CFA News Update April 22, 2010
Financial Reform Moves into High Gear as Congress Returns
As Congress returned from its spring recess last week, efforts to pass comprehensive financial regulatory reform legislation moved into high gear even as bipartisan negotiations ground to a halt. Abandoning efforts to work out a bipartisan agreement before bringing a bill to the floor, Senate Majority Leader Harry Reid (D-NV) announced his intention to begin Senate consideration of the bill at the end of this week.
“This is the most comprehensive and far reaching set of financial reforms the Senate has considered since the Great Depression,” said CFA Legislative Director Travis Plunkett. “If improved and kept strong in certain key areas, it would dramatically increase consumer protections against fraud and abuse, bring sunlight to the dark and dangerous derivatives market, and put measures in place to prevent financial behavior that endangers the financial system.”
At the same time, Agriculture Committee Chairman Blanche Lincoln (D-AR) announced that she would be moving forward on derivatives legislation without Republican support. Wall Street firms had been counting on the Agriculture Committee to weaken this key component of the bill, but when Chairman Lincoln released her bill on Friday, she dashed those hopes.
“Chairman Lincoln engaged in extensive negotiations to try to reach a bipartisan compromise. Unfortunately, it ultimately became apparent that the only way to win Republican support for the measure was to abandon essential protections,” said CFA Director of Investor Protection Barbara Roper. “Chairman Lincoln made the right call. She has introduced a strong reform package that would make the market more transparent and less prone to both manipulation and systemic risk.”
It remains unclear at this point how the measure will move forward. Senate Minority Leader Mitch McConnell (R-KY) announced last week that he had succeeded in getting all 41 Republican senators to sign a letter opposing bringing the bill to the floor. It is therefore possible that Republicans will filibuster to prevent consideration of the bill.
That is a risky strategy, however, as new survey results show that a sizeable majority of the public supports reforms that Republicans have opposed. For example, in a new survey released by CFA last week, 62 percent of respondents said they support creation of a new consumer financial protection agency, up from 57 percent eight months ago. “Despite a barrage of negative industry advertising and the public’s typical skepticism about creating new federal agencies, public support for the establishment of a new consumer financial protection agency has not only remained strong but has grown,” Plunkett said.
Court Decision Deals Blow to Net Neutrality Plans and Universal Service Principles
Just days before the comment period was due to close on the Federal Communications Commission (FCC) net neutrality rule proposal, a U.S. appeals court issued a ruling on April 6 that calls into question the commission’s authority to regulate high speed telecommunications services that are used for broadband connections to the Internet. In a case involving FCC efforts to stop Comcast Corp. from blocking Internet traffic to video services that compete with Comcast’s cable service, a three-person panel of the U.S. Court of Appeals for the District of Columbia ruled unanimously that the FCC had overstepped its authority.
“The obligation to operate the telecommunications network in a nondiscriminatory fashion has been a cornerstone of U.S. communications policy for exactly 100 years and it is vital to ensure the open flow of communications and commerce. With information taking on greater importance in the digital age, allowing telecommunications companies to discriminate or block traffic destroys the essential ingredient that has made the Internet a remarkably consumer and citizen friendly environment,” commented Mark Cooper, Director of Research at CFA.
While the case focused on network neutrality, the decision to deregulate high speed telecommunications also undermines the ability of the FCC to promote universal service, ensure access to telecommunications for people with disabilities, require truth in billing and other consumer protections, and protect the privacy of high speed Internet users. In short, all of the public interest principles that have governed the telecommunications network under the Communications Act of 1934 are at risk.
Several responses are possible. Congress could adopt legislation, something that some members of Congress, including longtime net neutrality advocate Rep. Edward J. Markey (D-MA), have said they intend to do. Alternatively, the FCC could correct the mistake made by the Bush administration in deregulating high speed telecommunications. Since the FCC chose to deregulate high-speed telecommunications as an act of “agency discretion,” it can change its mind, now that the massive implications of that decision have become clear. Should he choose to adopt that approach, FCC Chairman Julius Genachowski appears to have the support of the other two Democrats on the commission and key members of Congress. Last week the Senate Commerce Committee held a hearing on the issue.
OCC Guidance Targets Debit Overdraft Opt-in Abuses
The Office of Comptroller of the Currency issued new guidance to national banks last week designed to put a stop to unfair and deceptive claims and tactics used by banks to encourage consumers to opt in to bank overdraft programs. CFA Financial Services Director Jean Ann Fox applauded the agency for acting in response to banks’ “aggressive marketing campaigns to persuade account holders to sign up for $35 overdraft fees for small debit purchases and ATM withdrawals.”
CFA, Center for Responsible Lending, Consumer Action, Consumers Union, the National Association of Consumer Advocates, and National Consumer Law Center wrote to Comptroller John Dugan last month urging the agency to carefully monitor bank practices as they began to comply with new Federal Reserve rules requiring banks to get affirmative consent from consumers before charging an overdraft fee for debit card purchases and ATM withdrawals.
As the Federal Reserve rules went into effect, Bank of America announced that, beginning this summer, it would no longer permit debit card purchases to overdraw checking accounts and trigger fees. In a statement praising the bank, Fox said, “Bank of America is to be congratulated for this important first step … Debit cards were sold as a substitute for cash, not as a credit device that puts consumers in debt at astronomical rates. Consumers don’t expect to be able to spend more than they have in the bank when they swipe a card at the cash register.”
CDC Report Shows Limited Success on Reducing Foodborne Illness
The Centers for Disease Control and Prevention (CDC) issued its annual report last week on the incidence of foodborne illness in the United States in 2009. The report indicates that the federal government has made some progress in reducing illnesses from E. coli O157:H7, but that progress remains stalled on reducing illnesses from other pathogens.
In a news release providing an overview of key findings from the report, Chris Waldrop, Director of CFA’s Food Policy Institute said, “With one year left, the nation is well short of meeting its goals for improved health and disease reduction published in the government’s primary health plan, Healthy People 2010. As a result, consumers remain at serious risk of foodborne illness or death from contaminated food. The Obama Administration and Congress must provide the Food and Drug Administration and the Food Safety and Inspection Service with the legal power and financial resources necessary to keep pathogens out of our food.”
Groups Comment on GSE Housing Goals
CFA, the Center for Responsible Lending, the National Consumer Law Center, the National Council of La Raza, and the National Fair Housing Alliance submitted joint comments last week in general support of proposed new housing goals for Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, which oversees the two government-sponsored enterprises, proposed the rules to update the goals for meeting low- and moderate-income needs, needs in under-served communities, and in both multifamily and single family housing for 2010 and 2011. The rule implements a number of changes to the companies’ goals that were mandated in legislation enacted late in 2008. “With Fannie Mae and Freddie Mac accounting for more than 70 percent of all home lending in most markets today, the need to ensure their continued attention to the needs of low income households – both renters and owners -- and communities is more important than ever,” said Barry Zigas, Director of CFA’s Center for Housing and Credit Policy.