressional Review Act to allow disapproval of a number of regulations finalized near the end of presidential terms without requiring individual votes on each rule. As a broad coalition of public interest organizations noted in their letter of opposition to the bill, the legislation “is based on a flawed premise—namely, that regulations which are being finalized during the so-called ‘midnight’ rulemaking period are rushed and inadequately vetted. In fact, the opposite is generally the case,” the groups wrote. “The vast majority of the public health and safety regulations this bill would target have been in the regulatory process for years or decades … many of these regulations are mandated by Congress and have missed rulemaking deadlines prescribed by Congress.” The legislation would not only overturn these rules, but prevent regulators from drafting new versions of the regulations without new legislative authority.
The most harmful of the bills is the Regulatory Accountability Act, which includes a host of provisions designed to make regulators more “accountable” to the industries they are supposed to regulate. Among other things, it would: add more than 80 burdensome and time-consuming hurdles to the rulemaking process, paralyzing agencies that already are struggling to operate under tight budgets; establish a default requirement that agencies adopt rules that are the least costly to industry, irrespective of the public benefits; require agencies to consider the “indirect effects” of rules on small businesses without defining what that term means; require courts reviewing “high-impact” regulations to automatically “stay” or block the enforcement of such regulations until all litigation is resolved, creating an incentive for rule opponents to file frivolous legal challenges; and end judicial deference to agency interpretation of statutory requirements. CFA sent a letter to the House urging opposition and, along with the Coalition for Sensible Safeguards, CFA issued a press release urging Members to oppose this bill.
The House also passed two more targeted anti-consumer bills: H.R. 78, the SEC Regulatory Accountability Act and H.R. 238, the Commodity End User Relief Act.
CFA wrote to members urging opposition to the SEC bill on the grounds that it would “paralyze the agency’s ability to protect investors and promote market integrity.” Thanks to an amendment from Rep. Nydia Velazquez (D-NY), the House did add investor protection to the factors the SEC must consider when evaluating proposed and existing rules, but that one amendment was insufficient to restore balance heavily weighted against pro-investor regulation, said CFA Director of Investor Protection Barbara Roper. “All you need to know about this bill is that it took a Democratic amendment to remind its sponsors that investor protection is the central mission of the SEC,” Roper said.
CFA also wrote to members urging opposition to the CFTC bill on the grounds that it “would cripple the CFTC from effectively overseeing and regulating commodities and derivatives markets, leaving consumers exposed to fraud, manipulation, and abusive practices, and putting the safety and stability of the U.S. financial system at risk.” Among other things, the bill would freeze the CFTC’s budget at a woefully inadequate $250 million over the next five years. “This is a drop in the bucket and is severely inadequate to properly oversee the roughly $500 trillion swaps market,” CFA Financial Services Counsel Micah Hauptman warned.
Each of the bills passed with only a handful of Democratic votes, setting the stage for a tough fight in the Senate, where Democrats have greater ability to fend off controversial measures.
“Consumer protections that make our marketplace more fair, increase pocket book savings, ensures that our food and products are more safe, and that protect our privacy are at significant risk by these bills,” said CFA Legislative Director Rachel Weintraub.
Brokers and Insurers Market Themselves as Advisers, Tell Court They are Salespeople
A review of the marketing practices of 25 top U.S. brokerage firms and insurance companies shows they market their employees as trusted “financial advisors,” putting client interests first, even as their lobbyists argue in court that they are nothing more than commission-driv en salespeople, according to a major new report from CFA and Americans for Financial Reform (AFR).
The issue is central to whether these commission-based “financial advisors” should be regulated as fiduciaries, required to put their clients’ interests first, under a Department of Labor rule that was scheduled to go into effect in April. While rumors continue to circulate that a delay of the rule is imminent, it had not occurred as this issue went to press. Meanwhile, evidence continues to mount that the rule is delivering tangible benefits to retirement savers even before it is fully implemented.
Illustrating why the DOL rule is needed, the report, entitled “Financial Advisor or Investment Salesperson: Brokers and Insurers Want to Have It Both Ways,” scrutinizes the websites for the brokerage firms and insurance companies and contrasts the practices they use to attract customers with those they use when resisting regulation as fiduciary advisors. It finds that, in order to attract sales, brokerage and insurance firms create the expectation that they are providing fiduciary investment advice, rather than non-fiduciary investment sales. For example:
- they routinely refer to their financial professionals not as sales representatives, but as “Financial Advisors;”
- services provided are routinely described as investment “advice” and retirement “planning,” not simply product sales; and
- no company website studied included a prominent description of their services as arm’s length investment sales recommendations, nor referred to its financial professionals as salespeople.
