Some Insurers Charge Higher Rates to Lower Income, Less Educated Workers

Some major auto insurers charge higher rates to drivers with less education and lower-status jobs, according to a new analysis released last week by CFA.  The study found that five of the ten largest auto insurers – GEICO, Progressive, Liberty Mutual, Farmers, and American Family – apparently use education and occupation in their rate-making in most states, charging often much higher rates to those with blue collar jobs and a high school education or less than they charge to an otherwise identical person with a professional job and a college degree.           “Auto insurers charge high premiums for minimal coverage to most working people, even those with perfect driving records, who live in urban areas,” said CFA Executive Director Stephen Brobeck.  “Since most Americans need a car and almost all states require the purchase of auto insurance, many lower-income workers are faced with the choice of paying these high, and often unaffordable prices, or breaking the law by driving without insurance,” he added.  CFA estimates that one-quarter to one-third of drivers with household incomes under $36,000 – 40 percent of all households – are uninsured.

Most Americans reject the use of education and occupation in setting auto insurance rates.  On a June 2012 survey, for example, 68 percent of respondents said it was unfair for auto insurers to use education in setting rates, while 65 percent said it was unfair for insurers to use occupation in setting rates.  “The American public knows that it is unfair for auto insurers to use factors like education and occupation in setting rates,” said CFA Director of Insurance J. Robert Hunter.  Since education and occupation are highly correlated with income and ethnicity, “in effect, auto insurers are discriminating on the basis of income and race,” Hunter added.  “States should prohibit the use of these demographic factors that bear no logical relation to insurer risk.”

To help make auto insurance more affordable to working people, CFA is working to curtail the use of discriminatory factors in rate-making and to create state programs, such as the one in California, that allows lower-income, good drivers to buy required liability coverage at reasonable rates.

Long-stalled Food Safety Rules Released for Comment

More than two years after the passage of the Food Safety Modernization Act (FSMA), the Food and Drug Administration finally released proposed rules last week designed to better assure the safety of imported foods.  “Assuring the safety of imported food is essential to help prevent foodborne illness and protect consumers,” said Chris Waldrop, Director of CFA’s Food Policy Institute, in a press statement. “We look forward to reviewing the proposals carefully and providing comments to the agency.”

Both proposed rules have been under review at the Office of Management and Budget (OMB) for many months.  The Foreign Supplier Verification Program proposal was under review for over a year and a half, while the Accreditation of Third Parties to Conduct Food Safety Audits proposal was under review for eight months. OMB has yet to release a proposed rule addressing preventive controls for animal feed.

“We encourage the Administration to work expeditiously to implement the many provisions of FSMA in order to fulfill the promise of the law and assure consumers are adequately protected,” Waldrop said.

CFPB Pledges Action on Harmful Debt Collection Practices

Using its authority to prohibit unfair, deceptive, or abusive practices and its authority under federal debt collection laws, the Consumer Financial Protection Bureau (CFPB) took a series of actions earlier this month designed to improve protections for consumers from harmful debt collection practices.  Specifically, the CFPB:

• issued an advisory warning creditors, debt buyers, and collectors that they must not misrepresent the amount of a debt, the creditor’s identity, or the debt’s legal status, fail to timely or properly post payments, falsely threaten arrest for non-payment, or engage in other similar conduct;
• issued a second advisory warning debt-buyers and debt collectors to avoid deceptive claims about the positive effects of payment of a debt on credit scores, credit reports and creditworthiness; and
• published action letters that consumers may send to debt collectors to ask for more information about the alleged debt, dispute the debt, restrict communication to certain times, cease all contact, or notify the collector that the consumer has an attorney.

In a press statement praising the CFPB action, CFA Senior Financial Services Advocate Laura Udis said, “CFA has been concerned about inaccurate information in the debt collection process, particularly with old credit card debt that has been resold and charged off a number of times.  The CFPB’s actions today put both creditors and collectors on notice of their obligations under the law.  These bulletins, together with appropriate enforcement and legal actions, will help rein in the worst abuses with falsified robo-affidavits involving sworn statements of amounts due made without personal knowledge of the debt, or worse, involving the wrong consumer or an amount not even due.”

