CFA News Update - October 1, 2013

CFA Warns of Potential Health Care Scams

With implementation of the Affordable Care Act scheduled to begin today, CFA issued new tips for consumers on avoiding identity theft and other scams that could accompany the health care act’s roll-out.  “Whenever there is a new government program or benefit, fraudsters will look for ways to take advantage of it by tricking people into giving them money or personal information,” said CFA Director of Consumer Protection Susan Grant in a press statement to release the tips. “We want to make sure that consumers get the real facts about how the new law works, know how to find legitimate help if they need it, and avoid being misled by scammers.”

The tips explain that people who already have insurance do not need to sign up, get a new card or make any other changes, that there is no application fee or charge for assistance to enroll in an insurance plan through the new health care marketplaces, and that there is no rush for eligible consumers to act. The tips also tell consumers how to get information from reliable sources.  “There’s no doubt that con artists will be using lots of different pitches to exploit the health care law,” Grant said. “Their creativity is boundless, so consumers need to be careful.”

SEC Proposals Deemed Too Weak to Protect Investors in Private Offerings

When the SEC finalized JOBS Act rules this summer permitting mass marketing of so-called private offerings, it simultaneously proposed a new set of rules to improve protections for investors in these offerings.  In a comment letter filed with the agency last week, CFA Director of Investor Protection Barbara Roper criticized the rule proposals as “far too weak to effectively counter the increased risk of fraud caused by lifting the general solicitation ban, to prevent misleading private fund advertising practices, or even to alert investors to the risks of investing such offerings.”

“By lifting the ban on general solicitation and advertising, the JOBS Act simultaneously increased the risk of fraud in this market and deprived the Commission of its most effective tool to combat that fraud,” Roper said.  “While the pre-solicitation filing requirement included in the rule proposal could provide an important means of addressing this increased fraud risk, the Commission has failed to propose an enforcement mechanism sufficient to allow the filing requirement to serve that purpose.”

Similarly, the rule proposals “would do nothing to ensure that private funds that include performance claims in advertising and solicitation materials base those claims on a generally accepted methodology and report them in ways that reduce the potential to mislead.  Indeed, the Commission appears to suggest that even clearly misleading practices – such as reporting performance gross of fees – would go unchallenged,” Roper wrote.  “Adding boilerplate legends to solicitation materials is not an adequate response.”

Roper called on the Commission to strengthen the rule proposals and adopt them without further delay.  Meanwhile, the Commission announced last week that it would further extend the comment period on the rule proposal “in light of the significance of the rulemaking and the considerable public interest.”

Groups Call for Ban of Remotely Created Checks and Payment Orders

A group of six national consumer groups, including CFA, have called on the Federal Reserve Board and the Consumer Financial Protection Bureau to begin rulemaking to eliminate remotely created checks (RCCs) and remotely created payment orders (RCPOs) in consumer transactions and to provide additional consumer protections in the interim.  These payment methods are typically used by payday lenders, internet scammers, and merchants in high risk businesses such as pyramid sales, debt relief, and loan modifications.

An RCC can be created by any merchant that obtains a consumer’s bank routing and account number and prints the RCC using the proper software or the help of a third-party payment processor. Once an RCC is introduced into the check clearing system, it is virtually indistinguishable from a traditional paper check.  An RCPO is the all-electronic version of an RCC.  Although it never exists in printed paper form, it is nonetheless deposited into and cleared through the check clearing system.

In a comment letter submitted to the agencies last month, the groups argued that these payment methods should be banned because:

  • They are too easy to use to debit bank accounts without consumer consent.
  • They lack the consumer protections available for other electronic payment methods.
  • They operate through the check clearing system, which lacks the systemic controls to police fraudulent and unlawful use.
  • They are widely used to facilitate fraudulent and unlawful payments and to evade consumer protections and oversight.
  • They are unnecessary in light of the wide availability of modern electronic payment systems.
  • Their usefulness for a handful of legitimate uses is outweighed by their risks.
  • A clean, complete ban will facilitate legal compliance.