In sharp contrast, the firms’ lobbyists have argued in court that these broker-dealer reps and insurance agents are just “salespeople” engaging in activity “whose essence is sales” that is no different from other commercial sales relationships in which “both parties understand that they are acting at arms’ length.”
“It comes down to this: are they financial advisors or are they just salespeople? Put another way, are they lying to the court, or are they lying to their customers?” said CFA Director of Investor Protection Barbara Roper. “The answer to that question has multi-billion-dollar implications for millions of American workers and retirees who turn to financial professionals for help with their retirement investments. After all, people expect salespeople to look out for their own interests and maximize profits, but advisors are expected to meet a higher standard.”
“Financial professionals who act like retirement investment advisers should be held to an advice-based standard, and that’s what the DOL rule does,” said CFA Financial Services Counsel Micah Hauptman. “Firms are sorely mistaken if they think they can continue the current charade in which they act like advisors to their customers while relying on their trade associations to argue the opposite in court in order to try to kill the DOL rule. People saving for retirement deserve to know where their advisor and the firm that their advisor works for stands on this issue.”
As EPA Reaffirms Fuel Economy Targets, Poll Shows Bipartisan Support
As part of its scheduled mid-term review of standards covering vehicle model years 2022 to 2025, the Environmental Protection Agency (EPA) reaffirmed strong fuel economy targets laid out through 2025. This reaffirmation of current targets is supported by findings from CFA that the fuel economy standards enjoy robust bi-partisan support.
The survey, conducted in December, found two-thirds of Donald Trump voters support strong fuel economy standards, which were also supported by four-fifths of Hillary Clinton voters. “This is a pocketbook issue for American voters,” said CFA Director of Public Affairs Jack Gillis. “Consumers across the board want more miles-per-gallon, and they understand that national standards provide automakers with sensible targets they otherwise might not achieve. Gas prices are low now, but they won’t always stay this low.”
CFA submitted comments to the EPA outlining decades of polling, research and analysis showing that fuel efficiency standards benefit American consumers, and that the standards enjoy consistent bi-partisan support. Because low- and middle-class consumers spend a bigger portion of their income at the gas station, fuel-efficiency standards benefit these groups the most. According to CFA’s calculations, the average household spends about $1,500 a year on gasoline.
More than a dozen large automakers – including the Detroit Three– supported the 2012-2025 fuel economy targets when they were announced in 2011. But after Trump won the Presidential election, the Alliance of Automobile Manufacturers began arguing for a roll back, citing business concerns. However, automakers are already on track to meet or exceed the fuel economy targets reaffirmed by the EPA.
“Automakers and their suppliers have already invested in new efficiency technologies,” said CFA Director of Research Mark Cooper. “The decision to stay the course on fuel economy targets positions them to remain competitive on the international market, where fuel economy is an especially important selling point. Along the way, they are creating jobs and strengthening the economy.”
Groups Urge FCC to End Forced Arbitration Clauses in Consumer Contracts
Federal Communications Commission (FCC) Commissioner Mignon Clyburn has issued a #Solutions2020 Call to Action Plan on communications policy that has earned praise from CFA and other public interest organizations. In particular, the groups praised Clyburn for seeking to act on the widespread and harmful use of fine-print “rip-off clauses” that prohibit consumers from taking legal complaints to court and require them to resolve disputes with providers, often on an individual basis, in forced arbitration proceedings.
“Communications providers dictate the rules for arbitration proceedings, while hired arbitrators are tasked with interpreting contract and consumer protection laws and rendering decisions that are rarely appealable,” the groups wrote. “Arbitration proceedings are not public. Arbitrators also have a financial incentive to rule for companies that bring them repeat business. Therefore, corporations are at a clear advantage when they can operate within a secret ‘dispute resolution’ system that they created, while their customers are deprived of participating in the public court system.”
“Forced arbitration unfairly restricts the rights of Americans to seek justice when big companies treat them badly,” said CFA’s Director of Consumer Protection Susan Grant. “It’s like fighting with your hands tied.”
“The FCC has the evidence it needs to act in the public interest and for the benefit of millions of consumers that use communications services,” the groups wrote. “It should eliminate forced arbitration clauses from customer contracts for all consumer services under its jurisdiction, including for mobile services, cable and other multichannel video services, and common carriers under the Communications Act. Arbitration should be voluntary and chosen by customers only after disputes arise.”