CFA News

CFAnews Update – May 26, 2022

The Baby Formula Crisis is a Food Safety Crisis: An In-Depth Look

As U.S. military airlifts come in with baby formula from Europe, Thomas Gremillion, CFA’s Director of Food Policy, offered an in-depth look into the causes of the nationwide baby formula shortage and what steps must be taken to avoid the issue in the future. Gremillion’s full op-ed was published in newspapers across the country, including: Inside Sources, Post and Courier (Charleston, SC), The Mercury (Pennsylvania), Today Pennsylvania, the Frederick News-Post (Maryland), the Waco Tribune-Herald (Texas), and MSN.

The formula shortage is directly linked to at least four reported infant hospitalizations from Cronobacter sakazakii. Following a Food and Drug Administration (FDA) investigation, an Abbot Laboratories’ plant in Sturgis, Michigan participated in a voluntary recall of infant formula. Abbott controls 48 percent of the U.S. baby formula market, with the Sturgis plant serving as Abbot’s main production facility. Despite samples from an FDA inspection of the plant in 2019 turning up Cronobacter sakazaki, the FDA did not return to inspect the facility again until 2021.

While Abbott has maintained that “there is no conclusive evidence to link Abbott’s formulas to these infant illnesses,” the FDA’s most recent inspection found water leaks, moisture and condensation in the dry powdered infant formula production areas. This follows a whistleblower report alleging that the company falsified product safety records and released untested products.

“FDA never should have let the situation get to this point,” said Gremillion. “At least as early as 2019, regulators had firsthand evidence of serious problems in Sturgis, but they waited until infant deaths had created a panic to take action.”

As the formula crisis continues, CFA continues to urge Congress to pass the Safe Food Act, introduced in 2019, which would create a single, independent agency that would administer and enforce food safety laws. CFA is also calling for Cronobacter infections to be added to the list of conditions that state and local health departments must report to the Center for Disease Control and Prevention’s National Notifiable Diseases Surveillance System. Finally, FDA Commissioner Robert Califf should restore the Deputy Food Commissioner who was removed during the Trump administration.

“Infant formula is a vital commodity, and ensuring a steady, safe supply of it requires a functional food safety system,” said Gremillion. “This crisis should motivate policymakers to take up long needed reforms to protect babies–and all consumers–from foodborne illness.”

Safe Sleep for Babies Act Now Law

On May 16, 2022 President Biden signed the bipartisan Safe Sleep for Babies Act (H.R. 3182) into law. This follows over one hundred reported infant deaths from unsafe sleeping products and years of tenacious advocacy by parents, pediatricians, and consumer advocates.

From January 1, 1990 through March 31, 2019 the U.S. Consumer Product Safety Commission (CPSC) received 113 reported fatalities involving crib bumpers. Despite the CPSC recalling many versions of this type of product, older models remained in circulation, endangering countless infant lives.

This important bill prohibits the manufacture or sale of padded crib bumper pads and infant inclined sleep products, and label such products as banned hazardous substances under the Consumer Product Safety Act. It also makes it illegal to manufacture or sell both products 180 days after the Safe Sleep for Babies Act was enacted.

“The Safe Sleep for Babies Act is now an incredibly important law that will save the lives of babies,” stated Rachel Weintraub, Legislative Director and General Counsel with Consumer Federation of America. “We are deeply grateful for the tenacious advocacy of parents, pediatricians, other advocates, and the bill’s sponsors, Representative Cárdenas, Representative Schakowsky, Senator Blumenthal, Senator Duckworth, Senator Brown, and Senator Portman.”

Groups Urge National Auto Repair Chains to Stop Offering Predatory Loans

CFA joined a coalition of consumer advocacy groups urging major national auto repair chains to stop offering predatory loans to consumers through EasyPay Finance and Transportation Alliance Bank (TAB Bank).

In the letters, the organizations wrote that “consumers struggling to pay for auto repairs repeatedly report being steered into predatory loans with shocking and often deceptive rates hidden in the fine print of applications, frequently not known until after the repairs are completed,” and that these “predatory loans have a lasting impact on consumers, causing harm to their credit reports and leading to debt collection harassment.” The groups go on to urge each repair chain “to disassociate itself from these practices that exploit vulnerable families.”

EasyPay Finance and TAB Bank have been found to issue loans at rates up to 189%, even in states where that is illegal. For states that prohibit predatory interest rates, EasyPay Finance will launder its loans through TAB Bank because banks are exempt from state rate caps. These letters follow hundreds of complaints filed by consumers about EasyPay auto repair and tire loans to the Consumer Financial Protection Bureau, Better Business Bureau, and Ripoff Reports. These complaints described issues such as:

  • Outrageous interest rates of 100% to 189%, sometimes charged to servicemembers and veterans.
  • Interest rates hidden in fine print or not disclosed until repairs are finished. Applications taken over the telephone, or required to be completed on tablets and smartphones, without written copies, leave consumers in the dark about the terms.
  • Deceptive promises of full interest rebates if paid in 90 days, with numerous obstacles that prevent consumers from avoiding interest or knowing their payoff balance.
  • Electronic debits that were not authorized, differed from the agreed payment, or continued after a payment plan was fulfilled.
  • Rude and unhelpful customer service and administrative errors, leading to missed payments, fees, and loss of the interest-free option.
  • Harm to credit reports, including from loans paid in full or reported for the wrong consumer. No response to consumer disputes.
  • Debt collection harassment and refusal to honor payment plans, including for those impacted by COVID.

