CFA News

CFAnews Update – April 26, 2019

Lawsuit Challenges FCC’s Misallocation of Telecom Costs

CFA Research Director Mark Cooper joined a lawsuit earlier this month challenging the recent decision of the Federal Communications Commission (FCC) to extend for another six years allocation of costs between federal and state jurisdictions, originally adopted in 2000, that has allowed billions of dollars in illegal costs to be dumped on local telephone customers, according to Cooper’s analysis.

Cooper joined with The Irregulators, New Networks Institute and others to petition the U.S. Court of Appeals for the D.C. Circuit to review the agency action.  “The consumer pocketbook impact of the misallocation of costs is huge,” he said public statement, “totaling $150-$250 billion, or $200 to $300 per household per year, over the next six years.”

Cooper criticized the agency’s approach to allocation of costs between intrastate and interstate jurisdictions on the grounds that it:

  • raises local rates, by claiming that local service is unprofitable, which imposes a huge burden on low- and middle-income consumer pocketbooks;
  • facilitates the cross-subsidization of vertically integrated services, which allows the local telephone giants to undermine potential entrants and competitors, diminishing the benefits of competition that all consumer can enjoy; and,
  • hides excess profits in the transfer of wealth from consumers to communications giants.

“The most effective first step in dealing with these problems is to cut them off at the source.  Without the misallocation and over recovery of costs, the goals of the Communications Act – universal service, just and reasonable rates, and increased competition – will be much easier,” he added.

The Trump Administration is reversing progress that was being made at the agency to address the problem, Cooper said. Furthermore, he noted, “We are about to incur another round of network upgrades to 5G, which will rival, or exceed the total of the past misallocations and make the abuse impossible to correct.

House Panel Approves Bill To Improve SEC Disclosures

The Securities and Exchange Commission (SEC) would be required to test disclosures relied on by retail investors to ensure that they effectively convey the desired information, under legislation (H.R. 1815) passed on a party-line vote in the House Financial Services Committee last month. CFA endorsed the bill, introduced by Rep. Sean Casten (D-IL), as a long-overdue fix to a broken disclosure system.

“Whether it is cost disclosures that don’t clearly convey costs or risk disclosures that don’t clearly convey risks, the SEC has known for years that retail investors struggle to understand the disclosures that are supposed to enable them to make informed decisions about their investments and investment professionals,” said CFA Director of Investor Protection Barbara Roper. “Instead of fixing the problem, the Commission continues to crank out disclosures that suffer from the all the same flaws even when its express goal is to develop an investor-friendly document.”

Other regulators – most notably the CFPB – have shown that it is possible to greatly enhance the comprehensibility of mandated disclosures by engaging in an iterative process of design, qualitative test, revision, and testing to arrive an approach that works, Roper noted. H.R. 1815 would require the SEC to apply this approach to the adoption of new disclosures that are designed for use by retail investors. It would also require the SEC to develop a schedule for testing its existing retail disclosures.

“Anyone who supports common sense, evidence-based regulation should support this legislation,” Roper and CFA Financial Services Counsel Micah Hauptman wrote in a letter to Committee members in advance of the mark-up. The bill would “require the SEC to fundamentally rethink its current regulatory approach to retail disclosures, which, while well-intended, is based more on hope, prayer, and unrealistic expectations than high-quality evidence.” The potential benefits, in the form of improved investment decision-making, would be significant, they added.

CFA Endorses Bill to Repeal of the Pink Tax

Speaking at a news conference earlier this month, CFA Executive Director Jack Gillis endorsed bipartisan legislation (H.R. 2048), the Pink Tax Repeal Act, which is designed to end gender-based discrimination in the pricing of goods and services. Introduced by Rep. Jackie Speier (D-CA) and Rep. Tom Reed (R-NY), the bill would allow the Federal Trade Commission to enforce violations and would give state Attorneys General the authority to take civil action on behalf of consumers wronged by discriminatory practices.

A 2015 study by the New York City Department of Consumer Affairs, one of CFA’s members, documented that gender price discrimination exists in a wide variety of consumer goods, from clothing to personal care products.  The department compared nearly 800 products with clear male and female versions from more than 90 brands and found that in all but 5 of the 35 product categories analyzed, items for female consumers were priced higher than the same items for male consumers. “This is essentially a gender tax levied on women that adds up to thousands of dollars over the course of their lives,” Gillis said.

“Why should a pink baby walker cost 32 percent more than an identical one that’s blue? Or pink kids’ sneakers be priced 62 percent higher than the same sneakers in black?” Gillis asked. “Why should women, already discriminated against in the labor market with lower wages, pay more than men for similar items?  The pink tax effects women from cradle to grave and must be repealed,” he said.

