Anti-Consumer Financial Rules Face CRA Challenge
Just days before the April deadline for Congressional Review Act challenges, members of Congress filed resolutions to overturn two harmful financial regulations adopted at the end of the previous administration – the Office of Comptroller of the Currency’s (OCC) “true lender” rule and amendments to the rules governing shareholder proxy proposals adopted by the Securities and Exchange Commission (SEC).
The OCC rule, which took effect in December, threatens to “unleash predatory lending in all 50 states,” CFA Financial Services Outreach Manager Rachel Gittleman warned in a press statement. It would do so by facilitating “rent-a-bank” schemes, in which predatory lenders take advantage of the fact that banks are exempt from state interest rate caps to launder their loans through a few rogue banks.
CFA is part of a broad coalition of more than 340 groups representing all 50 states and the District of Columbia that has pushed for use of the CRA to overturn the rule. Information on the harmful impact of the rule can be found here.
CFA also supports the CRA resolution to repeal the SEC’s anti-investor, anti-corporate accountability amendments to the rules governing how investors can present issues for a shareholder vote through the proxy process. By raising the amount of stock a shareholder would have to own before being eligible to submit a proposal, and by preventing them from aggregating their holdings to qualify, the rules would deprive the vast majority of individual investors of that right. It would also make it more difficult to submit proposals that gain support gradually over time.
“The rule amendments were adopted on a partisan vote through a rulemaking process that clearly violated the SEC’s own guidelines for economic analysis with the express purpose of limiting shareholders’ ability to use the shareholder proposal process to hold corporate boards and executives accountable on corporate governance and risk management,” said CFA Director of Investor Protection Barbara Roper. “They are nothing less than an attack on corporate democracy and should be overturned,” she added.
Introduction of the CRA resolutions is just the first step toward overturning the rules. Congress has until sometime in mid-May to vote on the resolutions, which cannot be filibustered and require only a majority vote in each house to be sent to the President for his signature. Even under those conditions, however, the narrow margins in the House and Senate make passage a challenge.
“These anti-consumer and anti- investor rules will cause pervasive harm in the marketplace, will unleash predatory financial products, and limit shareholders’ ability to hold corporate boards accountable. We need to use every tool to reverse these rules,” said CFA Legislative Director Rachel Weintraub.
Administration Plan Would Create Jobs by Transforming the Energy Sector
As President Biden unveiled his $2 trillion infrastructure and jobs package, the American Jobs Plan, late last month, CFA wrote to key Administration officials stressing the important role that transforming the nation’s energy sector can play in this effort and pledging to work with the Administration to bring about that transformation.
In letters to the White House, Environmental Protection Agency, the Department of Transportation, and the Treasury Department, CFA voiced support for provisions in the plan to transform the energy sector. “We believe that the American Jobs Plan will create jobs, lead to a more resilient electricity grid, and modernize power generation through cleaner and lower-cost energy alternatives,” said CFA Executive Director Jack Gillis in a press statement.
“The transformation of the energy sector into one based on efficiency in demand and low cost, clean energy in supply, is one of the most important steps to ensuring economic growth over the next quarter-century,” said CFA Research Director Mark Cooper. “The technological revolution in energy consumption and production, as well as digital communications, data processing, and advanced control technologies – all of which have been led by the United States – have set the stage for an entirely new, 21st-century energy sector,” he added.
Calling the plan a “watershed opportunity for transforming our energy sector through reduced demand and a low cost, clean alternative energy supply,” CFA predicted that it would deliver substantial economic benefits as the result of lower consumer costs. “These cost savings will increase consumer welfare (and benefit the economy) by enabling consumers to spend those energy savings on other needed household items. The result: more jobs and economic growth as this shift in spending employs more people, and new technologies create new manufacturing opportunities,” Gillis said.
Although the Biden Administration has provided the outlines of its plan, substantial work remains to put it into legislation, resolve differences over the best funding mechanisms, and move the legislation through a narrowly divided Congress. CFA concluded its letter to Administration officials with an offer to work with them to achieve this goal.
Efforts to Reform Insurance Rate Setting Face Hurdles
Ignoring requests from regulators and consumer advocates, the Casualty Actuarial Society has refused to reinstate its Statement of Principles Regarding Property and Casualty Insurance Ratemaking, which has provided important standards for setting insurance rates for more than three decades.
The CAS Board abruptly and secretly repealed the Principles in December with no chance for input or discussion and to the surprise of many regulators and actuary-members of the Society. Dismantling the Principles gives insurance companies more leeway to increase prices on customers they deem less valuable – often the most financially vulnerable and underserved consumers – irrespective of their actual risk level, CFA warned in a press statement.
“Unfair discrimination against people of color and lower-income Americans will get substantially worse if insurance companies and their actuaries are not bound by Principles of Ratemaking,” said CFA Director of Insurance J. Robert Hunter. “The CAS has turned its back on the professional dedication to fair treatment of consumers in order to clear a path for insurers’ new, non-risk-based pricing strategies that will produce systematically unfair prices in the market.”
