CFA News

CFAnews Update – February 28, 2023

Nevada’s Choice to Protect Consumers from Unfair Premium Hikes Was the Right One

Should Food Companies be Allowed to Label Artificially Sweetened Foods “Healthy”?

CFA Supports Proposed Changes to SEC Liquidity Risk Management Framework, Opposes Proposed Swing Pricing Framework

Nevada’s Choice to Protect Consumers from Unfair Premium Hikes Was the Right One

By: Michael DeLong, Research and Advocacy Associate

Nevada consumers can breathe easier and have reason to be thankful. In a major victory for fair and affordable insurance, the Nevada Supreme Court just upheld a Nevada Division of Insurance regulation temporarily banning the use of credit information in insurance.

Why is this important? Because consumers are now protected from unfair premium increases that would result from the COVID-19 pandemic and its impact on their credit scores.

To understand how this happened, let’s rewind. Back in March 2020, the COVID-19 pandemic and the resulting state of emergency dealt a smashing blow to Nevada consumers. In its decision, the Nevada Supreme Court observed that “in Las Vegas, where the governor’s declaration effectively closed the city’s robust travel and leisure industry, unemployment soared by the highest over-the-year percentage in the country, and in the months that followed, temporary unemployment became permanent and consumer credit declined.” Without any say and an uncertain future, huge numbers of people lost their jobs—with severe implications for their credit.

This reality was made worse by the fact that auto insurance companies use credit information to unfairly charge consumers higher premiums. In Nevada, Consumer Federation of America’s (CFA) research found that Nevada consumers with a perfect driving record and excellent credit pay an average annual premium of $770. But consumers with the same driving record but fair credit pay an average premium of $1,044—36% more. And if those consumers have poor credit, their average premium is $1,348—75% or $578 more, even if their driving record is flawless! So, if consumers see their credit decline for any reason, their auto insurance premiums will likely go up—regardless of their driving behavior.

The Nevada Division of Insurance, the state agency in charge of making sure that insurance is affordable and fair, swung into action. They realized that it was unsound and unfair for consumers to pay higher insurance premiums because they became unemployed during the pandemic and struggled to pay their bills.

After public hearings and input, the Division issued Regulation R087-20, which banned insurance companies from using changes in consumer credit information to increase consumers’ premiums. This ban retroactively took effect from March 1st, 2020 (when the pandemic’s effects started really being felt) and will go on until May 20th, 2024, two years after the end of the COVID-19 state of emergency. CFA praised the rule, which protects consumers from unfair discrimination in the form of insurance premium hikes and gives consumers time to recover from the pandemic.

But greedy insurance companies were furious and couldn’t leave well enough alone. The insurance trade group, the National Association of Mutual Insurance Companies (NAMIC) sued to get this regulation invalidated. NAMIC claimed that the rule exceeded the Division’s power and that it was unconstitutional.

The case went all the way up to the Nevada Supreme Court. CFA and the Center for Economic Justice filed a detailed amicus brief in support of the rule, stating that “disruptions caused by the pandemic and the public policy responses to it made the use of credit history by insurers unfairly discriminatory as an actuarial matter and with respect to protected classes. As such, the rule promulgated by Commissioner Barbara Richardson is within her statutory authority and will protect consumers.”

Had the rule been struck down, unscrupulous insurance companies would be taking advantage of consumers who became unemployed and couldn’t pay their bills due to the pandemic. Consumers’ credit has gone down, and in response auto insurers would be able to hike premiums, earning greater profits and hurting already struggling families.

But last week the Nevada Supreme Court upheld the temporary ban on use of credit scores to determine insurance rates, and protected Nevada consumers against premium hikes. NAMIC attempted to conjure up faulty arguments against the regulation, but thankfully the Court was not impressed with any of them. In its opinion, the Court noted that the Division found abundant evidence that the pandemic disrupted any correlation between someone’s credit information and how risky they are to insure, and that the regulation fell under the law prohibiting unfair discrimination.

NAMIC also argued that Nevada could only regulate intentional discrimination in insurance, but the Court firmly rejected this assertion. It concluded that the Division has the power to regulate this discrimination, whether it is intended or not. The Court also pointed out that while Nevada law normally allows insurance companies to use credit information in insurance pricing, Regulation R087-20 did not totally ban the practice. It was “tailored to address the discriminatory use of consumer credit information based on findings that NAMIC does not dispute.”

If a consumer’s credit information declines, their auto insurance premium will usually increase. Without this regulation hundreds of thousands of Nevada residents would be experiencing severe rate increases due to credit reductions. As a result of the Court’s decision, consumers are protected and will have fair auto insurance rates. For now, consumers no longer have to fear paying $200, $300, or even $500 more in premiums because of discriminatory insurance pricing.

We urge insurers to immediately comply with the Court order and urge the Nevada Division of Insurance to act against insurers that continue to impose credit-based penalties on Nevada customers.

Should Food Companies be Allowed to Label Artificially Sweetened Foods “Healthy”?

By: Thomas Gremillion, CFA Director of Food Policy

Earlier this month, CFA submitted comments on the U.S. Food and Drug Administration’s (FDA’s) proposed rule to change which foods can be labeled or marketed as “healthy” by food companies. The proposed rule mostly does a good job of drawing the line between healthy and unhealthy foods, but it misses an opportunity to educate consumers about artificial sweeteners.

