CPSC Takes Important Steps to Protect Children

The Consumer Product Safety Commission (CPSC) has taken long-needed steps to address two important hazards to children in recent weeks. By a vote of 4-0, the CPSC approved a new national safety standard for high powered magnets.  In addition, the agency staff submitted a recommendation to the Commission to take action to protect children from the preventable strangulation hazard posed by cords on window coverings.

The high powered magnets rule will protect children by specifically changing the types of magnets that are available in magnet sets for purchase by consumers. The rule addresses both the size and the strength of the magnets. Specifically, magnet sets containing magnets that fit in the small parts test fixture and could be swallowed or inhaled must have a flux index of 50 kG² mm² or less.

“We applaud the CPSC for issuing this important mandatory rule. High powered magnets have caused serious injuries and a fatality to children. These incidents should not happen and can be prevented if the magnets can’t be swallowed and the magnets are not as strong,” stated CFA’s Legislative Director Rachel Weintraub in a press statement. “This rule will impact the type of magnet sets that can be sold in the future while the CPSC’s past enforcement actions will get these products out of people’s homes and away from children who could be harmed by ingesting two or more of these magnets.

CPSC also received a recommendation from CPSC staff to grant the petition filed by consumer and safety groups in May of 2013 and take effective action to protect children from the preventable strangulation hazard posed by cords on window coverings. Parents, consumer groups, and safety experts applauded CPSC staff last week, citing the fact that earlier this year four children strangled to death from cords on window coverings over a period of just twenty-two days.

“For almost 20 years, the voluntary standard has failed to address the strangulation posed to children and children have been killed and seriously injured as a result,” stated Weintraub in a press statement. “The CPSC’s staff recommendation to grant our petition is an important and necessary step that begins CPSC’s rulemaking process to address the hazard that cords on window coverings pose to children.”

CPSC is expected to vote on the staff’s recommendation to grant the window covering petition this week. If the CPSC votes to move forward with the petition, the rulemaking process for window coverings will begin.

DoD Moves to Close Military Lending Act Loopholes

The Obama Administration and the Department of Defense took an important step to protect the financial security of American service members and their dependents last month by proposing a much-needed expansion of important military financial protections for payday loans, auto title loans and other products.

The proposed rule closes a number of loopholes in current military financial protections by capping interest rates at 36 percent for a wide range of high-cost loans made to active-duty servicemembers and their dependents and by prohibiting practices such as mandatory arbitration and securing loans by post-dated check. If adopted, the rule would clamp down on lenders that have modified products or designed new ones to continue marketing payday loans, title loans and other abusive credit products to servicemembers.

“Payday lenders and others have taken advantage of every loophole imaginable to continue the reprehensible practice of offering loans at triple digit interest rates with abusive terms to our men and women in uniform,” said CFA Director of Financial Services Tom Feltner in a press statement. “We applaud the Obama Administration and the Department of Defense for this strong step to put an end abusive debt, while preserving access to safe and sustainable credit.”

Insurers Charge High Prices to Good Drivers for Basic Coverage

The country’s five largest auto insurance companies do not make a basic auto insurance policy available to typical safe drivers for less than $500 per year in over 2,300 urban and suburban ZIP code areas, according to CFA report released last week. The ZIP codes analyzed include over a third of the nation’s lowest-income ZIP codes.

CFA analyzed 81,000 price quotes from State Farm, Allstate, Farmers, Progressive, Geico and each of their affiliates in all of the ZIP code areas in the nation’s 50 largest urban regions. In 24 of the 50 urban regions, there was at least one lower-income ZIP code where annual premiums exceeded $500 from every major insurer. In nine of these 50 areas – Miami/Ft. Lauderdale, Detroit, Minneapolis/St. Paul, Tampa/St. Petersburg, Baltimore, Orlando, Jacksonville, Hartford, and New Orleans – prices exceeded $500 in all lower-income ZIP codes.

CFA also released findings from a recent national survey by ORC International indicating that more than three-quarters of Americans (76 percent) believe that a “fair annual cost” for state-mandated insurance for a typical good driver with no accidents and no tickets should be less than $500, while two-fifths of Americans (40 percent) think that such drivers should pay less than $250 per year.

“Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans,” said CFA’s Director of Financial Services Tom Feltner in a press statement. “Drivers need a car to get to work or school. High insurance premiums act to deny these Americans economic opportunity and also help explain why so many lower income Americans drive without insurance.”