In light of the CAS Board’s refusal to reverse its action, CFA called on individual state insurance commissioners and the National Association of Insurance Commissioners (NAIC) as a whole to continue to rely upon the Principles in regulatory processes. They also urged them to “[s]cour NAIC model laws and state laws for references to property/casualty ‘sound actuarial principles’” and replace these references with language from the rescinded Statement of Principles. At the same time, CFA called on NAIC to redouble its efforts “to identify and stop insurers’ use of non-cost factors in underwriting, pricing, claims settlement, and antifraud and examine insurers’ practices for proxy discrimination against protected classes.”
CFA’s efforts to end discriminatory pricing practices continue at the state level. Even as a few states have moved forward with efforts to eliminate discriminatory practices in auto insurance rate setting in recent weeks, insurance industry lobbyists have succeeded in derailing reforms in other states.
- In Washington State, for example, the insurance commissioner adopted a new rule banning the use of credit scores for pricing auto, home, and renters insurance for a period of three years. CFA praised the rule for preventing a sharp increase in premiums for many Washington residents whose credit scores will suffer when the federal CARES Act expires and consumers are suddenly required to repay the debt that has not reported as delinquent for a year or more.” The insurance industry immediately sued to block the new rule.
- In New Jersey, the Fair Insurance Rates (FAIR) Act, which would ban the use of education, occupation, credit score, marital status, and homeownership status in auto insurance, was passed by the New Jersey State Senate in January 2021 and is awaiting a hearing in the General Assembly. CFA and other consumer advocates are urging legislators to enact it into law.
- In Maryland, however, the House Economic Matters Committee gutted legislation that would have prohibited the use of credit scoring in auto insurance rate setting and replaced it with a “toothless” industry alternative “to ward off real reform.”
- In Oregon, the bill (HB 2043) that would ban the use of various socioeconomic factors in auto insurance (including credit score, sex or gender, marital status, education, occupation, and employment status) has been bogged down in committee. The House Business and Labor Committee held a hearing on the bill on February 24th, but since then it has stalled.
“Industry lobbyists are resorting to their usual false claims and fear-mongering to block reform, and too many state politicians are unwilling to stand up to the insurance giants,” said Doug Heller, CFA’s Insurance Expert. “But in Nevada and Washington, state commissioners stood up for consumers and instituted reforms. CFA and its state partners will continue to challenge the insurance industry’s abuses and fight for the protections consumers across the country need,” he added.
Coalition Sues EPA to Strengthen Protections Against Toxic Flame Retardant
A diverse coalition of organizations advocating for stronger health protections from the toxic flame retardant decabromodiphenyl ether (DecaBDE) has sued the U.S. Environmental Protection Agency (EPA) for violating a federal law that requires EPA to take all practicable measures to limit exposure to some of the most dangerous chemicals in commerce. The lawsuit, which was filed last month, adds to a previous challenge filed in January.
The Yurok Tribe, Alaska Community Action on Toxics, Learning Disabilities Association of America, CFA, and the Center for Environmental Transformation are asking the U.S. Court of Appeals for the Ninth Circuit to invalidate loopholes in EPA regulations that would expose infants and children, workers, indigenous cultural and subsistence practitioners, and communities across the country to DecaBDE for years to come and frustrate efforts to get the dangerous chemical out of consumer products and the environment.
“Flame retardants like DecaBDE pose chronic hazards to consumers because of their physical, chemical and biological properties. These hazards are well documented,” said CFA Legislative Director and General Counsel Rachel Weintraub in a press statement.
In its 2016 overhaul of the Toxic Substances Control Act – which Congress enacted with overwhelming bipartisan support – Congress singled out a class of highly toxic and long-lasting chemicals that includes DecaBDE for expedited regulation to protect human health and the environment. The statute requires EPA to regulate the full life cycle of these chemicals, from manufacturing to use to disposal, and take all practicable steps to reduce Americans’ exposure in their homes, workplaces, and the environment.
“Congress directed EPA to act fast and act aggressively to protect Americans from DecaBDE and similar chemicals that are highly toxic and long-lasting,” said Katherine O’Brien, an attorney with Earthjustice, a non-profit environmental law firm representing the coalition. “But in the final days of the Trump administration, EPA signed a rule that allows this dangerous chemical to be used in our children’s toys and dumped in our communities without establishing any safeguards to protect our health.”
“The EPA is required to act to protect Americans from this hazard. We urge them to act immediately,” Weintraub said.
Lawsuit Seeks To Overturn Oregon Ban on Rebates to Home Buyers
CFA and OSPIRG filed an amicus brief in March in support of a lawsuit challenging an Oregon law that prohibits real estate agents from offering rebates to home buyers.
“The Oregon law restricts price competition and harms consumers,” said OSPIRG State Director Charlie Fisher in a press statement. “Real estate agents representing buyers should have the ability to rebate a portion of their 2.5-3.0 percent commission to their clients,” he added.
Consumers pay an estimated $100 billion in real estate commissions annually, typically 5-6 percent of the sale price. Forty states and the District of Columbia allow buyer rebates, which represent a return to home buyers of some or all of the increase in home price that covers the buyer agent commission.
“Four major lawsuits are now challenging the inability of home buyers to negotiate buyer agent commission paid by home sellers,” said CFA Senior Fellow Stephen Brobeck. “Prohibiting buyer rebates reinforces high and uniform real estate commissions,” he said.