CFA News Update- April 20, 2011

Most Consumer Protections Avoid 2011 Budget Cuts

After weeks of sometimes testy negotiations, Congress approved a budget (H.R. 1473) for the remainder of 2011 last week that imposes painful cuts on many vital government programs but from which the most harmful measures related to consumer issues had been removed. The bill passed both the House and Senate with comfortable bipartisan majorities, 260-167 in the House and 81-19 in the Senate.

Among the bill’s biggest reversals came in funding for the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These two agencies face vastly expanded responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act but had been slated for severe funding cuts under the 2011 continuing resolution (H.R. 1) passed by the House in February. Instead, the two agencies walked away with modest funding increases: a $34 million increase for the CFTC, bringing its budget to $202.7 million; and a $74 million budget increase for the SEC, bringing its budget to $1.185 billion. The new Consumer Financial Protection Bureau also survived with its budget intact. “In contrast to the original House continuing resolution, which would have effectively defunded financial regulatory reform, this budget recognizes the important role that these agencies play in ensuring the market stability and integrity on which our nation’s financial well-being depends,” said CFA Director of Investor Protection Barbara Roper. (A group letter in support of full funding for the SEC and CFTC is available here.)

On the other hand, the bill does require an annual GAO review of financial regulations, including but not limited to those issued by the CFPB, on terms that are skewed toward weighing industry costs rather than consumer and investor benefits. “House leaders have designed the financial regulations study to reach their foregone conclusion that these regulations are too burdensome for financial institutions,” said CFA Legislative Director Travis Plunkett. “Recent history tells us the opposite: intelligent financial regulation could have protected consumers, prevented the insolvency of many financial institutions, and stopped the economy from cratering.”

Congress also came through with funding for food safety. Specifically, instead of cutting $242 million from the FDA budget, as the House bill would have done, the final bill provided FDA with a $107 million budget increase, with roughly half of that going to food programs. Although the bill cut $10 million from the budget of the Food Safety Inspection Service, the money is to come from zeroing out funding for a catfish inspection program that has not yet been established.

In addition, the final bill did strip out two riders contained in the House bill, one to prevent the Consumer Product Safety Commission from implementing the Consumer Incidence Database, although it does require a Government Accountability Office study of how the database is functioning, and another to overturn the Federal Communications Commission’s network neutrality rule.

On the other hand, housing programs were cut significantly, including through an across-the-board reduction of nearly $3 billion that cut HUD’s budget 6.5 percent below 2010 levels. In addition to this, individual programs saw further cuts:

• Community Development Block Grants (CDBG) are cut by 16 percent, or $654 million;

• The HOME housing block grant is cut by $218.2 billion, or 12 percent, while other categorical housing programs also were reduced. Section 202 Housing for the Elderly was cut by 52 percent and Section 811 housing for people with disabilities was cut by 38 percent.

• Funding for housing counseling assistance, which has been a critical source of funding to help distressed families facing possible foreclosure, was completely eliminated.

• Operating subsidies for public housing were cut by 3 percent, and capital grants to modernize public housing were reduced by 18 percent, or $460 million.

In contrast, the CR appears to renew all expiring project-based Section 8 contracts, as well as Housing Choice Vouchers that currently are in use. It does, however, further cut administrative funding for Section 8 by 8 percent, or $128 million, potentially leaving local housing authorities short of funds to manage these programs.

“These are cruel and damaging cuts at a time when affordable rental housing is already scarce and communities are struggling to cope with foreclosed homes and unstable neighborhoods,” noted Barry Zigas, CFA Director of Housing Policy.

Treasury Department Urged to Strengthen Alcohol Labels

In recognition of alcohol awareness month, CFA, Center for Science in the Public Interest, National Consumers League, and Shape Up America! wrote to Treasury Secretary Timothy Geithner and Alcohol and Tobacco Tax and Trade Bureau Administrator John Manfreda this week urging them to finalize a proposed rule on labeling of alcoholic beverages. In their letter, the groups called on the department to finalize and strengthen a rule that was proposed in 2007 to require a standardized “Alcohol Facts” panel on all beer, wine and distilled spirits products. “Awareness starts with information,” they wrote. “Unfortunately, consumers are largely in the dark when it comes to information about alcoholic beverages.” A news release about the letter is available here.

House Votes to Overturn Net Neutrality Rule

Although a rider to overturn the Federal Communications Commission’s network neutrality rule was stripped from the 2011 budget bill (see above), the House voted separately earlier this month to adopt a resolution of disapproval (H. J. Res. 37) to void the FCC rule. Adopted at the end of last year, the rules are intended to prevent discrimination by Internet service providers and ensure unfettered consumer access to web content. “The FCC produced a compromise approach to network neutrality that was supported by public interest groups (e.g. CFA, CU), Internet companies (e.g. Netflix, DISH), and even key network operators (e.g. AT&T, Cable), but the Republicans had targeted this as an ideological wedge issue, so they have charged ahead with the heretofore rarely used approach of a resolution of disapproval,” said CFA Research Director Mark Cooper. “The White House has responded with a strong declaration that the President will veto this bill, which can only be acted on as a clean, stand-alone bill. Thus, network neutrality, which is about freedom of speech on the Internet, is taking its place among the critical non-economic policy issues that will define the 2012 elections,” he added.

House Considers Anti-Consumer Changes to Product Safety Act

A proposal to amend the Consumer Product Safety Improvement Act (CPSIA) currently under review in the House of Representatives would undermine the critical public health protections aimed at children’s products, CFA Senior Counsel Rachel Weintraub said in testimony earlier this month before the House Subcommittee on Commerce, Manufacturing and Trade. If adopted, the draft legislation would move “back the clock on safety and put children at risk,” she said. In conjunction with the hearing, a coalition of consumer protection, science and public interest groups sent a letter to subcommittee members urging them to reject the draft bill. A release on the letter is available here.

Nationwide Campaign Launched to Combat “Grandparent Scam”

CFA has joined forces with the New Jersey Attorney General and the state’s Division of Consumer Affairs to launch a nationwide education campaign to combat the “grandparent scam” and other impostor scams. As described in a news release issued by the organizations, the Grandparent Scam typically begins with an urgent phone call to an unsuspecting senior citizen from a caller who may claim to be the victim’s grandchild or a police officer. The message is always the same: your grandchild is hurt, in jail, or otherwise in trouble, and needs hundreds of dollars immediately. Please don’t tell mom. Please do send a money order via Western Union or a similar service. Similar scams involve emails purporting to be from friends who need help with an emergency situation. Those who fall victim later learn their grandchild or friend never was in trouble. Instead, their money has been wired to a thief and may never be seen again.

As part of the education campaign, CFA produced a two-minute educational video with support from Western Union and tips on how to avoid such scams. “The key to protecting consumers from fraud is public awareness. We hope that our new video and tips about the grandparent scam will help consumers in New Jersey and across the country avoid being tricked out of their money,” said CFA Director of Consumer Protection Susan Grant.