CFPB Proposes Rule to Stop Payday and Car Title Loan Debt Traps

The Consumer Financial Protection Bureau (CFPB) proposed a rule last week to end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans. The rule would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans. While it includes many of the helpful provisions in the first draft of the rule released in March 2015, it stops short of applying an ability to repay standard based on income and expenses to all payday and car title loans.

“The proposed rule is the best chance consumers have at avoiding further harm caused by payday and car title loans,” said CFA Director of Financial Services Tom Feltner in a press statement.  “Getting this rule right means requiring lenders to fully consider a borrower’s income and expenses and make a fair determination that, at the end of the month, there is enough money left to pay living expenses and loan payments without hardship or re-borrowing with additional interest.”

The proposed rule will improve upon existing consumer protections in states where payday and car title lending is authorized by:

• Creating new consumer protections for short-term and long-term payday and car title loans;
• Requiring lenders to fully consider a borrower’s ability to repay a loan in full without hardship or additional borrowing; and
• Protecting borrowers’ bank accounts by adopting measures to avoid repeated overdraft fees.

“The CFPB is proposing sweeping changes to an industry that, for decades, has trapped millions of consumers seeking short-term credit in a long-term cycle of debt.  Borrowers will be better protected, but further changes are necessary to eliminate the harmful effects of triple digit interest rates and coercive collection practices,” said Feltner.

 

President Obama Vetoes Bill to Overturn DOL Fiduciary Rule, Industry Takes to the Courts

Noting that the Department of Labor’s conflict of interest rule “is critical to protecting Americans’ hard-earned savings and preserving their retirement security,” President Obama acted quickly this week to veto a Congressional resolution seeking to overturn the rule. The measure, which passed the House in April and the Senate in May, did not garner sufficient support to override a veto.

“While there are still obstacles to overcome, including a slew of industry lawsuits challenging the rule, the President’s veto brings us one step closer to ensuring that all those who turn to financial professionals for retirement investment advice get advice that serves their best interests, and not just a sales pitch dressed up as advice,” said CFA Director of Investor Protection Barbara Roper.  CFA wrote to members of the Senate prior to the vote urging opposition to the resolution.

Meanwhile, in a development that has long been anticipated, industry rule opponents have turned to the courts in their efforts to overturn the rule in court. “The lawsuit is entirely without merit,” said CFA Financial Services Counsel Micah Hauptman in a press statement responding to the first of those lawsuits.  That lawsuit was filed last week in Texas by SIFMA, the Financial Services Institute, the Financial Services Roundtable, the Chamber of Commerce and several of its Texas affiliates.

Since then, trade associations representing insurance interests have filed four different lawsuits making similar claims but focused primarily on the rule’s impact on the sale of annuities. These include lawsuits filed by National Association for Fixed Annuities in Washington, D.C. last week and by ACLI and the National Association of Insurance Financial Advisors in Texas earlier this week.

“The Department of Labor has produced a balanced rule that strengthens protections for retirement savers while preserving the ability of firms to operate under a variety of business models,” Roper added. “A number of firms have expressed their willingness to move forward with implementation of the rule. Investors should take note of those firms that are so opposed to acting in the best interest of their customers that they are prepared to spend millions on a legally questionable lawsuit to overturn this badly needed rule.”

 

Bill Would Restrict DOJ’s Ability to Protect Consumers and Banks from Fraud

Sen. Ted Cruz (R-TX) introduced legislation (S. 2790) that would hamper critical Department of Justice and banking regulator efforts to detect fraud and money laundering, putting consumers and financial institutions at risk of serious financial loss. CFA joined with dozens of community, consumer, and civil rights organizations in urging Senators to oppose the bill.

The introduction of the Senate bill comes on the heels of House passage of a similar bill (H.R. 766) earlier this year. The legislation would halt Operation Choke Point, an investigative effort meant to put a stop to money laundering and fraud schemes.

In a letter to the Senate, the groups noted that a Department of Justice Office of Professional Responsibility inquiry found no evidence of misconduct. On the contrary, the program has targeted financial institutions which knowingly engaged in fraudulent activity that drained millions of dollars from consumers’ bank accounts. S. 2790 would further hamper these efforts, frustrating not only the protection of the public, but also insured financial institutions.

“With escalating data breaches, terrorism threats and internet fraud, we need to encourage, not discourage, efforts to deprive criminals of access to the banking system,” said CFA Director of Financial Services Tom Feltner. “S. 2970 will only frustrate the efforts of federal regulators that to date have successfully halted numerous mass-market fraud schemes, protected countless consumers from the financial hardship that follows fraud and have done so without any evidence of misconduct or targeting of lawful businesses.”

 

Amendments Needed to Flood Insurance Bills

Following House passage of flood insurance reform legislation (H.R. 2901), CFA sent a letter to members of the Senate Banking Committee warning that extensive revisions are needed to both H.R. 2901 and a similar Senate bill, S. 1679, to ensure that consumers and taxpayers are adequately protected.

In an effort to put the federal flood insurance program on sounder financial footing, both bills would allow surplus lines insurers to write flood insurance. “CFA shares concerns with those raised by some House members that the current National Flood Insurance Program (NFIP) is too costly and actuarially unsound,” the letter states. “We agree that there is a role for private insurers and for state regulation in this insurance market.  However, we also believe that allowing surplus lines insurers to write flood insurance, as S.1679 and H.R. 2901 do, would put both consumers and taxpayers at great risk.”

For example, the legislation would allow private insurers to cancel a policy at will or with very little notice. Since NFIP does not offer coverage until 30 days after the application, this could cause consumers in flood prone areas to find themselves uninsurable for up to a month at the whim of their surplus lines insurer, perhaps in advance of an approaching storm.

In the letter, CFA Director of Insurance J. Robert Hunter noted that it would be possible to amend the bills to better protect consumers and taxpayers. Remedies include: mandating that insurers providing personal lines flood coverage be licensed to do business in the state; restoring the 45-day notice of cancellation requirement; restoring the requirement that coverage in a private policy be equivalent to the NFIP coverage; and requiring a prominent warning at the point of sale that a surplus lines flood insurance policy is not protected by a guarantee fund.

“Changes made to H.R. 2901 in the House do not adequately address the risks posed to consumers and taxpayers,” Hunter said. “S. 1679 and H.R. 2901 are flawed measures that are in need of significant changes to adequately protect consumers and taxpayers.”

 

New Study Finds Antimicrobials Conceal Salmonella

A team of researchers led by scientists from USDA’s Agricultural Research Service published a study suggesting that antimicrobial sprays and dips applied to chicken “may create false negative results” in Salmonella testing, leading the authors of the study to conclude that the USDA Food Safety and Inspection Service’s (FSIS) testing procedures for Salmonella on poultry “may need modification.”

“This research calls into question the FSIS data on Salmonella contamination in chicken,” said CFA Director of Food Policy Thomas Gremillion in a press statement on behalf of the Safe Food Coalition. “FSIS has reported significant reductions in positive test samples every year for the last several years, but this study suggests those numbers might reflect flaws in the testing procedures rather than actual gains towards protecting consumers.”

FSIS tests thousands of poultry samples for Salmonella each year and uses the results to determine whether poultry plants are meeting recommended performance standards. “Under the agency’s Salmonella Initiative Program, some poultry plants receive waivers from normal inspection requirements if test results indicate a low incidence of Salmonella,” the Coalition said. “Test results also served as a frequently cited rationale for the agency’s controversial New Poultry Inspection System rule, which replaces government inspectors with company employees.”

When, or whether, FSIS will modify its testing procedures remains an open question.