Congress Approves Budget Bill with Mixed Results on Anti-consumer Riders

Working into the night Saturday, Congress finalized a budget to fund the federal government in the coming year.  Narrow approval of the bill in the House and Senate came after a contentious debate focused largely on two of the bill’s most controversial riders, one to roll back Dodd-Frank Act restrictions on risky derivatives trading in banks and another that increases the influence of money in politics.

On the other hand, in a major victory for consumers, the spending bill did not include a rider to impede the Department of Labor from moving forward on a rule to strengthen fiduciary protections for retirement plan participants in retirements and Individual Retirement Account investors.  “Financial services firms and their trade associations have been lobbying relentlessly for months to prevent the revised DOL rule proposal from seeing the light of day,” said CFA Director of Investor Protection Barbara Roper.  “We owe an enormous debt of gratitude to the Democratic leaders in Congress and the Administration who held firm and preserved the right of DOL to act. Now that this hurdle has been cleared, it is essential that the rulemaking process move forward without further delay so that those individuals who do the right thing and save conscientiously for retirement are protected from financial services firms that seek to profit at their expense.”

Results on Country-of-Origin Labeling (COOL) were more mixed.  The spending bill does not include a rider, as feared, to repeal the rule.  Earlier this month, more than 200 farm, ranch, rural, faith, labor, environmental, farmworker, manufacturing and consumer organizations wrote a letter urging leadership of the Senate Appropriations Committee to reject any effort to weaken, suspend or rescind mandatory COOL in any federal spending bill. “Congress should not short circuit the WTO process; nor should it unconditionally surrender to the threats of tariff retaliation by our trading partners,” the groups wrote. “We believe the United States has strong grounds to appeal the most recent WTO ruling. Last week, the Office of the U.S. Trade Representative officially announced it would appeal the latest ruling.”

Although the bill did not include a rider, it did include report language that requires the Secretary of Agriculture, in consultation with the U.S. Trade Representative, to report to Congress with recommended changes in federal law that would be required for the establishment and implementation of a country of origin labeling program with respect to beef, pork, and poultry that does not conflict with U.S. trade obligations.  “The report language is premature,” said Chris Waldrop, Director of CFA’s Food Policy Institute. “The U.S. government has appealed the WTO compliance panel decision and we should wait for a final decision before USDA makes recommendations that may or may not be applicable.”

In a win for consumers, the final bill contains an amendment introduced by Congresswoman Rosa DeLauro and cosponsored by Rep. Chellie Pingree that would ban from the National School Lunch Program the purchase of chicken raised in the U.S. and processed in China. “China’s food safety system has serious problems,” Waldrop said. “This is a prudent step to protect our most vulnerable consumers – our children.”

DoD Strengthens Payment Protections for Servicemembers

In response to concerns about the widespread abuse of the military allotment process, the Department of Defense has announced a change in policy to prohibit the use of military allotments to purchase jewelry, furniture, appliances and other personal property.  The allotment process allows servicemembers to direct a portion of their pay to make certain types of payments.  However, too many lenders have relied upon, or even required, payment by allotment as a quick way to get paid.

The policy would prohibit creditors that finance consumer goods from deducting payment directly from an active-duty servicemember’s pay.  Servicemembers will still have the ability to make payments to these creditors through electronic transfer from their bank or by using their bank’s bill pay service – options that often cost less, provide more flexibility and provide better legal protections.

“This is an important and much-needed change to DoD policies and one that will protect servicemembers from abusive lending practices,” said CFA Director of Financial Services Tom Feltner in a press statement. “Allotments were designed to make it easy to send money home, save and pay a mortgage, not serve as a security for credit transactions.”

Sound Economic Analysis Crucial to Pro-Investor Fiduciary Rule

With the Securities and Exchange Commission’s Division of Economic and Risk Analysis (DERA) having set early next year as a tentative release date for completion of its economic analysis regarding the regulatory standards that should apply when broker-dealers and investment advisers provide personalized investment advice to retail customers, a group of pro-fiduciary organizations sent a letter to the SEC last month outlining the key elements an economic analysis must include if it is to provide an appropriate foundation for sound regulatory policy.

“For far too long Commission policy has allowed broker-dealers to market themselves to the public as trusted advisers without imposing the fiduciary standard appropriate to such a relationship of trust. A thorough, well-reasoned analysis by DERA has the potential to lay the groundwork for a strong, pro-investor policy,” the groups wrote. “On the other hand, a faulty analysis could doom, or at the very least further delay, prospects for reform.”

