Advocates Urge Federal Government to Address Auto Insurance Unaffordability

The market for auto insurance is not fair for low- and moderate-income Americans and drivers in communities of color, even if they have an unblemished driving history, CFA Insurance Expert Douglas Heller said in testimony before the U.S. House Financial Services’ Subcommittee on Housing, Community Development, and Insurance. The testimony was a part of a hearing this month on “Drivers of Discrimination: An Examination of Unfair Premiums, Practices, and Policies in the Auto Insurance Industry.”

Auto insurance is unique in that it is one of the only products that most Americans are required to purchase by law. For the vast majority of uninsured drivers, the only alternative to driving without coverage is not driving at all, an option that is simply not viable for people who have to get to work, take kids to school, and get to appointments on time.

While states forbid the use of income as a factor in setting auto insurance rates, most states do nothing to prevent proxies for income from being used. Using these socio-economic factors in insurance pricing creates a situation where lower- and moderate-income good drivers are shouldering the heaviest burden and often fall into the ranks of the uninsured as a result.

In his testimony, Heller highlighted Consumer Reports research that found the dramatic and insidious impact of credit history on premiums charged around the country. They showed, for example, that the average premium for a driver with a DUI and “excellent” credit in Iowa was reported to be $1,489, while a customer with a perfect driving record but “poor” credit was charged $1,837, or $348 more than the drunk driver. In Wisconsin having poor credit cost 53 percent more, or $596 per year, than having a DUI. In Colorado, a safe driver with poor credit paid $1,141 more than the DUI driver with excellent credit. In Florida a safe driver with a poor credit score paid $1,552, or 68 percent more than the convicted drunk driver.

CFA studies have also found other ways in which non-driving characteristics weigh heavily on lower-income Americans.

CFA finds that good drivers pay more for the same policy if they are:

• Women rather than men;
• Single, divorced, or widowed rather than married;
• Less educated rather than highly educated;
• Blue collar workers rather than white collar workers;
• Renters rather than homeowners.

Good drivers with less than excellent credit, switching from a non-standard insurance company rather than a name brand company, who previously purchased minimum limits coverage rather than more expansive coverage, or who were previously uninsured rather than continuously covered also pay significantly higher rates, according to CFA research.

Each of these factors pushes rates up unnecessarily and makes the cost of auto insurance a prohibitive burden for the people already struggling the most to just get by. “What makes it worse is that for many low-income drivers, they face the accumulated pain of many or all of these factors being imposed on them, because, low-income people are often blue collar and renters and less educated and single and dealing with credit problems. Taken alone, each factor is unfair, taken together they are the source of high levels of overcharged consumers and uninsured driving in communities around the country,” said Heller.

CFA is working with lawmakers to require new federal research that will look at the impact of unfair pricing on communities of color and low-income drivers around the country.

School Administrators Urged Not to Use Facial Recognition to Spy on Students

As facial recognition technology becomes more pervasive in our everyday lives, school administrators are being called upon to commit to not using facial recognition technology in schools. A group of consumer, privacy, and civil liberties organizations sent a letter to school administrators across the nation last month urging them to make that commitment.

Facial recognition technology is still in its infancy and is often biased and unsafe, including a tendency to result in misidentification of students of color. This can lead to traumatic interactions with law enforcement, loss of class time, disciplinary action, and even potentially a court record. “This invasive and biased technology inherently violates the liberty and the rights of students and faculty and has no place in our educational institutions,” the groups wrote.

The groups also called attention to data security concerns, stating that data collected by facial recognition technology is vulnerable to hackers and that schools are ill-equipped to safeguard this type of data. In the wrong hands, this data could be used to target and harm students. Privacy is a major concern as well, they wrote. Facial recognition is invasive, enabling anyone with access to the system to watch students’ movements and analyze facial expressions, as well as monitor who they talk to, what they do outside of class, and every move they make.

“This type of invasive technology poses a profound threat to academic freedom. Exposing students and educators to facial recognition profoundly limits their ability to study, research, and express freely without fear of official retaliation. Students should not have to trade their right to privacy for an education,” stated the groups.

