CFA News Update-April 24, 2012

President Obama Announces Initiatives to End Excessive Oil Speculation

Responding to high gasoline prices, President Obama outlined a plan last week to reduce the excessive oil speculation that is a key contributor to high prices. Earlier this month, CFA Research Director Mark Cooper participated in a press briefing with Americans for Financial Reform in which he estimated that excessive speculation has raised gasoline prices by $0.75 per gallon, while sound policy on market fundamentals is saving $0.50 per gallon.  Cooper called for a number of specific actions to bring down excessive speculation, including increasing margin and capital reserve requirements, to build on steps the Commodity Futures Trading Commission (CFTC) has already taken.

The president’s plan calls for $52 million in badly needed new funding for the CFTC to boost oversight of oil markets.  He also proposed to increase penalties for price manipulators and raise margin requirements to reduce market volatility, one of the steps specifically called for by Cooper to reduce speculation.  “The irony is that while the Administration is trying to implement some basic rules to rein in excessive speculation that is costing consumers $8 billion a month, the industry is trying to undercut even those modest measures,” Cooper said.  “Policies to rid commodity markets of excessive speculation deserve the same bipartisan support that the long-term fundamentals policy received.”

FHFA Urged to Take Balanced Approach to Clean Energy Lending Program

Recognizing both the benefits and risks of a federal program to assist homeowners to adopt renewable and clean energy improvement, CFA and the National Consumer Law Center submitted comments to the Federal Housing Finance Agency (FHFA) in March, urging the agency to take a “cautious and balanced approach that protects homeowners yet impedes PACE programs as minimally as possible.” FHFA has expressed concern that the program could lead to higher overall housing costs at a time when many homeowners are already struggling under excessive mortgage debt.  To address that concern, and ensure that homeowners are adequately protected, the CFA-NCLC comment letter outlines a number of specific consumer protections that should be incorporated in the program. “With good consumer protections, this program will provide consumers with a good option through which they can finance home energy efficiency improvements that will save them money on their energy bills over the long run,” said CFA Energy Projects Director Mel Hall-Crawford.

DOJ Brings Pro-consumer E-book Price-fixing Case

Just days after CFA sent a letter to the Senate Committee on Antitrust, Competition Policy and Consumer Protection charging that the e-book price-fixing arrangement entered into by five major book publishers and Apple is an anticompetitive practice, the Department of Justice (DOJ) announced that it had filed an antitrust lawsuit in the case.  Three of the six companies named in the lawsuit immediately settled.  “The complaint and lawsuit filed today by the Department of Justice confirms our worst fears,” said CFA Director of Research Mark Cooper in a press statement responding to the DOJ announcement.  He called it “a ‘slam-dunk’ case of collusive, anti-competitive behavior.”

In its letter to the Senate committee, CFA estimated that the price-fixing agreement would cost consumers $200 million this year.  It called on the committee to look into the issue and to support DOJ action to eliminate the practice.  “The argument made by publishers and celebrity authors that it is necessary to raise e-book prices to ensure the efficient functioning of the book market does not pass the antitrust smell test, especially when one of the first effects is to raise publisher’s profits,” Cooper said in a news release on the letter.  “E-book price fixing comes at a crucial moment for both antitrust law and the development of the digital economy,” he added.  “The Internet and the digital technology on which it rides are coming to maturity, after about 20 years of development in commercial applications.  The e-book market is early in its development and the abuse will grow, if it is not stopped immediately.”

Groups Offer Detailed Framework for Fiduciary Rulemaking

A group of organizations that support requiring brokers to act in their customers’ best interests when offering investment advice wrote to the Securities and Exchange Commission last month detailing an approach to rulemaking that would both enhance investor protection and preserve investor choice among different business models.  Groups signing the letter include CFA, AARP and Fund Democracy, as well as several investment adviser and financial planning groups.  “We believe the Commission has identified a sound general approach on this issue.  Our letter attempts to fill in some of the details,” said CFA Director of Investor Protection Barbara Roper.

SEC Chairman Mary Schapiro has identified the issue as a priority, but rulemaking has been stalled for more than a year while the agency attempts to conduct a cost-benefit analysis that can withstand a possible legal challenge.  The letter is designed in part to help break that deadlock by identifying a path forward that could win both investor and industry support.

Toward that end, the letter takes as its starting point an earlier letter from SIFMA, the broker-dealer trade association, which made a similar attempt to provide a detailed framework for rulemaking.  “While there are areas where we differ with SIFMA, and in some cases differ strongly, there are also broad areas of agreement between our organizations,” Roper said.  “We appreciate that SIFMA, unlike some members of the broker-dealer community, has been willing to engage in a construction discussion about how to move forward.  That greatly increases the chances that this issue will ultimately be resolved in a way that delivers meaningful new investor protections.”

Need for Improvement in Identity Theft Services

Most identity theft services do a fair job of complying with best practices, but there is need for improvement, a CFA analysis released last week concluded.  Using voluntary guidelines that CFA developed with the help of identity theft service providers and consumer advocates as its benchmark, the report examined the websites of 20 identity theft services as well as internet complaints about identity theft services to determine how well the services were doing at providing key information to prospective customers.  It found that:

  • some of the hype on identity theft service websites goes over the line;
  • there is some sloppy use of statistics;
  • information about the features that services offer and how they work could be improved;
  • while cost disclosures are generally sound, refund and cancelation policies aren’t always adequately disclosed;
  • in many cases the assistance provided to identity theft victims isn’t clearly described;
  • details about insurance are much easier to find.

In each case, CFA included specific recommendations for improvement.  “Now that we have examined identity theft services’ websites through the lens of these best practices, we’ve identified improvements that identity theft services need to make to meet the goals they set,” said CFA Director of Consumer Protection Susan Grant.  CFA plans a follow-up later this year to highlight changes made in response to the report.