CFA News Update - March 2, 2010

House Votes To Strip Health Insurance Antitrust Exemption
The House of Representatives gave overwhelming bipartisan approval last week to legislation (H.R. 4626) that would strip health insurance companies of their exemption from antitrust laws. CFA Director of InsuranceJ. Robert Hunter has estimated that, if accompanied by thorough investigations of concentration and rigorous enforcement, the measure could save consumers $5 billion a year or more in health costs.

CFA and the Center for Justice and Democracy wrote to members of the House urging their support. Eliminating the antitrust exemption would force these companies “to play by the same rules of competition as virtually all other commercial enterprises operating in America’s economy,” the groups wrote. They called the legislation’s passage “a good first step toward full repeal of the McCarran Ferguson Act for all lines of insurance,” which is something CFA has long advocated.

Speaking earlier at a news conference in support of the bill, CFA Legislative Director Travis Plunkett said, “This is an essential step forward to making insurance more competitive, more pro-consumer and making health insurance more available to consumers.”

With the Senate focused on trying to find a way to pass comprehensive health care reform legislation, it is unclear when or if it will take up the antitrust measure.

As Credit Card Rules Take Effect, Consumers Take Action
As rules adopted by Congress last year to protect consumers from abusive credit card practices took effect last week, new research shows that consumers lack knowledge about those protections. The survey released last month by CFA and Credit Union National Association (CUNA) found that, while most consumers (61 percent) were aware that new credit card protections were on the way, most (65 percent) did not understand the specific protections.

A particular worry is that significant percentages of consumers believe the law provides protections – such as caps on late fees or interest rates – that were not included in the legislation. “We are especially concerned that some consumers will base their future credit card use on protections that don’t exist,” said CFA Executive Director Stephen Brobeck.

In the months before the new rules took effect, many credit card companies have increased interest rates, adopted new fees or increased existing fees, or reduced benefits under rewards programs. The survey found that a large majority of consumers who have noticed such changes are taking or plan to take some kind of remedial action in response, most frequently by using their card less frequently.

The fact that credit card companies continue to come up with new ways to evade the rules reinforces the need for a new Consumer Financial Protection Agency, said CFA Legislative Director Travis Plunkett in a news release on the new rules. Card issuers have increased interest rates and fees in advance of the law’s implementation and imposed new terms to evade protections in the law. That’s why we need the Senate to enact the Consumer Financial Protection Agency, so that consumers will have a cop on the beat to stop continuing credit card company antics.”

“As we’ve seen, overseeing the credit card companies is like playing Whack-A-Mole – just when one abuse is shut down, they come up with something new,” said CFA Financial Reform Campaign Director Susan Weinstock. “That’s why we need a Consumer Financial Protection Agency whose sole mission will be to look out for consumers and to sop these abuses as they develop.”

Senate Bill’s Consumer and Investor Protections Hang in the Balance
With revised financial regulatory reform legislation expected to be introduced as early as this week, senators have been debating various approaches to the new Consumer Financial Protection Agency that will determine whether it has the independence and autonomy necessary to ensure its effectiveness. Among the options reportedly being considered were housing the agency within the Treasury Department, the Federal Reserve, or a newly consolidated prudential banking regulator.

“It is dismaying that some are proposing to give the same prudential regulators whose failures harmed millions of American families and brought our economy to the brink of collapse even more power to make decisions about consumer protection,” said CFA Legislative Director Travis Plunkett.

Americans for Financial Reform, a broad coalition of which CFA is a member, wrote to Chairman Dodd last month thanking him for his efforts to enact an independent CFPA and warning that they would oppose “any CFPA proposal that undermines the ability of the agency to make and implement independent decisions about the needs of consumers,” including any proposal to lodge the CFPA within a prudential regulator. “Putting the CFPA under the OCC or a new, more consolidated national bank regulator would be worse for consumers than the existing regulatory system,” the letter added.

In response to concerns expressed by opponents of the CFPA, Chairman Dodd has reportedly offered a compromise proposal to Banking Committee Republicans that would create a Bureau of Financial Protection in the Department of the Treasury. Americans for Financial Reform has also expressed serious concerns about this proposal, calling it “unacceptable.”

“The Bureau of Financial Protection proposal compromises the autonomy and independence of the consumer regulator and undermines its ability to effectively enforce consumer protection rules,” said Plunkett. “It also unjustifiably increases the ability of bank regulators to meddle in, and veto decisions by, the consumer regulator.”

Meanwhile, under pressure from a bipartisan group of committee members led by Sen. Tim Johnson (D-SD), Chairman Dodd has apparently agreed to strip the bill’s centerpiece protection for average investors – its provision holding brokers who offer investment advice to the same obligation to act in the best interests of their clients that applies to investment advisers. In its place will be a provision that, at least as originally drafted, would force the Securities and Exchange Commission to waste up to two years studying the issue without giving the agency any additional authority to address regulatory gaps it identifies.