Since 1994, FDA has prohibited companies from calling a food “healthy”—or “healthful,” “good for health,” etc.—if the food lacks certain specified nutrients, or if it has too much added sugar, sodium, or saturated fat. One problem with the current definition: it excludes many foods that most nutritionists would characterize as “healthy.” For example, salmon cannot bear a “healthy” claim because of its high fat content. Another problem is that the current rule allows “healthy” claims on foods that most nutritionists would agree are not good for you, like sugary vitamin fortified cereals. The new rule attempts to fix these problems by replacing criteria based on minimum nutrient values—which gave companies an incentive to fortify foods with vitamins and minerals—with criteria based on the food groups defined in the 2020-2025 Dietary Guidelines for Americans (DGAs), namely: vegetables, fruits, grains, dairy, protein foods, and oils. So, for example, the rules allow cereals to bear a “healthy” claim if they meet a minimum threshold for whole grains, but not for vitamins.

The new rule also continues to exclude foods that are high in sodium and saturated fat—with an exception for saturated fats in nuts and seeds. And the rule continues to exclude foods that are high in added sugars, but it does not exclude foods that are high in added sweeteners, such as aspartame, acesulfame potassium, sucralose, and stevia extract. This omission opens the door to misleading claims insofar as foods made with artificial sweeteners are unhealthy.

“Unhealthy for whom?,” you may be asking yourself. The broadest consensus holds that children under 2 years of age should not consume artificially sweetened foods. According to the DGAs, “high-intensity [i.e., artificial] sweeteners are not recommended for children under 2” because “[t]aste preferences are being formed during this time period, and infants and young children may develop preferences for overly sweet foods if introduced to very sweet foods during this timeframe.” Caregivers often feed “adult” foods to children, and this fact alone arguably supports banning “healthy” claims on artificially sweetened foods.

But the evidence also indicates that artificial sweeteners are bad for adults. Last year, a large scale prospective cohort study of over 100,000 adults in France found “a potential direct association” between higher artificial sweetener consumption (especially aspartame, acesulfame potassium, and sucralose) and increased cardiovascular disease risk.” According to the study, sweetener consumption was linked to a 9 percent increase in risk of cardiovascular disease, and an 18 percent risk of stroke.  Sweeteners may cause these ill health effects in part by interfering with the metabolic process. In a randomized-controlled trial encompassing 120 healthy adults, also conducted last year, subjects who were administered various sweeteners for 2 weeks—in doses lower than FDA’s acceptable daily intake—had “impaired glycemic responses” compared with controls given sugar or nothing at all.

This research raises serious concerns because low-calorie sweeteners have become ubiquitous in the food supply, with over 25 percent of children now estimated to be consuming these ingredients as part of their normal diet. The concerns have led some public health authorities to reexamine policies on sweeteners. New York City, for example, has banned low-calorie sweeteners from all food and beverages at “sites serving a majority of children age 18 or younger.”

Ultimately, “healthy” claims are marketing claims, designed not so much to inform consumers as to sell food products. After all, many of the healthiest foods, such as fresh fruit and vegetables, have no labels at all, or minimal labeling. “Healthy” claims may lead to excessive consumption of “healthy”-labeled products, at the expense of unlabeled, healthier alternatives. They are also simplistic, as dietary needs are specific to each individual, and “healthy claims” may deter consumers from looking further into a product’s nutritional content.  Because of these inherent deficiencies, CFA has urged FDA to abandon development of a “healthy” icon in favor of a comprehensive front-of-package labeling system that identifies which foods are unhealthy.

In the meantime, FDA should take a conservative stance in defining misleading and deceptive “healthy” marketing claims. “Healthy” claims should not apply where the evidence suggests a food product may cause significant health problems, and the evidence against artificially sweetened foods is substantial, and growing.

CFA Supports Proposed Changes to SEC Liquidity Risk Management Framework, Opposes Proposed Swing Pricing Framework

Earlier this month CFA’s Director of Investor Protection, Micah Hauptman, offered support for the Security and Exchange Commission’s (SEC) proposed changes to the open-end fund liquidity risk management framework. In the same letter, CFA strongly opposed the SEC’s proposed swing pricing framework.

Specifically, CFA voiced support for standardizing and strengthening the quality of funds’ liquidity, which would help to ensure funds operate with a sufficiently liquid base of assets during market stress and heightened levels of redemptions.

“We encourage the Commission to go a step further to strengthen the proposal rather than adopting other aspects of the proposal, namely the swing pricing and hard close amendments,” Hauptman said.

In the letter, Hauptman called for the Commission to:

  • Lower the 15% limit on illiquid assets to 10% or,
  • Require funds that hold more than 10% illiquid assets to also hold at least 15% highly liquid balance to counterbalance the fund’s illiquid sleeve and accompanying risks.

These additional changes “would be targeted at improving the liquidity of funds that hold a significant portion of illiquid holdings and that are therefore at greater risk of experiencing heightened redemptions during times of stress.”

CFA also voiced strong opposition to a proposed swing pricing framework due to its potential to “create a two-tier market, putting investors who are able to structure their transactions so as to secure same-day pricing at an advantage relative to those who are unable to structure their transactions.” If this rule is finalized, it “would likely create incentives for more sophisticated market participants to engage in regulatory arbitrage to avoid…swing pricing and its associated delays and costs.”

“While we agree in theory that swing pricing could be beneficial to the fund market, the proposed swing pricing framework cannot be operationalized without causing significant collateral damage to the open-end fund market and to retail investors,” Hauptman said. “Furthermore, it is unlikely that the proposal would accomplish its objectives. We urge the Commission to forego any regulatory approach that could cause retail investors to disproportionately shoulder any costs and delays associated with liquidity risk management.”