“With the availability of safer consumer payment methods such as automated clearinghouse payments (ACHs), electronic funds transfers, and credit cards, there is no reason to continue to allow riskier RCCs and RCPOs,” said CFA Senior Financial Services Advocate Laura Udis.  “The Federal Trade Commission recently proposed a ban on RCCs and RCPOs in telemarketing sales for similar reasons and we urge the CFPB and Fed to adopt RCC and RCPO bans in all consumer transactions.”

Joining CFA on the letter were the National Consumer Law Center, Consumer Action, Consumers Union, National Association of Consumer Advocates, and National Consumers League.

Safe Meat and Poultry Act Introduced

Sen. Kirsten Gillibrand (D-NY) introduced legislation (S. 1502) last month that would improve the ability of the U.S. Department of Agriculture’s Food Safety and Inspection Services (FSIS) to ensure the safety of meat and poultry products.  “Consumers continue to get sick from contaminated meat and poultry.  We must provide FSIS with the modern tools and authorities necessary to ensure the safety of these products,” said Chris Waldrop, Director of CFA’s Food Policy Institute, in a press statement supporting the legislation.

The bill would:

  • make clear that any meat and poultry products which contain pathogens would be considered adulterated under the law;
  • provide the agency with the explicit authority to set and enforce pathogen reduction performance standards;
  • require companies to test for pathogens;
  • require FSIS to trace back contaminated food to the original source of contamination;
  • provide FSIS authority to issue civil and criminal penalties for violations of food safety requirements; and
  • provide FSIS new authority to require companies to recall adulterated food.

“Modernizing our meat and poultry inspection system is essential to help prevent foodborne illness and to improve consumer confidence in the safety of our food supply,” Waldrop said. “CFA looks forward to working with Senator Gillibrand and other members of Congress on this important legislation.”

Americans’ Financial Planning Varies Greatly

Most American Households engage in formal or informal financial planning, but the extent of that planning varies greatly, according to a report released last month by CFA and the Certified Financial Planner Board of Standards (CFP Board).   The more extensively households plan, the report found, the better prepared they are financially in terms of their likelihood of saving, investing, and debt management; the higher the effectiveness of this saving, investing, and debt management; and the higher their confidence in managing their finances.

“Those families with the lowest incomes are the ones who would benefit the most from financial planning,” noted CFA Executive Director Stephen Brobeck, in a press release issued alongside the report.  “Households with the fewest financial resources benefit the most from carefully planning spending, saving, and debt management,” he said, adding, however, that “marshaling limited financial resources to meet essential needs represents a huge challenge for these households.”

The analysis, based on a survey conducted by Princeton Survey Research, identified four distinct financial planning profiles and described key characteristics of those groups.  They are:

  • Comprehensive Planners (19 percent), all of whom have a comprehensive financial plan that goes beyond a simple household budget to cover things like retirement savings and insurance, most often (67 percent) prepared with the help of a financial professional with fiduciary accountability.  These households have specific savings goals as well, such as a specific plan for retirement (88 percent) or for emergency savings (80 percent).
  • Basic Planners (38 percent), the large majority of whom (80 percent) have a plan for one or more specific savings goal, but only 35 percent of whom have a comprehensive plan.  While two-thirds (66 percent) say they have a household budget, fewer than half (41 percent) say that budget is written down or stored in electronic format.
  • Limited Planners (33 percent), a large majority of whom (69 percent) either have a household budget or a plan to address at least one individual savings goal – typically for retirement savings – but not both.  While very few limited planners (11 percent) think they will make a comprehensive plan in the next year, most (91 percent) either have no credit card debt or have a plan to pay off this debt.
  • Non-Planners (10 percent), who do virtually no financial planning, including nine in ten (92 percent) who say they have no plan for any specific savings goal, and virtually none who think they will create a comprehensive financial plan in the next year.  Within this group, four in ten have credit card debt that needs to be paid off, and fewer than half with this debt have a plan to pay it down.