When reports of the expected change emerged two weeks ago, CFA and Americans for Financial Reform wrote to members of the Senate Banking Committee urging them to reject this approach. CFA Director of Investor Protection Barbara Roper said, “The effect of this proposal is not to improve investor protections but to delay and deflect meaningful reform. We will continue to work with members of the committee to restore the strong provisions on fiduciary duty or, if that is not possible, at least amend this language to provide some balance to the study requirements and additional authority for the SEC to act on its findings.”

Proposed Truth-in-Lending Revisions Benefit Mortgage Borrowers
The Federal Reserve Board has proposed changes to regulations under the Truth-in-Lending Act to increase and enhance disclosures for closed and open-ended mortgage loans. Barry Zigas, Director of CFA’s Center for Housing and Credit Policy, called the proposed rule “a great improvement for consumers in mortgage disclosures.”

“The prevalence of unstable and unsafe mortgages sold to consumers who could not sustain them is one of the leading causes of the current financial crisis,” Zigas said. “The disclosures proposed in this rule would go a long way to limiting lenders’ ability to steer customers to more expensive products or to incent brokers and others to sell consumers more expensive loans in order to earn more money themselves.”

CFA joined with National Consumer Law Center (NCLC), National Association of Consumer Advocates (NACA), Consumer Action (CA), National Fair Housing Alliance (NFHA), and Center for Responsible Lending (CRL) to submit comments that largely supported the changes to disclosures for closed-end loans.

These include changes that would require lenders to use forms that show: the highest possible monthly payment for adjustable rate mortgages; firm estimates three days before a scheduled closing that must be honored for the closing to proceed or a new estimate three days before consummation; and comparisons of the proposed charges to those for borrowers with excellent credit and with impaired credit.

The proposal also bans the use of “yield spread premiums,” which are sales fees to brokers and originators based on loan terms and conditions that can encourage them to sell consumers products that are more expensive than they could qualify for. And it bars lenders from “steering” consumers to loans that are more profitable for the lender but not for the borrower. These issues were addressed in a separate comment letter from CFA, CRL and NCLC, which supported the proposals but suggested further revisions.

The larger group submitted a separate comment letter that criticized the proposed changes for home equity lines of credit, arguing that they could do more harm than good. Most importantly, they do not conform the definition of annual percentage rate to the definition used for closed end mortgages, potentially leading to confusion among consumers when trying to understand their relative costs.

The Fed received several thousand comment letters on the proposal, suggesting that it will be some time before it completes its analysis of the comments and finalizes a rule.

Decrease Seen in Child ATV Injuries and Deaths
The Consumer Product Safety Commission has released data for 2008 showing a decrease in child deaths and serious injuries caused by all-terrain vehicles. Despite that progress, at least 74 children died and more than 37,000 were injured seriously enough to require treatment in a hospital emergency room.

CFA General Counsel Rachel Weintraub called for further study to determine the cause of the decline. “Is it because incidents with recreational off-highway vehicles were taken out of the report?” she asked. “Is it because fewer children are riding ATVs that are too large for them? Is it because of higher gas prices? Or is it because educational efforts are becoming effective?" Only by answering those questions can we determine “what is going right and do more to reduce these numbers significantly.”

Click here to read a joint CFA-American Association of Pediatrics release detailing and responding to major findings of the CPSC report.

FCC Chairman Releases Ultrafast Broadband Plan
Federal Communications Commission Chairman Julius Genachowski unveiled a plan last month to bring ultrafast, 100-megabits-per-second broadband service to 100 million households over the next decade. While he praised the plan as “bold,” CFA Research Director Mark Cooper nonetheless expressed concern that it could fall short of the mark.

“By 2020, there will be about 130 million households in America,” Cooper said. “I know that Chairman Genachowski’s vision of America is not a place where 100 million households have 100 megabits of service, and 30 million households have zero megabits.” Cooper made his comments during a Capitol Hill press conference at which he and other public interest advocates urged the agency to do more to protect consumers and promote competition.

The groups – CFA, Center for Media Justice, Consumers Union, New America Foundation, and Public Knowledge – called on the agency to: set a goal of raising the level of broadband adoption within a decade to 90 percent, which is about the level of telephone penetration today; define broadband as eligible for universal service fund support and immediately commence the necessary proceedings to start using those funds to promote broadband adoption; and to identify ways that other departments of the federal government can use their existing programs to augment the stimulus funds being used to address the skill and motivational barriers to broadband adoption.

“With one-third of U.S. households lacking broadband service at home, this is a challenging but achievable goal,” Cooper said.