Based on its findings, CFA is calling on federal and state regulators to thoroughly investigate this issue and help ensure that mandated auto insurance can be afforded by lower-income Americans with good driving records. “CFA commends the Federal Insurance Office (FIO) for initiating an investigation of auto insurance affordability by lower-income Americans,” said CFA’s Director of Insurance J. Robert Hunter. “We are hopeful that the FIO will gain access to data on prices quoted and charged by insurers to help determine insurance affordability

Proposed Equity Market Reforms Would Benefit All Investors

Equity markets have gone through significant changes over the past few decades and structural reforms are needed, according to a CFA white paper released last month.  Current regulatory policy has not kept pace with the changes that have occurred in the stock market and proposed reforms, such as greater transparency and ensured high market quality, will benefit all investors, the report finds.

“Our current equity market structure reflects in many ways the achievement of the Exchange Act’s goal of having multiple competing venues linked through technology,” said CFA Financial Services Counsel and report author Micah Hauptman in a press statement. “While competition and technology have brought great progress to our equity markets, the pendulum has swung too far. Excessive competition has resulted in a market that is unnecessarily complex, fragmented, lacking basic transparency mechanisms, and ridden with conflicts of interest. The technological arms race has led to trading activities that disadvantage long-term investors, expose the financial system to excessive risks, and shake investor confidence.”

The key policy changes needed to address market shortcomings include:

• adopting a trade-at rule to counter the drop in displayed liquidity that results from the rise of off-exchange trading;
• creating a pilot project to study the effects of eliminating maker-taker pricing and requiring retail brokers to provide significant price improvement to their customers when their orders are internalized;
• eliminating the disparities in how market data is provided to different market participants; and
• subjecting high frequency trading to appropriate regulation to prevent predatory and harmful practices and to promote the market making function that such firms can and should provide.

“Despite what some may claim, our markets aren’t ‘rigged,’ such that they require wholesale change,” said Hauptman. “Indeed, meaningful improvements to our equity market structure are required, but they’re not beyond our reach.”

CFPB Proposes Including Narratives in Complaint Database

The Consumer Financial Protection Bureau (CFPB) is proposing to publish consumer narratives as part of its public complaint database and is seeking public comment. Currently the database discloses only certain complaint data it receives regarding consumer financial products and services.  The agency is proposing to expand that disclosure to include unstructured consumer complaint narrative data.

In a comment submitted late last month, CFA strongly supported including narrative information when a consumer opts-in to make that information public and personal identifiable information is sufficiently safeguarded.  “Making complaint narratives publicly available, with consumers’ consent, provides the public with key, practical information about other consumers’ first-hand experiences with products such as payday loans, credit cards, mortgages and many others,” said CFA Director of Financial Services Tom Feltner. “Many of these transactions are complicated, involve more than one company and result in financial harm at various points along the transaction continuum.”

The comment states that narratives should only be disclosed with consumer consent, that complaints should include information about protected classes, and that safeguards are necessary to protect consumer privacy.

CFPB Seeking More Information About Mobile Financial Services

The Consumer Financial Protection Bureau (CFPB) is seeking information about the use of mobile financial services by consumers and its potential for improving the financial lives of economically vulnerable consumers. CFA and other consumer groups submitted comments addressing the difficulty in summarizing a wide range of issues in the rapidly changing field of mobile devices but stressed the importance of CFPB’s involvement in monitoring the field.

“The CFPB must watch the field closely, think closely about how services work, scour terms and conditions, and keep a close ear to the ground for complaints or potential problems,” the groups wrote. “The CFPB must take action in whatever form appropriate – including rules, enforcement actions, supervisory guidance, consumer alerts, and conversations with industry – whenever it sees gaps in protections or new issues that are not adequately covered by existing rules.”

On a related note, in a recent letter to the editor of the New York Times, Susan Grant, CFA’s Director of Consumer Protection, observed that amid all the hype about mobile payments, one issue is often ignored: what is the consumer’s redress if something goes wrong with the transaction? While some forms of payment such as credit cards provide strong legal dispute rights for unauthorized charges and other problems, others such as loyalty card points and prepaid funds do not. “It is imperative that consumers be adequately protected if they are to truly benefit from the options that using their phones as wallets can provide,” said Grant.