Wells Fargo Scandal Spotlights Need for an Independent Watchdog

The recent Wells Fargo scandal involving the creation of millions of unauthorized bank and credit card accounts has highlighted the need for a tough and independent watchdog to oversee financial institutions. The accounts were created by employees so they could collect incentive bonuses for cross-selling, a practice aggressively encouraged by bank management. In response, the Consumer Financial Protection Bureau (CFPB) has levied a $100 million fine and ordered Wells Fargo to refund all fees associated with the creation of unauthorized accounts.

“Enforcement actions like this that both make consumers whole and levy fines restore consumer confidence in the banking system and provide a powerful deterrent effect on banks,” stated CFA Senior Policy Advocate Michael Best in a press statement. CFA Legislative Director Rachel Weintraub added, “The practices at Wells Fargo brought to light by the CFPB demonstrate exactly why an independent watchdog is so critical to protecting consumers from abusive financial practices.”

The scandal also provides evidence of how financial institutions seek to avoid accountability for their actions through the use of forced arbitration agreements. As Ranking Member Sherrod Brown (D-OH) noted at a recent Senate Banking Committee hearing, “rather than letting fraud victims have their day in court, Wells Fargo forced customers to abide by the mandatory arbitration clauses in their real accounts. You heard that right – the bank invoked the fine print on a real account to block redress on a fake one which it had created.”

“It is troubling that, in the wake of a case of such widespread fraud and consumer harm, we continue to see efforts to block consumer’s access to justice,” Weintraub stated. She noted that, even as the Wells Fargo scandal was coming to light, the House Financial Services Committee voted along party lines for legislation introduced by Chairman Jeb Hensarling (R-TX) – H.R. 5983, the “Financial CHOICE Act” – which would undermine a host of essential consumer financial protections.

As CFA explained in a letter to committee members urging opposition to the bill, the CHOICE Act would, among other things, “force devastating changes to the leadership, funding, structure and authority of the Consumer Financial Protection Bureau, which would put consumers at risk of abusive financial practices.” The legislation would also remove the agency’s ability to protect consumers from forced arbitration clauses. Separately, CFA joined with other consumer, fair lending, community, and privacy organizations in calling on members of Congress to oppose provisions included in the Financial CHOICE Act which would undermine the effectiveness of the CFPB’s consumer complaint database.

“The CHOICE Act is not legislation that consumers would ever choose. The bill diminishes the CFPB’s authority and thwarts the Bureau’s ability to protect consumers in the financial marketplace at a time when the CFPB’s work is as crucial as ever,” said Weintraub.

 

Fuel Economy Standards Deliver Big Savings to Consumers

Consumers have seen major benefits from the national program to increase fuel efficiency and decrease greenhouse gas emissions, CFA Research Director Mark Cooper said in testimony before the House Energy Committee at a hearing late last month.

Those benefits, which have come primarily in the form of direct pocketbook cost savings resulting from a reduction in the total cost of driving, amount to well over five times the costs, he said. Low income consumers have benefitted more than the average consumer, he added, because operating expenses are much more important in their total cost of driving.

The benefits have persisted, even as the cost of gasoline has declined, “because the minimum performance standards were extremely well designed,” Cooper said. “They address numerous market imperfections and do so in a manner that harnesses the power of capitalism and markets to meet the standard in the least cost manner possible.” Automakers have done an excellent job with the freedom the regulations grant them, he added. “They are over-complying and costs are coming down. Innovation is roaring.”

The hearing was held at least partly in response to auto industry complaints about the lack of a single, unified national program to address the issue. In fact, however, “NHTSA, EPA and CARB have done a good job of coordinating and collaborating in this effort,” Cooper said. There is no need for a unified National Program which potentially could unnecessarily weaken the standards. This program is clearly on the right road for consumers, the environment and our economy.”

Cooper’s testimony summarized arguments made in CFA comments filed in response to the release of the Technical Assessment Review.

 

Auto Insurance Pricing Favors Wealthy Drivers

Auto insurance prices are often more closely aligned with personal economic characteristics than with drivers’ accident and ticket history, according to new research released last week by CFA.

