The Next Consumer Protection Front: Artificial Intelligence
Auto Sales, Leases and Repair Remains Top Consumer Complaint for Seventh Year in a Row
Deregulatory Agenda on Display in House Committee Markup is Anti-Investor and Anti-Consumer
Consumer Advocates, Agencies, and State Regulators Come Together for CFA’s 57th Annual Consumer Assembly
Overview: CFA’s 51st Annual Awards Celebration
The Next Consumer Protection Front: Artificial Intelligence
By: Susan Grant, Senior Fellow and Privacy Advocate
You know that something is scary when the businesses that have created it ask Congress to regulate it, as they did in a recent Senate subcommittee hearing on artificial intelligence (AI). AI is the ability of computers to use the intellectual processes characteristic of humans to perform tasks. A subset, “generative AI,” is a class of AI systems that, after being trained on large data sets, can be used to generate text, images, videos or other outputs from a given prompt.
A fellow consumer advocate recently showed me how he could use an AI program on his laptop to draft privacy legislation. The result was instantaneous and quite impressive. I don’t know what sources the program used, but it must have searched for legislative language that someone advocating on behalf of consumers would be likely to use and stitched together a decent legal framework for privacy protection. It was a good example of how AI can research, reason, and produce decent results for users. There are many applications of AI that can benefit consumers, from improving automated responses to their questions and complaints to enhancing their shopping experiences.
But the hearing began with another, more sobering example provided by Senator Richard Blumenthal. He played a recording that sounded like his voice, explaining concerns about AI, including that it could be used to impersonate someone. And indeed, it was impersonating him! It was not really him speaking, and he did not write what was said. Instead, his staff used an AI program to mimic his voice and the remarks were based on things he had previously said about AI. And here is another crucial point: since AI can learn, it might be able to accurately guess what he would have said even if he had not already voiced those concerns.
Or, if used by a malicious actor, AI could be used to impersonate Senator Blumenthal and say things that do not represent his views at all. How would people know it wasn’t him? Would it be sufficient to simply label things as AI-generated? I don’t think that would be particularly meaningful to people. Do we need a new federal agency to regulate the use of AI, as Senator Michael Bennet has proposed? We already have the Federal Trade Commission, which could regulate the commercial use of AI, though that wouldn’t necessarily address issues such as the potential for politicians to use AI in misleading ways. The White House is getting involved – the President’s Council of Advisors on Science and Technology has created a working group on generative AI, which is a great step, but regrettably it has no representatives from consumer organizations.
It’s already difficult for consumers to be sure who they’re dealing with when they answer the phone or see an offer for something online. Last year, imposter scams in which consumers were approached by someone falsely claiming to be a trusted business, government agency, other entity or individual were the second most common subject of complaints reported to the Federal Trade Commission. Even legitimate companies and organizations may be tempted to use this technology in ways that are unfair and abusive. Plus, the potential to mislead and manipulate consumers politically, as we saw during the last Presidential election, is even greater with AI.
I predict that AI will present consumers, consumer advocates and law enforcement agencies with huge challenges. The solution is not yet clear, but it’s obvious that we need to explore legislative or regulatory approaches to this issue. This would be a good subject for an FTC “town hall,” perhaps pulling in other relevant agencies that deal with consumer issues, and of course consumer organizations. Use of artificial intelligence is growing, and consumer advocates, Congress, regulatory agencies, and businesses must be prepared to handle any issues that may arise from the vast number of uses of this technology.
Auto Sales, Leases and Repair Remains Top Consumer Complaint for Seventh Year in a Row
CFA released its annual Top Ten Consumer Complaints Survey Report this month, based on responses from state and local government consumer protection agencies. Auto sales, leases and repairs rank as the number one consumer complaint.
“It is no surprise that auto related issues are the number one complaint category, now for the seventh year in a row,” said Erin Witte, Director of Consumer Protection. “Consumers rely on cars to get to work, school, doctors’ appointments and more, and these agencies serve a critical role to help consumers when they have suffered harm at the hands of dealers and repair shops.”
The report is based on information from 36 agencies in 25 states about the top ten complaints the agencies received that year. CFA issues an annual survey to agencies to report their greatest achievements for the year, and asks for real-life examples of complaints they received from consumers.
According to the report, agencies recovered over $743 million for consumers and handled nearly 600,000 consumer complaints in 2022. Agencies also reported a wide range of successes in 2022, including the Los Angeles Department of Consumer and Business Affairs creating a consumer protection education website hub for foster youth, and the Florida Department of Consumer and Agriculture Services resolving nearly $1 million in travel-related complaints alone. Travel and moving ranked as the 10th highest consumer complaint agencies received in 2022.