The letter does not come without warrant. Already, schools across the country are quietly spending millions experimenting with facial recognition software, using it to scan, analyze, and collect sensitive biometric data on tens of thousands of students, parents, and faculty under the guise of security.

In addition to calling on school administrators to commit to not using the technology, the groups called for legislative action to protect students and faculty across the country from the constant surveillance of facial recognition tech.

“Students and their parents have no say in whether and how facial recognition will be used,” said Susan Grant, CFA’s Director Consumer Protection and Privacy.  “We need school policies and laws to protect students from unwarranted invasions of their civil liberties and the serious negative impacts that can result from the use of this technology.”

Potential Threat to Energy Efficiency Standards for Refrigerators and Freezers Looming

The Trump Administration attack on a broad array of energy efficiency standards is set to cost consumers $2 trillion in lost savings, according to CFA. The value of energy efficiency standards to consumers was reiterated in a filing submitted by CFA last month in response to a U.S. Department of Energy (DOE) Request for Information (RFI) as the agency weighs proposing new standards for refrigerators, refrigerator-freezers and freezers. CFA specifically addressed DOE’s request for comments on market failure but took the opportunity to provide a broad overview and analysis of energy efficiency performance standards.

CFA’s comments provide a pragmatic consumer approach to setting standards and begins with a set of four basic questions:

• Are there significant energy expenditures that appear to be wasteful in the sense that there are technologies available that cost less than the savings on energy use? If there appears to be potential savings, we ask:
• Why is there an efficiency gap that imposes unnecessary costs on consumers? If we find market imperfections that prevent the gap from being closed and cost savings from being realized, we then ask:
• Is a standard an appropriate policy to address the market imperfections? Finding that other policies are inadequate to address the market imperfections, we turn to performance standards and ask:
• How can the standard be best designed to achieve the goal of lowering consumer cost and protecting public health?

The filing tackles these questions through five different sections:

• A Look at the Real World: The Track Record of Appliance Energy Efficiency Standards
  • “The current standard, which took effect in 2014, is the fourth national standard for refrigerators. Since 1972, spurred by the oil crisis of the early- to mid- 70s, average energy use for new refrigerators has decreased by 75%, while the average new unit’s size has increased by 18% and real prices have declined by 50%. The market failed to address the need for increased energy efficiency until there was a crisis; standards addressed this need.”
• Comprehensive, Market Failure Explanations of the Efficiency Gap
  • “When market barriers and imperfections on the supply and demand sides of the energy market are properly comprehended, it is clear that the performance standards (even without significant externalities, like climate change), are a well-justified effort to overcome severe market obstacles, constraints, and cognitive limitations on human decision making that impose huge, unnecessary energy costs on consumers and the economy.”
• Standards as a Response to Market Failure
  • “The empirical evidence with respect to energy efficiency indicates is that there is a significant failure of the market to produce optimum results. The recent literature, which has been reviewed in many recent proceedings, shows that there is a massive efficiency gap and there are numerous, well-documented market imperfections that lead to underinvestment and under-supply of energy saving technologies in consumer durable and commercial equipment markets.”
• Command-But-Not-Control Standards
  • “Of utmost importance in our framework we find that, ‘command but not control’ performance standards work best when they embody six principles, long-term, product neutral, technology-neutral, responsive to industry needs, responsive to consumer needs, and procompetitive…Producers have strong incentives to compete around a standard to achieve it in the least cost manner, while targeting the market segments they prefer to serve. Well-designed performance standards that follow these principles command but they do not control. They ensure consumer needs are met while delivering energy savings and increasing consumer and overall welfare.”
• The Legal Terrain of and Public Support for Standards
  • “First, energy efficiency, in general, and improving fuel economy, in particular, tend to be very low cost (frequently the least cost) ways to lower emissions. To the extent that congressional or the executive branch guidance mandates least-cost, maximum net benefit approaches to lowering fuel consumption, it also mandates least-cost, maximum net benefit approaches to environmental protection and vice versa.”
  • “Second, when fuel economy standards yield a net benefit to consumers by lowering operating costs more than the increase in technology costs, it increases the disposable income in consumer pocketbooks. Consumers spend that disposable income on other goods and services. This ‘re-spending’ has a multiplier effect, causing the economy to grow. The macroeconomic benefits are an inevitable result of improvements in fuel economy or environmental standards linked to reductions in energy consumption.”

