CFA News

CFAnews Update – April 28, 2022

Groups Urge State Insurance Departments to Investigate Racial Bias in Insurance Claims Handling

After a recent New York Times investigation detailed extensive allegations of discrimination against Black policyholders in both its insurance claims handling and its anti-fraud efforts, CFA and the Center for Economic Justice (CEJ) wrote to all state Insurance Commissioners, urging them to investigate racial bias in these areas.

CFA and CEJ asked the state insurance regulators to detail their efforts to combat bias and discrimination in anti-fraud work and claims handling. The groups noted that prior research has demonstrated that people of color face disproportionately higher insurance premiums “due in large part to structural racism and systemic biases in our society and history that often turn pricing models, algorithms, and the data that feed them, into proxies for race.” These problems and their legacies, they wrote, “impact other aspects of the insurance system,” and “…persist throughout the insurance system, including…the claims and anti-fraud practices of insurers.”

At the recent spring National Association of Insurance Commissioners (NAIC) conference, the issue received extensive attention and discussion at various panels and meetings, according to CFA’s Michael DeLong, who is an appointed Consumer Liaison Representative to the NAIC. In talks with regulators, CFA stated that “exposing and fighting insurance fraud is critical for well-functioning insurance markets and for preventing escalating rates. But fighting fraud must never be an excuse for unfair denials of claims or discrimination.”

Through the outreach to regulators, the groups hope to learn if there are efforts underway in any state and what those Departments have found, and what level of community engagement Departments have organized to hear about discrimination experiences with insurance company claims handling and anti-fraud practices, as well as what technical expertise and additional resources Departments need in order to more effectively address the problem.

Congress and Federal Financial Regulators Must Stop Abusive Overdraft Fees

The Consumer Federation of America submitted a statement for the record to the Subcommittee on Consumer Protection and Financial Institutions for its hearing, “The End of Overdraft Fees? Examining the Movement to Eliminate the Fees Costing Consumers Billions.” CFA highlighted the continuing issues that pervasive, costly overdraft and nonsufficient fund (NSF) fees cause for consumers and urged Congress and other federal financial regulators to take decisive action and reform abusive overdraft fee practices at all financial institutions, along with establishing safeguards to ensure that these fees do not return.

In the statement, CFA supported recent efforts from financial institutions to “expand low- or no-cost banking options and accounts with no overdraft or NSF fees” and the recent announcements from some of America’s largest banks to “completely eliminate overdraft and NSF fees.” Despite these improvements, CFA wrote that these actions “do not replace the need for reform of predatory overdraft fees on other accounts,” and that these measures alone “are inadequate, and consumers cannot rely solely on the goodwill of certain financial institutions.”

According to the statement, in 2019 alone revenue for overdraft and NSF fees “reached $15.47 billion,” with “nearly 80% of annual overdraft fee revenue [coming] from 9% of consumer accounts, which have 10 or more overdrafts per year.” The statement highlighted that Black and Hispanic borrowers are disproportionately harmed by NSF fees. Despite about “14% of Black and 12% of Hispanic households” being unbanked, and only “2.5% of white households” falling into that same category, these communities account for about “19% of those who paid three or more overdraft-related fees annually, while representing only 12% and 17%, respectively, of the U.S. population as a whole.”

To combat these issues of inequity, CFA is asking Congress to pass legislation and urge financial regulators…to use their authorized power to address the overdraft problem. Furthermore, CFA wrote that overdraft reform by both Congress and federal financial regulators should include:

  • Limiting the number of fees that can be charged to one per month and six per year;
  • Requiring that fees be reasonable and proportional to the cost of processing these transactions and the amount of the overdraft;
  • Preventing institutions from re-ordering transactions to artificially increase their fees;
  • Empowering consumers by requiring that they proactively opt-in to overdraft programs in the first place––rather than automatically being enrolled;
  • Improving transparency and disclosures of overdraft coverage, cost, and practices; and
  • Prohibiting charging overdraft fees for debit holds that exceed actual transaction amounts, among other strong measures.

“Consumers cannot wait for banks to individually put an end to abusive overdraft fees—especially given that these fees are borne predominately by those who can least afford them,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “The cost is just too high—overdraft fees can cost consumers hundreds in a single day and can push people out of the banking system, exacerbating financial exclusion.”

FDA Needs to Better Protect Consumers in Proposed Rule on Agricultural Water Standards

CFA submitted comments on the U.S. Food and Drug Administration’s Proposed Rule to amend agricultural water standards of the produce safety rule under the Food Safety Modernization Act (FSMA), raising concerns with the enforceability of the standards included in this Proposed Rule.

