CFA News Update - April 5, 2010
Senate Banking Gives Financial Reform Quick, Partisan Approval
In a move that appears to have taken everyone by surprise, Republican members of the Senate Banking Committee withdrew hundreds of amendments and allowed a quick vote last month on legislation to reform the financial system. As a result, the bill was approved on a party-line vote, 13-10. The vote came after a 20-minute “mark-up” in which Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) issued positive statements, both pledging to continue to work toward a bipartisan compromise before the bill is brought to the floor for a vote. Those talks are expected to resume when the Senate returns from its spring recess in mid-April.
The cordial mark-up stood in stark contrast to the many amendments filed just the previous week to seriously weaken key components of the legislation. Expecting a long, drawn-out mark-up of the bill, CFA had prepared a users guide to the amendments, which is available here.
Some relatively non-controversial pro-consumer amendments were added to the manager’s amendment prior to the mark-up, including amendments by Sen. Michael Bennet (D-CO) to strengthen the credit rating agency and investment pre-sale disclosure provisions. But amendments to further weaken the Consumer Financial Protection Agency and the investor protection provisions, to expand the end-user loophole in derivatives regulation, and to attack other aspects of the bill were withdrawn.
Although questions remain about where Chairman Dodd will find the elusive 60 votes needed to assure passage, leading members of both parties have expressed optimism that legislation will pass this year. “Key Senators from both parties have now said that financial reform is on their ‘must do’ list this year,” said CFA Legislative Director Travis Plunkett. “CFA will be working hard to ensure that the reforms that pass are meaningful and provide real protections to consumer and investors.”
Administration Finalizes Fuel Economy Rules
The administration released final fuel economy standards late last week that require automakers to raise the overall fuel economy of their fleets to 34.1 miles per gallon by 2016 and which include the first-ever limits on automotive greenhouse gas emissions. CFA Research Director Mark Cooper has this to say about the new rules: “When changing direction, the hardest step is always the first, and the proposed fuel economy standard for 2016 is a commendable step in the right direction. But the evidence in this proceeding indicates that the Obama administration must follow up with more rapid improvements in future fuel economy standards. Our comments in response to the rulemaking provide evidence that to achieve maximum consumer benefit the standard should be raised to 45 miles per gallon by 2020. A recent CFA national public opinion poll finds consumers want and need even higher fuel economy: a large majority of respondents support an increase of this standard to 50 mpg by 2025.”
Report Demonstrates Benefits of Energy Efficiency Measures
A CFA report released in February demonstrates that “energy efficiency is the cornerstone to ensuring affordable energy for American households in the decades ahead.” Because it costs far less to save energy than to produce it, household expenditures for electricity and natural gas can be dramatically reduced by policies to aggressively promote energy efficiency, an approach that also makes climate change policies more cost-effective and affordable, the report finds.
DOE Urged to Strengthen Water Heater Efficiency Rule
CFA and 13 other consumer groups sent a comment letter to the Department of Energy in March urging the agency to strengthen its proposed water heater energy efficiency requirements for the largest units. The groups applauded the proposal, saying that consumers stand to benefit greatly from more stringent efficiency standards, but they argued that more can and should be done.
Administration Modifies Program for Battered Mortgage Borrowers
Faced with disappointing levels of participation in its “Making Home Affordable” mortgage modification program (HAMP), the Obama Administration last month announced a series of significant new features in the program with an eye toward boosting participation and success in converting trial modifications to permanent ones.
The main changes are as follows:
- Requiring participating servicers under HAMP to offer at least three months’ forbearance of mortgage debt for unemployed borrowers, and encouraging such assistance for up to six months.
- Requiring participating servicers to use principal reduction as a primary means of reducing borrowers’ payments where loans are more than 115 percent of the current home value.
- Offering borrowers who are current on their mortgages but with debts greater than their home’s current value the opportunity to refinance into a lower cost, long-term fixed-rate mortgage insured through the FHA if the current lender will agree to reduce principal owed by at least 10 percent and the total combined debt including any second liens would be no greater than 115 percent after the refinancing.
- Requiring HAMP servicers to work with borrowers in bankruptcy on mortgage modifications, and waive the trial period for such modifications if consumers have been performing successfully under bankruptcy settlements.
- Increasing the incentives to get second lien holders to reduce their claims to facilitate modifications.
- Clarifying that HAMP servicers must suspend all foreclosure actions and notices for borrowers that have sought modifications or are in trial modification periods and requiring a written certification that a borrower is not HAMP eligible before an attorney or trustee can conduct a foreclosure sale.
“These changes realign the Administration’s program to respond to the changed market realities since HAMP was first announced last year,” said Barry Zigas, Director of Housing Policy for Consumer Federation of America. “Borrowers who are unemployed and those that find their homes are worth far less than the remaining debt on them are now those driving delinquency and default numbers,” he added. “These changes will help make HAMP a much more relevant response and increase the chance that modifications under the program will ultimately succeed.”
The Administration followed up last week with an announcement that it was expanding the $1.5 billion five-state pilot program it had announced in February. As a result, an added $600 million will be provided to offer the pilot program in five additional states: North Carolina, Ohio, Oregon, Rhode Island and South Carolina. Funding for the pilot program comes from the TARP fund created by Congress at the end of 2008 to bailout failing financial institutions and stabilize the economy.
At a hearing last month before the House Judiciary Committee, CFA Public Affairs Director Jack Gillis urged Congress to adopt legislation (H.R. 3059, S. 1368) to create a narrow exemption to U.S. design patent law for repair parts. Testifying on behalf of Advocates for Highway and Auto Safety, the Center for Auto Safety, and Public Citizen, as well as CFA, Gillis warned that, if car companies are allowed to monopolize the replacement part market, consumers will pay higher repair costs, more vehicles will be “totaled” because the price of repairing the damage exceeds the value of the vehicle, insurance premiums will rise, and “when faced with expensive repairs and a limited,” consumers may be forced to forego even repairs of items essential for safe driving.
As tax season went into full swing, CFA and the National Consumer Law Center released their annual report on the refund anticipation loan (RAL) industry. Although bemoaning the roughly $1 billion spent by taxpayers in 2008 for loans and other financial products to receive their refunds, the report found good news to report, including action by federal regulators ordering one of the largest RAL providers out of the business and a decision at another major provider to reduce its prices. Despite this progress, the best approach for taxpayers is simply to avoid the loans entirely, said CFA Director of Financial Services Jean Ann Fox. “In tough economic times, quick money may be tempting. But American taxpayers need every dollar of their refunds, and waiting just a week or two will put more money in their pockets,” she said. A news release on the report is available here and the report itself is available here.