The report noted the critical role agencies play in protecting consumers from harmful business practices, stating that agencies use “…their standing as an arm of the government, and, often, their existing relationship with these businesses to resolve disputes quickly and efficiently, providing both monetary and non-monetary relief to the satisfaction of consumers.”
Each year we are delighted to work with the dedicated public servants at participating agencies to learn about and promote their efforts,” Witte said. “Their responses give us insight about what is happening in the marketplace and which strategies have been particularly successful.”
Deregulatory Agenda on Display in House Committee Markup is Anti-Investor and Anti-Consumer
By: Dylan Bruce, Financial Services Counsel
On April 26, the House Committee on Financial Services conducted a “mega” markup to consider dozens of anti-investor/anti-consumer bills. Many of the bills considered aim to further expand private capital markets at the expense of our public capital markets and to expand the pool of investors that can be sold private securities without the protections afforded by the public markets.
In advance of the markup, CFA sent a letter of strong opposition to many of these bills, including opposition to a “bipartisan” package of bills that, in part, would expand the “Accredited Investor” definition, the boundaries of which delineate which investors may be sold unregistered, private securities.
CFA also strongly opposed the antithetically-named “Improving Disclosure for Investors Act of 2023” (H.R. 1807), a bill that would severely diminish the effectiveness and accessibility of critical investor disclosures by defaulting investors into receiving them electronically, even when investors have shown a clear preference for receiving disclosures in paper. And finally, CFA wrote to oppose a package of partisan bills, the “Expanding Access to Capital Act” (H.R. 2799), that would recklessly expand private markets and diminish investor protections across the board, and another package of bills intent on defanging the Consumer Financial Protection Bureau (CFPB), entitled the “CFPB Transparency and Accountability Reform Act” (H.R. 2798).
Accredited Investor Definition
Notably, the bipartisan package of bills considered during the markup included a bill, “the Fair Investment Opportunities for Professional Experts Act” (H.R. 835), that would enshrine in statute the Securities and Exchange Commission’s accredited investor definition, one for which there is ample evidence showing that it is ineffective in defining a population of investors capable of truly fending for themselves without the protections afforded in the public market.
Coincidentally, the bill’s lead sponsor, Rep. French Hill (R-AR), said exactly this during debate of the bill, stating that “wealth is not correlated with wisdom” and, moments later, “I don’t think smart investing is correlated with wealth.” Moreover, the bill would expand the definition to include individuals who have “demonstrable education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment.” It’s not clear who would qualify under such a test or whether or how that person would have access to the information necessary to evaluate an investment and value any particular private securities. Troublingly, members of the committee opined that merely having a professional degree or certification, like investors with an MBA or law degree, or those who are a Certified Public Accountant (CPA) or even a “young PhD medical doctor,” to quote Rep. Hill, should qualify an investor to purchase private securities. All of these examples, and others that were floated during debate, are unproven and likely ineffective proxies for the sophistication necessary to fend for one’s own in private securities markets. And sadly, this bill is but one of several other problematic accredited investor-related bills that advanced on a bipartisan vote.
Private Market Deregulation
Even more unfortunately, these bills and others considered during this markup clearly illustrate the Committee’s recent and dramatic turn toward a deregulatory agenda that has occurred under Rep. McHenry’s (R-NC) chairmanship of the full committee and Rep. Ann Wagner’s (R-MO) leadership on the capital markets subcommittee. This pivot toward expanding private markets at the expense of public markets was made most evident by the “Expanding Access to Capital Act of 2023” (H.R. 2799). This package of more than a dozen partisan bills would expand private market exemptions, expand the accredited investor definition, and otherwise erode or negatively impact investor protections and public markets.
It is of profound concern that a significant part of the committee’s legislative agenda will apparently be to further deregulate our capital markets and expand the loopholes that have allowed private market capital raising to eclipse capital raising in public markets, the continuation of a troubling trend that has bedeviled investor protections and market integrity for decades. Private markets lack transparency, have limited regulatory oversight, and contain weak fraud prevention mechanisms, and the committee should be focused on minimizing the harms retail investors suffer when exposed to them—unfortunately, this markup displayed an intent to do just the opposite.