CPSC Should do More to Exercise its Authority and Protect Consumers

The Consumer Product Safety Commission plays a critical role ensuring that consumers are safe from product hazards, but it can and should do more to exercise its authority, CFA Legislative Director Rachel Weintraub said in April testimony before the House Consumer Protection and Commerce Subcommittee at a hearing titled “Protecting Americans from Dangerous Products: Is the Consumer Product Safety Commission Fulfilling its Mission?”

Weintraub outlined a number of key product safety issues facing the nation and specified actions the CPSC should take to address those hazards. In particular, Weintraub called on the agency to place a greater focus on adoption of mandatory standards and to enforce its rules effectively.

“We urge the Commission to use all of the tools Congress gave it to protect consumers from potentially hazardous consumer products. We urge the Commission to address the issues we outlined today as soon as possible as many pose urgent hazards to consumers. We look forward to working with this Subcommittee and with the Commission to address these issues,” Weintraub said.

Increased Funding Urged for Consumer Protection Agencies

Testifying in March at a public witness hearing  before the House Financial Services and General Government Subcommittee, CFA Legislative Director Rachel Weintraub called for increased funding for the Consumer Product Safety Commission (CPSC) and Securities and Exchange Commission (SEC) and for the Consumer Financial Protection Bureau (CFPB) to have its authority and structure preserved.

Weintraub urged the Committee to significantly increase fiscal year 2020 funding for the CPSC above the FY 2019 level of $127 million and to reject the inclusion of any policy riders that would undermine essential protections for consumers. “The CPSC has a critical mission to protect the public from risks associated with consumer products, but its funding and staffing levels are insufficient to carry out the work necessary to fulfill this mission.”

Similarly, the SEC, which oversees the nation’s capital markets, has had a growing workload in recent years, but has not been provided sufficient resources to keep pace with that workload, she warned. Two areas where increased funding is particularly urgent are investment adviser oversight and funding for long-term capital investments. “Without access to these funds and the ability to make technology upgrades, the SEC will be at a continued disadvantage relative to industry,” Weintraub warned. “Constantly struggling to detect wrongdoing will ultimately hinder the agency’s ability to protect investors, foster market integrity and promote capital formation.”

Finally, Weintraub urged the Committee to protect the authority, structure, and independent funding of the CFPB. “The Consumer Financial Protection Bureau has proven itself to be a transparent, deliberative, and data-driven agency,” she said, noting that it has returned $12.4 billion in relief to more than 31 million harmed consumers. “This agency is critical to protecting consumers in the financial marketplace and we oppose ideological policy riders that have been proposed in the past that limit the CFPB’s ability to fulfill its consumer protection mission,” she said.

Consumers Place Too Much Faith in Dark Web Monitoring Services

More than a third (36%) of consumers who have seen ads for “dark web monitoring” incorrectly believe that identity theft services can remove their personal information from the dark web, according to a new survey released by CFA in March. An equal number (37%) mistakenly believe that these services can prevent people who buy their personal information on the dark web from using it.

“Our survey indicates that many consumers are making assumptions about how dark web monitoring protects them that simply aren’t true,” said Susan Grant, CFA’s Director of Consumer Protection and Privacy. “Dark web monitoring may be able to alert consumers that their stolen personal information is being offered for sale on the internet, but it can’t put the genie back in the bottle.”

To address consumer misperceptions, CFA has developed a short consumer guide, Dark Web Monitoring: What You Should Know, explaining what the dark web is, how dark web monitoring works, and what to do if one’s information is in danger of fraudulent use. CFA has also updated Nine Things to Consider When Shopping for Identity Theft Services to help consumers learn more about identity theft services and what they can do to reduce the chances of becoming identity theft victims, spot fraud, and remedy problems. CFA’s website also provides additional information about identity theft from many trusted sources.

The dark web, which is a small part of the internet, can only be reached by special browsers. Those browsers disguise the computers that are being used, providing a high degree of privacy. While the dark web is used for many legitimate purposes, including by whistle-blowers, investigative journalists, people organizing against repressive governments, law enforcement agencies, and others who need to shield their identities and locations in order to communicate safely, it is also attractive to people who take advantage of its anonymity to sell stolen personal information and other illicit goods and services.

When information about consumers resulting from identity theft shows up in records maintained by legitimate companies, agencies or organizations, it can be corrected or removed. That is not the case in the dark web marketplace. “The people who trade in consumers’ personal information on the dark web aren’t going to cooperate with an identity theft service or anyone else who asks them to remove the information, stop selling it, or not to use it,” Grant said.