“We made a strong case to the Department on the value of energy efficiency standards, why they are so important, and how consumers, our economy and the environment benefit from them.  We’ll be watching to see if the agency continues its unrelenting assault on energy savings for consumers” said CFA Energy Programs Director Mel Hall-Crawford.

Bill to Allow Misleading “Natural” Claims Would Undercut Consumer Expectations

With the House Energy and Commerce Committee considering a bill that would result in the misleading labeling of cheese products in a way that is inconsistent with consumers’ understanding of the term “natural,” a group of consumer advocates, including CFA, sent a letter to the Committee last month voicing their opposition.

The letter addresses the Codifying Useful Regulatory Definitions (CURD) Act (H.R. 4487), which would amend the Federal Food, Drug, and Cosmetic Act to set a definition of “natural cheese” and prohibit food from being labeled as natural unless it meets the definition. “While the ostensible purpose of the bill is to differentiate ‘process cheese’ from ‘natural cheese,’ the bill actually would allow cheese to be labeled ‘natural’ even if it includes artificial ingredients or synthetic substances, such as food dye. Also, cheese still could be labeled natural even if it were produced using chemical pesticides that consumers do not consider natural,” the groups wrote.

A 2018 nationally representative survey from Consumer Reports found that most Americans think “natural” should mean that:

1. No artificial ingredients were used (81%)
2. No added hormones were used during food production (81%)
3. And, no chemical pesticides were used during food production (79%)

Under the CURD Act, the “natural cheese” label would be affixed to products that include any of the characteristics outlined in the survey, potentially confusing and misleading consumers. In addition to misleading consumers, the CURD Act would undermine ongoing work at the Food and Drug Administration (FDA) to define “natural” through a process that prioritizes the public interest and involves the input of all stakeholders. This effort intends to define the term “natural” based on consumer understanding and in a way that would apply to all foods and not be misleading. The CURD Act would short-circuit this important effort by establishing a contrived definition of “natural cheese” in order to protect industry interests.

“If a product contains artificial dyes or other ingredients that are popularly considered unnatural, then Congress should not pass a law allowing producers to label it a ‘natural’ product,” said Thomas Gremillion, Director of Food Policy at Consumer Federation of America.

Do Big Banks Provide Affordable Access To Lower Income Savers?

Only 25 of the 101 largest banks (by number of branches) promote automatic saving and offer savings accounts that are accessible and affordable to low- and moderate-income households, according to new research from CFA. The report, authored by CFA Senior Fellow Stephen Brobeck finds that savings products offered by banks are not necessarily available, affordable, or effective for lower income households who need emergency savings. Banks play a key role in helping consumers meet this need as well as saving for retirement.

People hold their emergency savings in several different ways, but the most common vehicle is a liquid account at a bank or credit union where funds can be quickly withdrawn, usually without penalty. According to research, 57% of households held at least one savings account and more than 70% of households in the upper two income quintiles held a savings account. At the same time, only 31% of households in the lowest income quintile, and 45% of those in the second income quintile, have a savings account.

There are several reasons that a significant majority of upper middle and upper income households own these liquid savings accounts:

• Availability: Nearly all households have access to a bank or credit union. That is evident from the fact that, according to the Fed’s 2016 Survey of Consumer Finance data, 92% of all households – and 99% of upper middle and upper income households – have a least one checking, savings, or MMDA account with a bank or credit union. In a pinch, these bank and credit union customers can usually find at least one ATM – in the U.S. and often overseas – from which they can draw cash.
• Safety: Most bank and credit union customers feel confident that their deposits will not disappear. Amounts below $250,000 at banks and credit unions are insured by the federal government. The most significant safety threat is inflation that depreciates the value of all dollars, but this issue has not been of great concern for several decades.
• Low Cost: At most banks and credit unions, customers that can maintain minimum deposits of at least several hundred dollars – or average deposits somewhat above this – are not charged monthly fees. And most of these institutions allow up to three free withdrawals each month.
• Interest Earned: At most banks and credit unions, small savings deposits earn trivial interest that often can be counted in cents not dollars. But on larger deposits, savers can often earn one percent and, at several institutions, more than two percent.

