New Efforts Emerge to Derail DOL Conflict of Interest Rule

New efforts have emerged in recent weeks to derail the Department of Labor’s proposed conflict of interest rule, which would require all financial professionals to put their customers’ interests first when providing retirement investment advice.  Although just weeks ago House Democrats mounted a strong stand in opposition to H.R. 1090, which would kill the rule by subjecting it to endless delays, the latest threats to DOL’s efforts to strengthen protection for retirement savers come from Democrats.

“With the Department forging ahead with its efforts to finalize the rule, industry has become increasingly desperate in its efforts to kill the regulation,” said CFA Director of Investor Protection Barbara Roper.  “It is unfortunate that they have found willing allies among members of Congress who purport to support a best interest standard for financial advisors but back efforts that would seriously undermine the Department’s ability to adopt such a standard.”

The most recent attack on the rule comes in the form of a “declaration of principles” being circulated by a bipartisan group of House members led by Rep. Richard Neal (D-MA) and Rep. Peter Roskam (R-IL) as the basis for a legislative alternative to the DOL rule.  CFA joined with a broad coalition of rule supporters in writing to members of the House urging them not to sign on.

“Make no mistake,” the groups wrote. “This push for legislation to preempt the DoL is not a response to any actual deficiency in the rulemaking process; rather, it is an attempt to substitute a financial industry proposal at the literal expense of retirement savers.” The groups urged House members to any legislation, such as that being developed by Reps. Neal and Roskam, that would have the effect of “killing or creating new roadblocks to the completion of the DOL best interest standard rule.”

The Neal-Roskam effort comes on the heels of letter spearheaded by Rep. Jared Polis (D-CO) and signed by 47 House Democrats urging the Department, once it has decided on the specific changes it plans to make to the conflict of interest rule, to provide an additional 15- to 30-day comment period before finalizing the rule.  “With millions of dollars being spent to defeat it, the Department of Labor’s conflict of interest rule is hanging by a thread,” Roper said. “The slightest disruption to the rulemaking process could ensure its demise. Whatever its intent, this request for yet another comment period in what has already been a long, open and deliberative process plays into industry’s delay-to-defeat strategy.”

Meanwhile, Republican congressional leaders have pledged to add a rider to the end-of-year funding bill to defund the rulemaking. “Members of Congress who are seeking to protect the financial industry’s ability to skim constituents’ retirement savings should reassess their priorities and protect the interests of workers and retirees rather than well-healed financial firms,” said CFA Financial Services Counsel Micah Hauptman.

CFA Revises Best Practice Guidance for Identity Theft Services

CFA released Best Practices for Identity Theft Services Version 2.0 last week, updating the guidance originally issued in 2011 to encourage for-profit identity theft service providers to follow responsible practices. The guidance was designed to address short-comings found in a 2009 CFA analysis identity theft service provider practices.

“We revised the best practices to address new trends and issues that have arisen in the identity theft service marketplace and strengthen some of the original provisions,” said CFA Director of Consumer Protection Susan Grant in a press statement. “With security breaches and identity theft cases so much in the news, it’s important for purchasers of these services to understand what they’re getting and for consumers to be treated fairly.”

The following are among the recommendations to identity theft industry:

• Clearly and completely disclose all costs and other material terms before asking consumers to pay and obtain consumers’ affirmative consent to the terms before charging them.
• Clearly disclose the terms of free trial offers, which are frequently used to solicit consumers to try identity theft services for a limited period of time after which they will be charged unless they cancel, and provide simple mechanisms for consumers to cancel.
• Provide clear, easy-to-find, explanations about credit scores when offered as part of the program and do not misrepresent the nature of those scores.
• Only share consumers’ financial account and Social Security numbers with third parties to the extent that it is necessary to provide the requested services or as required by law.
• Obtain consumers’ express affirmative consent to provide their personal information to third parties for marketing purposes.
• Refrain from charging consumers for credit reporting and monitoring services if unable to deliver those benefits and offer those consumers the option of canceling if the delivery problems cannot be resolved.

Report Finds Auto Insurers Charge Higher Premiums in African American Zip Codes

Auto insurers charge predominantly African American communities 70 percent higher quoted premiums on average than similarly situated drivers in predominantly white communities ($1,060 vs. $622), according to new research released by CFA last week. The report reviewed quotes from the five largest insurers – Allstate, Farmers, GEICO, Progressive, and State Farm – which represent over half the auto insurance market.

“These findings suggest a troubling pattern of high rates in African American communities regardless of driver history,” said CFA Director of Financial Services Tom Feltner in a press statement.  “We are not rushing to judgment about why this happens, but it is urgent that regulators, lawmakers, and the industry take a hard look at these findings and address the impact of high auto insurance prices on drivers living in predominantly African American communities.”

Key findings of the report include:

• In the densest urban centers, the average premium in predominantly African American ZIP codes is 60 percent higher than the average premium in equally dense predominantly white urban ZIP codes ($1,797 vs. $1,126).
• In rural ZIP codes, the average premium in predominantly African American ZIP codes is 24 percent more than the average premium in rural, predominantly white ZIP codes ($669 vs. $542).
• The average premium in upper middle income, predominantly African American ZIP codes is 194 percent higher than the average premium charged to a similarly situated driver in an upper middle income, predominantly white ZIP code ($2,113 vs. $717).
• Across the country, Progressive’s and Farmers Insurance’s good driver premiums show the most disparity between predominantly African American and predominantly white ZIP codes, with both companies averaging 92 percent. State Farm, Allstate and GEICO also charge substantially more—62, 56, and 52 percent respectively.
• In several metropolitan regions around the country, including Baltimore, New York, Louisville, Washington, Detroit, Boston, and Orlando, the disparity in premiums is more than 50 percent between predominantly African American and predominantly white ZIP codes.

“In addition to mandating the purchase of auto insurance, virtually every state has laws forbidding unfair discrimination,” said CFA Director of Insurance J. Robert Hunter. “The pricing disparities for state mandated minimum auto insurance coverage quoted to drivers in primarily African American communities are hard to fathom actuarially and look a lot like unfair discrimination.”

Broad Coalition Opposes Policy Riders Delaying CPSC Proposed Rule

Health and safety advocacy groups, health professionals, insurance companies, and individuals who have lost loved ones to off-highway vehicle crashes are urging the House and Senate to oppose any policy rider that would delay the implementation of the Consumer Product Safety Commission’s (CPSC) proposed rule to set minimum safety standards for recreational off highway vehicles (ROVs).

“This rider is not only entirely unnecessary but it is also harmful. It would prevent the CPSC from working on an important product safety and public health issue while costing the CPSC money to fund an unnecessary study. This would limit CPSC’s budget to work on other pressing product safety issues” said CFA’s General Counsel and Legislative Director Rachel Weintraub. “Further, controversial anti-consumer policy riders should not be added to must-pass appropriation bills.”

The House and Senate Financial Services and General Appropriations Committees have proposed language that would require an unnecessary additional report to study the CPSC’s proposed rule and prevent CPSC from moving forward on the rule until this extraneous study is complete.

ROVs are motorized vehicles designed for off-highway use and with maximum speeds greater than 30 mph. The CPSC’s proposed rule for ROVs seeks to strengthen the voluntary standard by effectively addressing key issues that pose potential hazards to consumers, including lateral stability, vehicle handling, and occupant protection.

“The latest data compiled by CFA and our partners indicates that there were at least 145 ROV fatalities, from January 1, 2014, through November 16, 2015. These fatal incidents compel the need for a strong ROV mandatory standard—not preventing the CPSC from working on one” said CFA’s Senior Policy Advocate Michael Best.