CFA News Update - November 8, 2013

House Advances Anti-Investor Legislation

The House of Representatives passed two anti-investor bills last month, one to weaken protections for average retail investors (H.R. 2374) and one to weaken protections against systemic threats to the financial system (H.R. 992).  “While we are disappointed that these anti-investor bills passed, we remain hopeful that they will not progress further,” said CFA Director of Investor Protection Barbara Roper.

CFA joined with AARP, Americans for Financial Reform, and Public Citizen to send a letter to members of the House in advance of the vote, urging them to oppose H.R. 2374.  “H.R. 2374 would impede the ability of federal regulators at both the Securities and Exchange Commission (SEC) and the Department of Labor (DOL) to protect vulnerable investors, workers, and retirees from the harmful practices of some financial services providers,” the groups wrote.

At issue are rules under consideration at both agencies to expand the population of financial advisers who are considered “fiduciaries,” with an obligation to put the interests of their customers first.  The SEC is in the early stages of considering whether to impose a fiduciary duty on brokers when they give investment advice to retail customers.  The DOL is reportedly putting the finishing touches on a revised rule to eliminate loopholes in its definition of investment advice that enable financial services firms advising pensions, 401(k) plans, and Individual Retirement Account investors to escape fiduciary responsibilities.

H.R. 2374 would erect new barriers in the way of SEC rulemaking and prevent the DOL from proceeding with its rules until after the SEC had finalized a rule.  As the groups explained in a letter to OMB sent earlier last month, SEC and DOL have separate areas of jurisdiction under laws that set a higher level of protection for retirement accounts.  “There is no reasonable basis for delaying the Department’s rulemaking until the SEC rulemaking is complete,” the groups wrote. “Such a delay would harm investors and further undermine Americans’ already shaky retirement security.”

The House also passed H.R. 992, which would lift restrictions imposed under the Dodd-Frank Act, thus permitting public support of swaps dealing activities at some of the largest banks on Wall Street.  In a letter of opposition sent to the full House, Americans for Financial Reform stated, “At a time when there is bipartisan agreement that subsidies to too-big-to-fail banks must end, this legislation moves in exactly the wrong direction. If the experience of the financial crisis was not enough, the recent derivatives losses at JP Morgan’s London branch should remind us again that a deposit insurance backstop to derivatives speculation at giant financial institutions is a bad idea. That is what H.R. 992 would permit and that is why it must be rejected.”

“The requirement to move swaps trading out of insured financial institutions and into separately capitalized affiliates was one of the most important safety and soundness reforms included in the Dodd-Frank Act,” Roper said.  “It is essential that the Senate and the Administration work together to prevent the roll-back of this important reform measure.”

Groups Urge Congress to Defend Country of Origin Labeling Law

In a letter sent late last month to Farm Bill conferees, consumer and farm groups urged Congress to defend the 2008 law which requires country of origin labeling for beef, pork, poultry, fresh and frozen fruits and vegetables, and some nuts. The groups were writing in response to a letter by agribusiness and packer-producer groups which encouraged Congress to make changes to the popular law.

CFA joined the National Farmers Union, the U.S. Cattleman’s Association, and the American Sheep Industry Association in urging Congress to protect the COOL law from any changes. “Ninety percent of Americans strongly support mandatory country of origin labeling for fresh meat and, in fact, want even more information about the meat they purchase,” Chris Waldrop, Director of CFA’s Food Policy Institute said in a press statement. “There is no reason for Congress to change this popular law.”

In their letter, the groups noted that a recent World Trade Organization (WTO) decision on COOL affirmed the right of the United States to require country of origin labeling for meat products, but said that the U.S. Department of Agriculture (USDA) had to adjust some provisions in order to be fully compliant with WTO requirements. USDA’s changes complied with the WTO ruling by providing consumers with additional information on where each of the production steps for cattle – born, raised and slaughtered – occurs.

USDA’s recent changes to the COOL rule are currently being evaluated in two forums: the WTO, based on an appeal by Canada and Mexico, and the courts, based on a lawsuit brought against USDA by many of the same packer-producer organizations, agribusinesses, and foreign competitors who have written to Congress requesting changes in the law.