The key elements discussed in the letter include: accurately depicting the differences between the suitability standard and fiduciary duty; identifying the investor harm that regulation is intended to rectify; describing the regulatory conditions that permit that harm to occur; describing the form that harm takes and the means by which harm occurs; and identifying and analyzing the effectiveness of regulatory alternatives.

“While the need to address these issues may seem self-evident, each represents an area where the Commission has gone astray in the past,” said CFA Director of Investor Protection Barbara Roper. “As a result, the Commission has been either unwilling or unable to develop a rational policy framework for the delivery of personalized investment advice to retail investors.  It is long past time for the Commission to rectify that problem.”

Despite Improving Economy, Consumers Likely to Curb 2014 Holiday Spending

More consumers report lower intended holiday spending in 2014 compared to 2013, according to the 15th annual holiday spending survey released last month by CFA and the Credit Union National Association (CUNA).  This year, 10 percent said they would spend more while 33 percent said they would spend less.  In 2013, 13 percent said they would spend more while 32 percent said they would spend less.  The proportion who said they would spend less declined steadily from 55 percent in 2008 to 32 percent last year before rising slightly this year.

On the other hand, when asked to compare their current income with their income a year ago, 27 percent said it was higher while only 21 percent said it was lower.  When asked to compare their financial situation with that of a year ago, 28 percent said it was better while only 24 percent said it was worse. When asked about their concern meeting monthly payments on all types of debt, the proportion declined from 49 percent in 2013 to 43 percent in 2014.  And when asked whether they have extra funds available to pay an unexpected expense of $1,000, the proportion who said no fell from 49 percent in 2013 to 47 percent this year.

“Top-line results from an economic perspective are encouraging and holiday spending almost certainly will increase this year,” said CUNA Senior Economist Mike Schenk. “However, elements of our survey underscore the fact many consumers continue to reflect significant concerns about their personal finances- most especially in the realm of weak income gains. Because of this we expect the increase in holiday spending this season to be modest.”

The survey also found continuing evidence of the widening gap between high and low income groups.  Specifically, 34 percent of those with household incomes under $25,000 said their financial condition was worse now than a year ago, compared to only 13 percent of those with incomes over $100,000. “The rising economic tide has not raised all boats equally,” said CFA Executive Director Stephen Brobeck. “Far fewer households with incomes above $100,000, than those with incomes below $25,000, have fared worse over the past year.”

The release offers consumer tips for prudent holiday spending and saving.

Survey Finds Dangerous Toys on Store Shelves

Dangerous or toxic toys can still be found on America’s store shelves, according to U.S. Public Interest Research Group’s 29th annual Trouble in Toyland report, released earlier this month by U.S. PIRG and CFA.  The survey of hazardous toys found that, despite recent progress, consumers must still be wary when shopping this holiday season.

The survey found: toys containing phthalates well over legal limits, as well as toys with lead or chromium content above limits; toys that pose choking hazards sold for children under three; toys that are potentially harmful to children’s ears and hearing; and toys containing small, powerful magnets that pose a dangerous threat to children if swallowed. “We should be able to trust that the toys we buy are safe. However, until that’s the case, parents need to watch out for common hazards when shopping for toys,” said U.S. PIRG Public Health Campaign Director Sujatha Jahagirdar.

CFA Legislative Director Rachel Weintraub noted, however, that progress has been made in reducing the number of hazardous toys on store shelves.  “The 2008 Consumer Product Safety Improvement Act strengthened Consumer Product Safety Commission and gave the agency new authority to protect children from unsafe products.  Mandatory toy standards, lower lead and phthalate limits, independent third party testing, and increased port inspections stop more dangerous toys than ever before from reaching toy shelves,” Weintraub said.

A list of unsafe toys, as well as tips for safe toy shopping this holiday season, is available at ToySafetyTips.org.

Administration Officials Address Financial Services Conference

Securities and Exchange Commissioner Kara Stein, Government National Mortgage Association President Ted Tozer, and Eric Belsky, Director of the Federal Reserve Board’s Division of Consumer and Community Affairs, delivered keynote addresses at CFA’s financial service conference earlier this month.  The conference also included general session panels on the CFPB Enforcement Agenda, the use of big data by financial services providers, an investor protection agenda, and access to mortgage credit.  At a breakfast dialogue session, Mark Calabria of the Cato Institute and Aaron Klein of the Bipartisan Policy Center discussed the impact of the midterm election results on financial services issues.