New Protections for Retirement Savers Move One Step Closer to Reality

The Department of Labor submitted its conflicts of interest rule to the Office of Management and Budget last week, moving these long-overdue protections for retirement savers one step closer to completion. The rule would require all financial professionals to act in the best interests of their customers when providing retirement investment advice.

“Retirement savers who turn to financial professionals for advice deserve objective advice and not just a sales pitch dressed up as advice,” said CFA Director of Investor Protection Barbara Roper. “Last week’s news that DOL had put the final touches on the rule and sent it to OMB for review brings us one step closer to achieving that goal. This is an important milestone, particularly in light of the millions of dollars industry groups have spent to preserve the status quo.”

That fight goes on, however, with two industry-backed bills (H.R. 4293 and H.R. 4294) marked up this week in the House Education and Workforce and Ways and Means committees. CFA wrote to members of the committees this week, urging them to oppose the bills.  “Everyone, including the sponsors of these bills, seems to agree that retirement savers who turn to financial professionals for advice deserve advice that serves their best interests. Instead of providing that assurance, however, these bills codify loopholes in the definition of fiduciary investment advice that make it all too easy for financial firms and their advisers to avoid their best interest obligations,” the letter signed by Roper and CFA Financial Services Counsel Micah Hauptman states. “Experience tells us that many firms will exploit these loopholes to the detriment of working families and retirees saving for a secure and independent retirement.”

In addition, CFA noted, neither bill includes a robust, enforceable best interest standard. And both rely exclusively on disclosure to address conflicts of interest, an approach that has been shown time and again to be ineffective in protecting investors from the harmful effects of conflicts. The bills also include a provision, modeled on the controversial REINS Act, that would require an affirmative act of Congress to allow the DOL rule to move forward.  Absent congressional action in support of the rulemaking, the anti-investor provisions in these bills would apply.

The good news for retirement savers is that the bills drew minimal Democratic support. “We applaud the Democrats who see these bills for what they are-an industry sponsored attempt to kill the DOL rule and preserve loopholes that allow financial professionals to profit at hardworking retirement savers’ expense,” Hauptman said.

CFA also released an analysis in advance of the mark-ups this week that shows that the DOL rule proposal, unlike these bills, meets the standards that industry claims to support as providing an appropriate framework for regulating fiduciary investment advice.  “This suggests that what financial firms really want is a rule that allows them to claim to act in customers’ best interests without requiring them to change anything about the way they currently do business,” Roper said.  “Unfortunately, the legislation currently under consideration in the House would do just that.”

Americans Support Reform of the Paid Tax Preparer Industry

A majority of Americans support new consumer protections to prevent errors and fraud during the tax preparation process, according to a new national poll released last month by CFA.Four out of five respondents believe that paid tax preparers should have to pass a competency test, be licensed and provide a list of fees before completing a tax return.

“This new national poll shows that taxpayers want the protection and peace of mind that their preparer is competent and held accountable,” said Michael Best, senior policy advocate at the Consumer Federation of America. “State legislatures and Congress have the authority to implement common sense protections for taxpayers, who have expressed strong support for such protections.”

The poll was commissioned in response to concerns about frequent errors and fraud by paid tax preparers that are used by millions of Americans. Multiple rounds of mystery shopper tests of tax preparers conducted by the National Consumer Law Center found instances of incompetence and even fraud.  In 2014, the Government Accountability Office (GAO) sent undercover investigators to 19 randomly selected tax preparer offices.  Only two of the 19, or 11 percent, of the returns evaluated by the GAO had the correct refund amount.

The GAO estimates that approximately 56 percent of 145 million individual tax returns (81 million) and 59 percent of returns claiming the Earned Income Tax Credit (EITC) were completed by a paid preparer in 2011.  A training requirement makes particular sense for those who prepare tax returns for lower income consumers who rely on the EITC, as they can be severely impacted by an incompetent paid preparer.  A consumer can lose the credit for ten years if it was claimed in error and the consumer is later found to be ineligible.

“Errors on tax forms put consumers at risk of fines and lost tax refunds yet few states have taken action to ensure that paid tax preparers are licensed and, trained and disclose what are often high and unpredictable fees,” said CFA Director of Financial Services Tom Feltner.