SEC Urged to Change Course in Fiduciary Rulemaking

The Securities and Exchange Commission (SEC) came one small step closer to adopting rules to better protect investors who receive investment advice from broker-dealers with the closing of the comment period earlier this month in its request for data to support an economic analysis of the issue.  Unless it changes course, however, the agency is unlikely to adopt a rule that provides “meaningful and much needed new protections to vulnerable investors,” CFA warned in its comment letter.

At issue is whether brokers should be subject to the same fiduciary duty as all other investment advisers when they provide personalized investment advice to retail customers.  “The SEC release details a number of assumptions that provide hints regarding the Commission’s likely approach to rulemaking,” explained CFA Director of Investor Protection Barbara Roper.  “Unfortunately, the standard described in this release lacks essential components of a strong fiduciary standard, including most notably any mention that it would require brokers to act in the best interests of their customers.

“Unless the Commission significantly changes its approach to these issues, we could end up with a rule that weakens protections for those who receive investment advice from federally registered investment advisers without providing significant new protections for those who receive advice from broker-dealers,” Roper said.  “We would not support such a rule.”

Meanwhile, legislation (H.R. 2374) to make it more difficult for the SEC to move forward with rulemaking, and to similarly delay Department of Labor action on a related but separate rule under ERISA, is now not expected to be brought to the House floor for a vote until after the August recess.  CFA wrote to members of the House urging opposition to the bill when it is brought up for a vote.

“Strengthening protections for investors who rely on self-interested securities salespeople for advice is, in our view, the single most important thing federal regulators can do to improve the retirement security of middle income workers, investors and retirees,” Roper wrote. “Because this bill would impede the ability of the SEC and DOL to protect those vulnerable Americans from financial services providers who would profit at their expense, we urge you to vote no when it is brought to the House floor for a vote.”

Service Members at Risk from High Cost Lending

More than half (54 percent) of service members are stationed in states that permit forms of high-cost lending not covered by the Military Lending Act (MLA), according to a new analysis that was released last week by CFA.  “The high-cost credit market is changing, with many products falling outside the scope of the Department of Defense rules which were designed to keep credit made to service members safe and sustainable,” said CFA Director of Financial Services Tom Feltner.

The MLA, which went into effect in 2007, caps interest and fees on loans to active-duty military and their dependents at 36 percent and provides other protections, such as a prohibition on mandatory arbitration.  Currently, Department of Defense rules cap interest and fees, and apply other key consumer protections, to just three narrow categories of loans:

• Payday Loans – closed-end with a term of 91 days or fewer and for an amount that of $2,000 or less;
• Vehicle Title Loans – closed-end with a term of 181 days or less for any amount; and
• Refund Anticipation Loans – closed-end and expressly paid with a tax refund.

A 2012 evaluation of the Military Lending Act by CFA found that many products, such as open-end credit and longer-term installment loans fall outside the current, narrow definitions.

The Department of Defense is currently collecting information on the impact of high-cost credit on service members and could broadly apply the MLA’s protections to all forms of consumer credit available to service members in a future rulemaking.  “We applaud DoD for moving forward with this effort to collect information about the impact of high-cost credit on service members,” Feltner said.  “We are hopeful that it results in a proposed rule that broadly applies the important protections established by the Military Lending Act.”

NTIA Issues Inadequate Mobile App Disclosure Transparency Code

The National Telecommunications and Information Administration (NTIA) released a code for mobile application developers last week that falls short of providing the information consumers need in order to understand how their personal information is being collected and used.  Arguing that both the code and the process used to arrive at the code are inadequate, CFA Consumer Protection Director Susan Grant issued a press statement announcing CFA’s lack of support.

While the idea of short form notices is appealing, Grant stated, the information that would be provided under this code “falls far short of what is needed to tell mobile application users what is really happening with their data. It does not explain how their data will be used beyond what is necessary for the function of the app. Moreover, the information about what kind of data is collected and with whom it is shared is very limited.

“Most disturbingly, while the code calls for mobile app developers to disclose whether users’ data will be shared with certain types of third parties, such as social networks and ad networks, no disclosure is required when the data is shared with the very same types of entities if they are part of the same corporate structure as the app developer,” Grant added.  “This means that app users will be misled, in some cases, into thinking that their data will not be shared with certain types of entities when in fact it will be.”

Grant said the deeply flawed code highlights the need for privacy legislation, which “the Administration has promised, but not put forward.”