“Congress made its determination in 2008 that Country-of-Origin Labeling should be the law of the land,” the groups wrote. “The agribusiness and packer-producer groups are merely trying to scare members of Congress into changing the law to benefit their bottom lines … Farmers, ranchers, producers and consumers strongly support COOL and we strongly urge you to defend the current law.”

Action Needed on High-Powered Magnet Safety Standards

Speaking at a public hearing held last month by the Consumer Product Safety Commission, consumer advocates and pediatric gastroenterologists asked for swift regulatory action that would ban the sale of high-powered magnets and stop new novelty high-powered magnet products from ever reaching the market.  They emphasized that strong regulations are the only effective way to prevent children from accidentally ingesting super strong, rare earth (or Neodymium) magnets.

In September 2012, the CPSC issued a notice of proposed rulemaking which would prohibit the sale of high-powered magnet sets if the magnet set contains a magnet that fits within the CPSC’s small parts cylinder and has a flux index (or strength) of more than 50.   The CPSC took this action in response to a growing number of documented pediatric ingestions of magnets from magnet sets.

“CFA strongly supports CPSC’s determination that there is an unreasonable risk of injury associated with children ingesting high powered magnets,” stated CFA Legislative Director Rachel Weintraub in a press statement issued at the time of the hearing. “Data from CPSC and from pediatric gastroenterologists across the country documents the serious medical consequences that occur as a result of a child ingesting more than one high powered magnet. The unique properties of these magnets compel a regulatory solution, such as the one CPSC has proposed, that would protect children from the severe consequences of ingesting more than one of these magnets.”

Federal Regulators Urged to Crack Down on Illegal Payday Loans

Twenty-nine consumer and civil rights groups sent a letter to federal banking regulators, the U.S. Department of Justice, and the Federal Trade Commission last month urging them to stop banks and payment processors from helping internet and tribal payday lenders collect illegal payments.  They thanked the agencies for their efforts to date but pushed for stronger measures to stop illegal payments from being taken out of consumers’ bank accounts.

“Banks have an obligation to avoid processing payments for illegal activities, whether the activity is an illegal payday loan, gambling operation, internet fraud or debt settlement scheme,” said CFA Director of Financial Services Tom Feltner in a press statement issued along with the letter.

Though the letter focused on internet payday loans, the groups noted that heightened scrutiny is also important to stopping internet fraud, abusive debt settlement fees, and other practices illegal under federal and state law.  The letter emphasized that scrutiny of banks and payment processors that enable illegal payments is an important and traditional role of federal banking and consumer protection agencies.

Zero Emission Vehicles Promoted

Last month, CFA joined several states to announce an agreement to promote the accelerated adoption of zero emissions passenger cars, trucks and transit buses in these states. The cooperative agreement between California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island and Vermont will put more than three million battery-electric vehicles, plug-in hybrid-electric vehicles, and hydrogen fuel-cell-electric vehicles on U.S. roads.

“Efforts to provide consumers with new, more efficient and gasoline-free transportation options are welcome and needed,” said CFA Research Director Mark Cooper, Director in a press statement in which CFA endorsed the multi-state agreement.  CFA released a paper at the same time, explaining how zero emissions vehicle policy coupled with efforts to reduce barriers to clean vehicle adoption will accelerate the growth of the national market for the latest zero emissions vehicles. Years of polling data shows that American consumers support such a policy, as the report documents.

“The key role that California and the Clean Cars states played in accelerating the deployment of hybrids in the past decade underscores the importance of leadership in energy innovation,” Cooper said.  “U.S. automakers failed to ride the wave of the ‘hybrid revolution’ in the 1990s, and that failure proved to be a costly one,” he added. “U.S. automakers need to be at the leading edge of technological innovation to succeed in the increasingly competitive global auto industry and because Americans want cars that protect their pocketbooks from volatile gasoline costs. Zero emissions vehicles do just that and the ZEV program will give U.S. auto makers a leg up in their most important market.”