There are also good reasons, however, that less than half of low- and moderate-income households own either traditional savings or MMDA accounts:

• Availability: It may be inconvenient for a number of these households to make savings deposits and withdrawals. The U.S. branch network has been shrinking, and FDIC data suggests that as many as 20% of closings occur in areas where there is a “meaningful impact on physical access” to local bank branches. The roughly one-third of low-income households without a car may find it especially inconvenient to maintain an account at a bank or credit union.
• Safety: From the perspective of many lower income households, savings accounts do not ensure safety. When debts are not paid, bank deposits may be frozen or garnished. And many of those who are undocumented are nervous about providing records to which government agencies can gain access.
• Cost: As suggested by data presented earlier, a significant minority of low- and moderate-income households may find it difficult to maintain a minimum balance of at least $300 in a savings account so would be charged monthly fees that, at larger banks, usually range from $48 to $72 annually.
• Interest Earned: As noted earlier, on small savings accounts these fees would not be offset by interest earned. At the relatively high rate of 0.1% paid by some banks on these accounts, the annual interest earned on a $500 deposit would be 50 cents.

Banks increase the chances that lower income consumers will build emergency savings by providing savings accounts that are accessible, affordable, and effective. More specifically, the report calls on banks to offer an account that can be opened and serviced at bank branches, allow easy avoidance of monthly fees, permit up to three free withdrawals per month, and offer and promote automatic savings with low minimum monthly deposits.

“If banks made a greater effort to offer and market affordable savings accounts to lower income families, these households would be better able to meet their emergency savings needs,” said Stephen Brobeck, CFA Senior Fellow and author of the report.

America Saves Week 2020

America Saves Week (ASW), the annual campaign with the sole mission of encouraging Americans to commit to saving successfully, took place February 24 – 29, 2020, with more than 1,400 participating organizations combining their efforts for a noteworthy week.

Those organizations represented government agencies, financial institutions, businesses, academia, military, and nonprofits.

While CFA’s America Saves campaign is still collecting data from participating organizations, early figures show a significant impact. America Saves, its local campaigns, and initiatives saw individuals pledge to save $13,422,836 over an average of 11 months. That figure will continue to rise as the Reporting Survey is completed by America Saves Week participants.

“Good savings habits are the cornerstone of a strong financial foundation,” said Rebecca Wiggins, executive director of the Association for Financial Counseling & Planning Education^® (AFCPE^®), one of America Saves Week’s participating organizations. “We believe in the collective power of community. AFCPE^® is proud to partner with America Saves Week. The path to financial security is not always linear, but there are resources available to help more Americans get there!” she continued.

Over the course of the week, the ASW movement helped individuals focus on the core savings strategies of saving automatically, saving with a plan, building emergency funds, saving for retirement, recognizing the savings made while reducing debt, and instilling early positive financial behaviors in children by saving as a family. Participating organizations provided their communities with resources, tools, and tips to motivate individuals to start saving or increase their personal savings.

In 2019 the reported impact from participating organizations included over 246,600 people depositing $503,574,890 during America Saves & Military Saves Week.

“We’re looking forward to seeing the reach and impact made during America Saves Week 2020, as well as the impact from Military Saves Month being held in April,” said George Barany, director of America Saves. “Over the next several weeks, we’ll be compiling data and reporting how many lives were positively affected by increased financial stability.”

While America Saves works to aggregate the success of the event, Military Saves — an initiative of America Saves with the mission of promoting financial readiness by the military community save successfully — gears up for its expanded event, Military Saves Month.

Learn more about America Saves Week and Military Saves Month.