“Auto repair shops throughout the country, including major auto repair companies, are steering struggling consumers into deceptive, high-cost loans with lasting impacts, including credit report harm and debt collection harassment,” said Rachel Gittleman, Financial Services Outreach Manager at Consumer Federation of America. “We strongly encourage these companies to disassociate from predatory lender, EasyPay, that exploits consumers in need throughout the country.”

Consumer Advocates Support FTC’s Efforts to Regulate Companies Making Deceptive Earnings Claims

CFA joined the National Consumers League (NCL) in comments supporting a potential trade regulation rule by the Federal Trade Commission (FTC) to address deceptive earnings claims.

The rule would prohibit false, misleading, and unsubstantiated earning claims. In the comment letter both organizations write that the rule should be “crafted to explicitly cover companies that continue to escape Commission regulations, such as multi-level marketing (MLMs), and require covered entities to provide a minimum of two years of substantiated data before making positive earnings claims.”

According to a report from the Consumer Awareness Institute, 99% of multilevel marketing recruits lose money. The organizations wrote that one way to combat this would be to adopt the proposed rule, and that while “income disclosures are no substitute for strong prohibitions on unfair or deceptive earning claims, they can be useful tools for consumers, anti-fraud researchers, and law enforcement agencies like the FTC.”

In addition to the proposed rule, the organizations are also urging the FTC to “launch educational initiatives to raise awareness of the harm consumers and potential recruits may face from unsubstantiated, misleading, and false earnings claims,” and to focus on “historically marginalized, geographically isolated, and immigrant communities.” This should be done through means like “social media campaigns and targeted advertisements that promote education about unsubstantiated and false earnings claims” since “social media is a significant source of proliferation for deceptive earning claims.”

“Too many consumers have been enticed by unsubstantiated and false claims about income and lifestyle by these companies,” said Erin Witte, CFA’s Director of Consumer Protection. “We are glad to comment in support of the ANPRM (advanced notice of proposed rulemaking) and urge the Commission to take the next step in the rulemaking process so that the FTC can continue its work of returning money to defrauded consumers.”

FINRA Must Update Rules for Complex Products and Options

CFA, Americans for Financial Reform Education Fund, and Better Markets sent a letter to the Financial Industry Regulatory Authority (FINRA), urging the Self-Regulatory Organization to update its rules for the self-directed investment in complex products and options.

Currently, the regulatory framework for complex products and options does not appropriately address current concerns raised by these products, according to the letter. “Markets have experienced significant changes in recent years…with regard to the increased diversity of investment products in the marketplace and the new ways in which investment products are sold to retail investors,” the organizations wrote. As a result of these changes, “retail investors now have unfettered access to a variety of complex products and strategies that were largely unavailable to the retail market just a few years ago.” While providing access to new and innovative products can be beneficial to investors who fully understand those products’ essential characteristics and risks, it also “increases the likelihood that investors who don’t fully understand those products’ essential characteristics and risks will misuse them.”

Recognizing the substantial risks to retail investors of investing in complex products and options through self-directed platforms and the current lack of regulatory safeguards to ensure that only those who understand these products’ essential characteristics and risks use them, the organizations urged FINRA to:

  • update existing options account approval rules to ensure that broker-dealers approve customers for options trading only if options trading is appropriate for their customers;
  • apply the options account approval rules more broadly to other complex products that are purchased through self-directed platforms; and
  • vigorously enforce these options and complex products account approval rules to ensure firms comply with their regulatory obligations.

“This issue is not merely theoretical,” said Micah Hauptman, CFA’s Director of Investor Protection. “Many investors have lost significant sums of money and they and their families have suffered terrible tragedies as a result of the inadequate safeguards that currently apply to the use of complex products and options. We commend FINRA for taking the first steps to ensuring that such tragedies do not continue to happen in the future.”

In addition to updating the rules for self-directed investment in complex products and options, the groups also urged FINRA to “start enforcing Regulation Best Interest, particularly with regard to the recommendation and sale of complex, higher-cost products that provide greater compensation to firms and registered representatives than less complex, lower-cost reasonably available alternatives, when those less complex, lower-cost available alternatives could achieve the same objectives for their retail customers.”

“Regulators must show that ‘best interest’ isn’t a mere slogan and that it will actually protect investors from receiving conflicted, low-quality advice and recommendations,” Hauptman said. “Enforcing Regulation Best Interest with regard to the improper sale of high-cost, conflict-ridden complex products would go a long way toward this end.”