CFPB Finalizes Rule on Forced Arbitration
A new game-changing rule that will help stop scams against consumers was issued by the Consumer Financial Protection Bureau (CFPB) in July. The rule bans banks and financial companies from inserting certain “forced arbitration” clauses in credit card, auto loan, student loan, payday loan, and other financial contracts. These clauses can no longer prevent a consumer from joining a class action lawsuit.
The issue has drawn heightened attention as a result of the Wells Fargo fake account scandal, in which the bank has sought to use forced arbitration agreements to shield itself from lawsuits by defrauded customers.
“The new rule was based on years of research showing that these clauses tucked in the fine print of contracts have allowed cheating to go unchecked. Consumers will now have a choice on how they want to resolve a dispute,” said CFA Senior Fellow Rohit Chopra.
CFA has long advocated for restricting forced arbitration in a number of consumer contracts. While the rule is a major victory for consumers across America, Congress can still block the rule from taking effect using an obscure procedure under the Congressional Review Act.
The House of Representatives has already voted to overturn the rule. The resolution of disapproval now moves to the Senate, where it would need nearly unanimous Republican support to pass. The Senate left for August recess without scheduling a vote, and several Republican senators are reportedly reluctant to overturn the rule.
“We are disappointed that the House has voted to disapprove the arbitration rule which will restore consumers’ right to join together in court by prohibiting class action bans,” said CFA Director of Advocacy Outreach Michael Best. “But we thank those members of the house who stood up for consumers by standing up for the rule and call on all Senators who stand for consumer rights to defend the rule when it is up for a vote in the Senate.”
Industry analysts have put the chances of the rule surviving at roughly 50%.
DOL Seeks To Delay Further Implementation of Fiduciary Rule
The Department of Labor (DOL) announced last week that it had sent a proposal to the Office of Management and Budget to delay by 18 months provisions of its conflict of interest, or “fiduciary” rule, due to take effect in January 2018. While core principles of the rule were implemented in June – including the requirement for all financial professionals to act in their customers’ best interests when providing retirement investment advice — the Department is widely expected to use the delay to water down key provisions of the rule essential to its enforceability and effectiveness.
CFA has written comment letters to the Department arguing against further delay and against the creation of new exemptions to the rule. “Retirement savers need and deserve the protection of a fully enforceable best interest standard backed by real restrictions on conflicts of interest,” said CFA Financial Services Counsel Micah Hauptman. “Evidence shows that the rule is not only workable, but working better and more quickly than the Department or rule supporters could have predicted,” he added. “Further delay is neither needed or justified.”
Meanwhile, industry groups have stepped up their efforts to win watered down, disclosure-based rules from the Securities and Exchange Commission (SEC) and the National Association of Insurance Commissioners (NAIC). The SEC is seeking public input on the appropriate standard for broker-dealers and investment advisers, while the NAIC Annuity Sales Working Group is considering adding a “best interest” standard to its suitability rules.
SIFMA, the leading broker-dealer trade association, and ACLI, the leading life insurance trade association, have submitted virtually identical proposals to SEC and NAIC respectively that “give lip service to a best interest standard,” according to CFA Director of Investor Protection Barbara Roper, “but without clarifying how their proposed standard would strengthen protections under suitability rules and without any meaningful restrictions on conflicts of interest.”
CFA and Center for Economic Justice joined with dozens of other public interest groups and consumer advocates to write to NAIC Working Group outlining the key provisions a best interest standard would need to incorporate to adequately protect consumers and explaining how the ACLI proposal falls short.
“The DOL understood that, if we want financial professionals to act in their customers’ best interest, we have to put an end to compensation and other practices that encourage and reward advice that is not in customers’ best interest,” Roper explained. “SIFMA’s and ACLI’s proposals fail to include any such restrictions, relying instead on disclosure, which is known to be ineffective. That’s not a real best interest standard, and it certainly isn’t a substitute for DOL’s strong and effective rule.”
Insurance Regulators Ignore Calls for Independent Review of Auto Insurance Affordability
Bowing to industry pressure, the National Association of Insurance Commissioners (NAIC) announced earlier this month that it is abandoning a regulator proposal to collect data directly from insurance companies that would allow state regulators to better assess auto insurance rating practices and affordability in their states.
Instead, the NAIC’s Working Group on Auto Insurance accepted an insurance industry alternative plan that allows insurance companies to decide what information regulators receive. The industry plan would not only allow insurance companies to choose what data to provide, it would also allow a statistical arm of the insurance industry to manipulate the data before providing it to regulators, according to CFA Director of Insurance J. Robert Hunter.
“After years of obstructing the efforts of the working group to collect data for a meaningful analysis of auto insurance affordability and pricing practices, the industry suddenly offered a gift of data as an alternative to the thorough research approach a group of state regulators had developed,” Hunter stated in a press release. The industry’s data “can’t be verified for accuracy, doesn’t allow for a meaningful analysis, and is designed to support industry talking points,” Hunter added. “What the Working Group accepted yesterday is not a regulator-designed affordability analysis, it is an illegitimate industry self-evaluation, which the NAIC now proposes to legitimize. The NAIC should not be serving as a PR firm for industry, and this pseudo study should be rejected.”
CFA, Consumers Union, and Center for Economic Justice called on the NAIC to disband the Working Group, which was created in 2012 after consumer groups cited the need for serious research into auto insurance affordability, especially for lower- and middle-income Americans. They argued that, with this vote, the Working Group has made it clear that it is incapable of independence and only harms the effort to get to the bottom of insurance industry pricing and practices.
Nation’s Top Ten Consumer Complaints of 2016 Identified
Problems with solar energy sales and used car leasing were flagged as issues to watch in the latest report based on the annual consumer agency survey conducted by CFA and the North American Consumer Protection Investigators. Thirty-nine state and local consumer protection agencies from twenty-three states participated in the survey, which asked about the most common complaints they received in 2016, the fastest-growing complaints, the worst complaints, new kinds of consumer problems, agencies’ biggest achievements and challenges, and new laws that are needed to better protect consumers.
Complaints about solar energy sales were cited as a new consumer problem that could increase in the future as the industry grows. “Solar energy is good for the environment and for consumers’ pocketbooks, but there are starting to be complaints concerning misleading sales practices, confusing contracts, and shoddy installation,” said CFA Director of Consumer Protection Susan Grant. “Consumers should check out the company and make sure they understand the terms of the agreement before they sign on the dotted line for solar contracts.”
Complaints related to auto issues topped the list of complaints most frequently cited by the agencies as the most common complaints. Problems with home improvement/construction and utilities took the second and third spots. Though it was not among the top ten complaints, fraud topped the list of both the fastest-growing and worst complaints.
When asked what new laws are needed to better protect consumers, some agencies suggested that telephone companies should be required to do more to block illegal robocalls and other scam calls. CFA has joined other groups in calling for the FCC to allow phone companies to block spoofed calls and illegal or unwanted robocalls.