The study found, for example, that:

• Upper-income drivers with DUIs often pay less than good drivers of modest means with no accidents or tickets on their driving record.
• Moderate-income drivers with perfect records pay more than upper-income drivers who caused an accident in which someone was injured.
• Progressive and GEICO, in particular, consistently charge upper-income bad drivers less than moderate-income good drivers.
• Moderate-income good drivers often pay more than upper-income drivers with multiple points on their record.

“It is profoundly unfair that a driver with a moderate income and a perfect driving record is often charged more for auto insurance than higher-income drivers with DUIs, accidents and speeding tickets,” said CFA Director of Insurance J. Robert Hunter in a press statement. “As long as state governments require drivers to buy insurance, they should require insurance companies to price their product based on how we drive, not who we are.”

For its research, CFA tested online premium quotes for two drivers — one with socio-economic characteristics of a moderate-income American and one with those of an upper-income American — in ten cities across the country.  For each driver CFA sought the price of the minimum liability policy required by state law assuming the driver had a perfect driving record, and then also sought basic coverage quotes where the driver reported various types of accidents and violations, such as an at-fault accident resulting in bodily injury and a conviction for driving under the influence.

“All those states with mandatory insurance have a special responsibility to ensure fairness in the marketplace,” noted CFA’s Hunter.  “At the very least, state insurance departments should immediately study these price inequities and, if confirmed by their research, eliminate them.”

 

 

Funeral Homes Continue to Violate Federal Consumer Protections

Over one-fifth (23%) of funeral homes fail to tell consumers about their options for a simple cremation, according to a new survey of 143 representative funeral homes released last month by Funeral Consumers Alliance (FCA) and CFA. Failing to disclose such prices, the groups note, is in violation of the Federal Trade Commission’s “Funeral Rule,” which requires specified price disclosures on a list and verbally (but not on a website).

“Since 1984, funeral homes have been required to tell customers they have the right to buy a simple, no-frills cremation, and that they have the right to purchase a container or casket from outside the funeral home,” said Joshua Slocum, Executive Director of Funeral Consumers Alliance. “We found a significant minority of businesses that fail to alert consumers to these options, depriving grieving customers of the ability to control costs through free choice.”

Researchers also visited the websites of the surveyed funeral homes to compare prices.  In every metropolitan region studied, prices for the same Direct Cremation varied widely, making clear how important consistent and accurate price disclosures are for consumer families. “This extreme price variation provides compelling evidence of the need for effective price disclosure,” noted CFA Executive Director Stephen Brobeck.  “Accurate price disclosure on all funeral home websites would certainly restrain those homes that clearly are gouging consumers today.”

In July of 2016, FCA and CFA formally requested that the FTC re-open the Funeral Rule for amendments, including a new requirement for funeral homes to publish their complete prices on their websites.  Currently, FCA and CFA are calling on the FTC to ensure that funeral homes obey existing law and also expand this law to also eliminate egregious practices, such as the failure of some homes to include the cost of the cremation itself in the price of cremation services.

 

Congress Urged to Strengthen Protections Against Robocalls

CFA and other consumer organizations are encouraging members of Congress to move forward with legislation intended to protect consumers from unwanted robocalls. In a letter to the House Subcommittee on Communications and Technology, CFA expressed support for the ROBOCOP Act (H.R. 4932), which would provide important new incentives for carriers to provide consumers with call-blocking technologies and to eradicate caller-ID spoofing.

The groups warned, however, that some proposals being put forth for discussion – particularly altering the definitions of “autodialer” and “consent” under the Telephone Consumer Protection Act (TCPA) – would seriously undermine enforcement of the law.

“Unwanted robocalls are currently the top consumer complaint to the Federal Communications Commission (FCC), and were the source of over 2 million complaints to the Federal Trade Commission (FTC) in 2015,” said CFA Consumer Protection Director Susan Grant. “Any weakening of the TCPA will only magnify the problem of millions of unwanted, harassing, and illegal robocalls to which consumers continue to be subjected.”