Despite the high instance of taxpayer use and problems with paid preparers only four states (California, Maryland, New York and Oregon) have mandatory standards for paid tax preparers who are not already credentialed as enrolled agents, attorneys, or Certified Public Accountants. While a 2014 court decision stripped the IRS of its ability to protect consumers without action from Congress, state legislatures have the ability to take action to protect consumers from errors that put their tax returns at risk.

FCC Urged to Adopt Rules to Protect Broadband Users’ Personal Data

Nearly sixty privacy, and civil rights organizations, including CFA, have called on the Federal Communications Commission to commence rulemaking to protect the privacy of broadband consumers.  “We strongly urge that the FCC move forward as quickly as possible on a Notice of Proposed Rulemaking proposing strong rules to protect consumers from having their personal data collected and shared by their broadband provider without affirmative consent, or for purposes other than providing broadband Internet access service,” the groups wrote in a letter to FCC Chairman Tom Wheeler.

The groups said the rules should: provide for notice of data breaches; hold broadband providers accountable for any failure to take suitable precautions to protect personal data collected from users; require broadband providers to clearly disclose their data collection practices to subscribers; and allow subscribers to ascertain to whom their data is disclosed.

“As with telephone service, broadband Internet service is becoming an essential part of people’s lives,” said Susan Grant, CFA Director of Consumer Protection and Privacy. “The FCC must ensure that broadband customers have meaningful control of their personal information, that it isn’t used in ways that could chill free speech or result in unfair discrimination, and that it’s adequately secured from theft and abuse.”

Regulation of Video Set-Top Market Could Save Consumers Billions

Unwitting consumers are paying $6 to $14 billion in over-charges because of lack of competition in the video set-top market, CFA and Public Knowledge argued in a letter last month urging the Federal Communications Commission to regulate the market. The letter was submitted in response to a request for comment on the final report of the Downloadable Security Technology Advisory Committee.

Among the topics covered in the report is a proposal to create a virtual head-end system that would enable nationally portable retail navigation devices, thereby reducing the stranglehold that cable providers have on this market.

The letter, which is based on a CFA analysis, notes that charges for set top boxes have sky-rocketed by 184 percent over the past two decades at a time when prices of comparable consumer electronics have dropped by roughly 90 percent.  The increase, which is more than three times the increase in the Consumer Price Index over that period, cannot be explained by the increased capability of set-top boxes, CFA and Public Knowledge argue, since the same is true of electronic equipment that has experienced a precipitous price drop. “Over the course of 20 years, the total overcharge for set top boxes probably exceeds $100 billion,” said CFA’s Research Director Mark Cooper.

“The cost savings to consumers, in addition to the boosts to independent and diverse programming and innovation, provide a strong impetus for the Commission to finally achieve the goals of Section 629 of Communications Act,” the groups wrote.  “For these reasons, Public Knowledge and the Consumer Federation of America urge the Commission to quickly begin a rulemaking proceeding implementing the virtual head-end proposal found in this docket.”

House Panel Urged to Convene Hearing on TSA Whole Body Scanners

Leading civil liberties, human rights, and non-profit organizations have called on the House Committee on Oversight and Government Reform to convene a hearing to examine the Transportation Security Administration’s (TSA) claim that it can mandate whole body screening for airline passengers along with its continued refusal to issue a final rule setting out its legal authority to conduct airport screening.

It has been more than four years since the D.C. Circuit Court ordered TSA to “act promptly” to conduct a public rulemaking, but the TSA has still not issued a final rule, the groups noted in their letter. “Now incredibly, the agency is claiming new authority to require travelers to undergo whole body screening in blatant disregard of the opinion of the federal appellate court,” the groups wrote.

The groups asked the Committee on Oversight and Government Reform to:

• suspend funding for whole body scanners until the public rulemaking has been completed;
• require the TSA to publish all de facto regulations;
• require the TSA to evaluate the cost (including lost time to passengers) of screening procedures using whole body scanners; and
• amend the statute to ensure that TSA orders are subject to judicial review as are other government actions.

“We need clear rules and reasonable options airline passenger screening,” said CFA Director of Consumer Protection and Privacy Susan Grant.