State Activity
The U.S. Congress, however, isn’t the only venue where efforts to expand the sales of private market securities to retail investors are occurring. For example, Nevada’s Assembly recently saw passage of Assembly Bill 75 (AB75), which would create an exemption to the federal securities laws for intrastate securities offerings to “Nevada certified investors.” In partnership with the University of Nevada School of Law’s Public Policy Clinic, CFA wrote to members of the Nevada legislature to oppose this bill, as it would expose Nevadans to the most speculative, risky, and illiquid securities, and would open the door to substantial fraud and abuse.
What’s Next?
For the bills that received bipartisan support, it is expected that they will move relatively quickly, and may advance to a floor vote in the House via “suspension of the rules.” For reference, the House suspension calendar is typically used to fast-track bipartisan, noncontroversial bills, meaning they do not have to go through the Rules Committee and the House does not need to adopt a rule to debate them, sidestepping procedural hurdles that commonly slows legislation in the House.
Other bills that advanced, however, including both the “Expanding Access to Capital Act” (H.R. 2799) and the “CFPB Transparency and Accountability Reform Act” (H.R. 2798), were advanced on a party line vote and therefore will likely have a more uncertain path through the legislative process.
And finally, one portion of the committee’s markup that deserves highlighting occurred during a colloquy between members while debating the “Improving Disclosure for Investors Act of 2023” (H.R. 1807): prior to passage of the measure (by voice vote), Ranking Member Maxine Waters (D-CA) was able to secure commitments from Chair McHenry and the bill’s lead sponsor, Rep. Bill Huizenga (R-MI), for further negotiations with Democratic members to determine the final version of the bill that would be brought to the House floor. This could provide a critical opportunity to amend the bill’s most problematic features.
Conclusion
As these bills and others are deliberated further in both the House and the Senate, CFA will continue working to ensure that consumers’ interests are promoted, investor protections are preserved, and both public and private markets operate with integrity and transparency.
Consumer Advocates, Agencies, and State Regulators Come Together for CFA’s 57th Annual Consumer Assembly
CFA hosted its 57th Annual Consumer Assembly on May 16 and May 17. This year’s conference program included members of Congress, a variety of consumer advocates, agency representatives, and state regulators.
Following a year of consistent attacks on agency funding structures, historical Supreme Court rulings, and a deadly pandemic, this year’s panel discussions covered a wide range of consumer protection issues. Issues discussed included defending the Consumer Financial Protection Bureau, ongoing airline consumer protection issues, the continuing epidemic of medical debt, climate change risk and the growing insurance gap, ensuring the regulatory system works for the public interest, the FTC’s priorities for the year, and more.
“CFA’s Consumer Assembly gives us the opportunity to bring together policymakers and advocates to talk about issues that are having a real impact on consumer well-being,” said Susan Weinstock, CEO of CFA. “Speakers not only provided an overview of consumer concerns, but also laid out solutions that will provide the protections consumers need and deserve.”
This year’s keynote speakers were Senators Edward Markey (MA), Cory Booker (NJ), and Sherrod Brown (OH), Consumer Product Safety Commissioner Richard L. Trumka, Jr., and U.S. Department of Agriculture Deputy Under Secretary for Food Safety Sandra Eskin.
We thank all who participated and attended. Watch the full conference here.
Overview: CFA’s 51st Annual Awards Celebration
Earlier this month CFA hosted its 51st Annual Awards Celebration, honoring three consumer champions whose leadership, commitment, and effective advocacy on behalf of consumers deserves special recognition.
Representative Pramila Jayapal (WA) received the Philip Hart Public Service Award, CEO of the American Association for Justice Linda Lipsen received the Esther Peterson Consumer Service Award, and Linda Sherry, former Director of National Priorities for Consumer Action, received the Consumer Champion Award.
This year’s Awards Celebration also included special recognition of three top consumer-focused media stories of the prior year aimed at improving the lives of all Americans. Pulling from a variety of media, CFA honored three media stories with the Betty Furness Consumer Media Honors. The honorees were chosen by CFA’s Director of Insurance Doug Heller, Director of Food Policy Thomas Gremillion, and Director of Consumer Protection Erin Witte.
The stories highlighted were written by Emily Flitter, for her article in The New York Times, “Where State Farm Sees ‘a Lot of Fraud’, Black Consumers See Discrimination,” Helena Bottemiller Evich, for her Politico article “The FDA’s Food Failure,” and Amanda Morris for her The New York Times article “Embarrassing, Uncomfortable and Risky: What Flying Is Like for Passengers Who Use Wheelchairs.”
We thank all of our awardees for their decades of service to the consumer community, and we thank those who supported the event and who continue to support our work.