House Fails To Address CFTC Underfunding

The House began consideration of the Agriculture Appropriations bill (H.R. 4800) last week, once again dangerously underfunding the Commodity Futures Trading Commission (CFTC) the tiny agency responsible for protecting the public from fraud, manipulation, abusive practices and risks to the financial system in the nation’s commodity and derivatives markets.  The House rejected 194-227 an amendment that would have reduced some of the harmful impact of the under-funding by reducing the amount of restricted funds in the agency’s budget.  CFA sent a letter to members of the House urging support for the amendment.

The appropriations bill, which is still being considered on the House floor, would set the CFTC’s budget at a level $62 million (22 percent) below President Obama’s budget request.  It would also require the agency to devote almost a quarter of its budget to information technology improvements, forcing cuts in other vital areas.  The amendment by Rep. Rosa DeLauro (D-CT), Rep. Maxine Waters (D-CA), and Rep. Jim Himes (D-CT) would have reduced the amount of restricted funds to current levels.

“The amount of money that the House of Representatives is considering appropriating to the CFTC is grossly insufficient, and will likely force the agency to make harmful cuts to vital programs,” stated CFA Financial Services Counsel Micah Hauptman. “Those cuts will leave consumers and the derivatives market vulnerable to abuse.”

DoD Report Calls for Further Regulation of High-Cost Credit

As part of the process of reevaluating the 2007 Military Lending Act (MLA), the Department of Defense has issued a report concluding that more comprehensive regulations are needed to protect servicemembers from abusive credit products.

The report, first issued to Congress in April, confirmed that many servicemembers continue to struggle with the consequences of high-cost credit and that lenders have developed numerous products designed to evade the consumer protections currently in place for payday loans and auto title loans.  The report also surveyed DoD financial counselors who cited ongoing problems with high-cost credit as a major factor contributing to many servicemembers’ financial insecurity and concluded that restricting access to problematic forms of high-cost credit would not contribute to financial hardship.

Some of the key findings of the report include:

• The rules implementing the MLA do not sufficiently cover high-cost, potentially abusive credit that targets servicemembers;
• 11 percent of enlisted servicemembers continue to turn to high-cost credit options;
• Servicemembers would not be negatively impacted if access to high-cost, abusive credit was restricted; and
• Applying the 36 percent rate cap on a product-by-product basis is unlikely to reduce the accessibility of high-cost, abusive credit.

“These findings are consistent with earlier analyses by CFA and other organizations that found that far too often, the important protections established by the Military Lending Act are easy to evade,” said CFA Director of Financial Services Tom Feltner in a press statement. “We applaud the Department of Defense for its commitment to protecting the financial stability of servicemembers and their families and we look forward to continued progress on this critical issue.”

Regulators Pressed to Ensure Auto Insurance Affordability

In response to the Federal Insurance Office’s Request for Information, CFA and more than 30 other consumer, civil rights and public interest organizations sent a comment letter to the department earlier this month urging it to collect data from insurance companies to assess the affordability of auto insurance for low- and moderate-income drivers and those living in historically under-served areas.  In particular, the groups urged the FIO collect data that indicates actual premiums charged, rather than average rates, which don’t reflect the prices charged to good drivers with different socio-economic backgrounds or the factors that tend to drive up prices for low- and moderate-income and minority drivers.

“Average data won’t give the public or policymakers the information needed to really understand the scope of the challenge facing lower-income Americans when it comes to buying even the most basic auto insurance policy,” said CFA Director of Insurance J. Robert Hunter in a press statement.  “Average rates mask the high prices faced by millions of drivers whose incomes are below average while their premiums are much higher than it.  Since forty-nine of fifty states require that drivers buy insurance, we need a research program like the one being contemplated by the FIO in order to come to grips with the scale of the affordability problem.”

At the same time, CFA continues to press the states to do more to address auto insurance affordability. Hunter released a statement to the National Association of Insurance Commissioners (NAIC) in June urging the group to reject the Draft Statement of Principles (SOP) recently put forth by the Casualty Actuarial Society.   The proposed policy would move away from traditional ratemaking towards a new, undefined process called “insurance pricing,” which would allow considerations long-held to be unrelated to rates and unfair to the public to become part of the actuarial process.  As such, it would “open the door to unfairly discriminatory practices and weaken the long-standing actuarial standards that have guided the actuarial profession to develop rates that are based on the cost of transferring risk,” Hunter said.

House Committee Continues Its Attack on Investor Protections

In its on-going effort to roll back vital securities regulations in the name of promoting capital formation, the House Financial Services Committee approved three more anti-investor bills earlier this month.  CFA sent a letter to members of the committee in advance of the mark-up urging them to oppose the bills, which would: allow most companies to offer shares to the public without any prior review of their offering documents by the SEC, exempt more companies from the Sarbanes-Oxley Act requirements designed to ensure that companies have effective procedures in place to prevent accounting fraud and errors, and further weaken the not yet finalized regulations on equity crowdfunding.

“These bills would reduce the regulatory oversight that promotes market integrity, reduce the transparency that promotes market efficiency, and strip away protections for the investors we rely on to provide the capital on which the capital formation process depends,” wrote CFA Director of Investor Protection Barbara Roper. “As such, they would threaten not just investors, but the health of our capital markets and our economy.”

These and previously approved “capital formation” bills are not expected to progress in the Senate, in part because, unlike the anti-regulatory JOBS Act which sailed through Congress in 2012, they have failed to garner significant bipartisan support.  “It is disappoint that, with so many serious economic and investor protection concerns still unaddressed, the House continues to focus its efforts on rolling back the regulations that once made our securities markets the envy of the world,” Roper said.  “The good news is that these deregulatory efforts no longer seem to be winning the broad bipartisan support that made the JOBS Act unstoppable.”

Senators Urged to Support the SECURE Act

Dozens of state and national consumer organizations, including CFA, sent letters to members of the Senate last month urging their support for the Stop Errors in Credit Use and Reporting (SECURE) Act, S. 2224. The bill is designed to enhance the accuracy of credit reporting and provide greater rights to consumers who dispute errors in their credit reports.

The legislation includes provisions to strengthen enforcement of credit reporting obligations, make the credit reporting system more transparent, and improve credit reporting accuracy. In addition it would promote accountability for businesses that deal in consumer information, give consumers better information when they are denied credit or charged a higher interest rate because of their credit record, and help consumers understand their creditworthiness.

“Credit reports play a crucial role in people’s ability to get loans, jobs, and housing,” said CFA Consumer Protection Director Susan Grant. “In light of the unacceptable error rate in credit reports and the difficulty that people encounter in correcting them, we are calling for this bill to be passed as soon as possible.”