In the comments, CFA wrote that “the lack of enforceable, prescriptive standards in the Proposed Rule raises a significant concern that many food safety hazards will evade remediation, if not detection, and that government inspectors will not have adequate tools to hold noncompliant growers accountable.” In response to these concerns, CFA is urging the FDA to “provide clearer directions for growers and inspectors alike in the final rule,” and to “clarify that water assessments required under the Proposed Rule must incorporate validated microbial testing, and that growers must treat water in certain high-risk circumstances.”

Currently the Proposed Rule puts too much responsibility on growers to devise the optimal approach to managing food safety risk despite many of these growers lacking the expertise to manage agricultural water hazards effectively.

“Over a decade has passed since Congress directed FDA to establish agricultural water standards in the Food Safety Modernization Act, in part because produce causes more foodborne illness than any other category of food,” said Thomas Gremillion, CFA’s Director of Food Policy. “FDA tried once to establish meaningful standards, and produce farmers revolted. Now, after years of delay, the agency has proposed a rule essentially telling the industry to police itself. Consumers deserve better.”

CFA and KID Urge Congress to Increase CPSC Funding

CFA joined Kids in Danger (KID) in a letter urging Congress to increase the Consumer Product Safety Commission’s (CPSC) budget to $350 million so that it can better provide adequate funding for CPSC programs.

The organizations wrote that despite the CPSC having a “broad mandate with jurisdiction over roughly 15,000 different types of consumer products used by 330 million American consumers in everyday life,” the agency has remained “significantly underfunded for decades and therefore short staffed compared to other federal health and safety regulatory agencies,” with the agency’s budget being “by far the smallest among federal health and safety regulatory agencies.”

An increase in the CPSC’s funding would help it adequately fund programs important to educating and protecting consumers about various products. The organizations wrote that additional financial support would allow the agency to better “evaluate new products as they enter the marketplace,” and to “take enforcement actions to protect consumers from products that do not comply with an adequate standard and to finalize a rulemaking.” An increase in funding would also allow the agency to further strengthen, including: developing a plan to increase use; folding additional data sources into; analyzing data and releasing reports; and continuing to strengthen the process so more submitted reports are included in the public database.

“The CPSC’s work impacts the safety of consumers every day,” said Rachel Weintraub, CFA’s Legislative Director and General Counsel. “It is incredibly important that that the agency has sufficient funding to support its lifesaving work.”

Congress Must Pass Bipartisan Solution to Close ILC Loophole

CFA joined a broad cross-section of regulated banks, credit unions, and consumer protection organizations strongly urging Congress to pass The Close the ILC Loophole Act (H.R. 5912), a bipartisan piece of legislation that would close the industrial loan company (ILC) loophole.

Introduced by Representatives Chuy Garcia (D-IL) and Lance Gooden (R-TX), this act would close the current loophole which “allows any type of organization, company or corporation to control a full-service FDIC-insured bank without being subject to the same oversight and prudential standards or limitations on the mixing of banking and commerce, that Congress has established for the U.S. financial system.”

In the letter, the organizations wrote that “this regulatory loophole creates safety and soundness risks for the institution, risks to the financial system and additional risks for consumers and taxpayers,” and that “ILCs of any size can collect FDIC-insured savings from retail customers and offer mortgages, credit cards and consumer loans, which enable them to operate as full-service banks.” Moreover, this loophole “provides a way for technology firms offering a wide variety of services to acquire a full-service bank along with all of the privileges of a bank — even though Congress has generally prohibited the mixing of banking and commerce.”

The organizations also wrote that ILC owners “should not have the ability to sell their status rights to the highest bidder and therefore exploit consumer data, undermine trust in our banking system and otherwise put our financial system at risk.”

“The ILC loophole undermines consumer trust in our banking system, poses risks to our financial system, and blurs the lines between banking and commerce,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “It is imperative that Congress closes this loophole to protect consumers and our financial system.”

Join Us for CFA’s 56th Annual Consumer Assembly

Registration is now open for CFA’s 56th Annual Consumer Assembly, scheduled for Wednesday, June 15. To accommodate those who are unable to travel due to the continuing COVID-19 pandemic, CFA is offering both in-person and virtual options for the event this year.

This year’s Consumer Assembly will cover the latest challenges being faced by consumers and will focus on the impact of systemic racism, harmful online content, climate change, competition, housing discrimination, and online purchasing.