CFA News

CFAnews Update – May 3, 2021

AGs Call for Repeal of OCC’s “True Lender” Rule

A bipartisan group of 25 state Attorneys General sent a letter to congressional leadership last month urging Congress to use the Congressional Review Act (CRA) to rescind the Office of the Comptroller of the Currency’s “true lender” rule in order to “safeguard states’ fundamental sovereign rights to protect their citizens from financial abuse.”

Several of the AGs signing the letter represent states – including Arkansas, Nebraska, South Dakota, and Colorado – where voters have approved interest rate caps. The Nebraska vote last November was the most recent, with 83% of the voters approving a 36% interest rate limit.

Yet in all of these states, voter-approved rate caps are being evaded by high-cost lenders laundering their loans through a few rogue banks, which are not subject to state rate caps, CFA noted in a press release. “The true lender rule (more accurately, “fake lender” rule) protects those evasions,” said CFA Financial Services and Membership Outreach Manager Rachel Gittleman.

The CRA resolution to overturn the rule has also gotten support from 138 academics from around the nation, the National Association of Federal Credit Unions, the Conference of State Bank Supervisors, and from a Republican State Senator from Maine, Richard A. Bennett, who wrote to Sen. Susan Collins (R-ME) urging her to support the resolution. Bennett, a former chair of the state Republican Party, has sponsored a bill to prevent rent-a-bank evasions in Maine, which was unanimously approved by a committee in March.

“The OCC’s fake lender rule is actively being used to defend small business loans with rates up to 268% APR, well above the limits set in the majority of states. Congress must act to overturn this harmful rule, which paves the way for predatory consumer and small business lenders to evade state interest rate caps,” Gittleman said.

Anti-Secrecy Bills Would Untie Product Safety Regulators’ Hands

 Critically important product safety legislation was introduced in the House and Senate last month. Introduced by Sen. Richard Blumenthal (D-CT) in the Senate, and by Rep. Jan Schakowsky (D-IL) and Rep. Bobby Rush (D-IL) in the House, the Sunshine in Product Safety Act would repeal Section 6(b) of the Consumer Product Safety Act, a provision of law that prevents the U.S. Consumer Product Safety Commission (CPSC) from quickly releasing safety information to the public.

“We applaud that Senator Blumenthal, Representative Schakowsky, and Representative Rush are introducing this important legislation to unbind the hands of the CPSC so they can effectively warn consumers about hazards posed by products,” stated CFA Legislative Director and General Counsel Rachel Weintraub. “For too long this provision has prevented the CPSC from doing its job to protect consumers,” she added.

Under Section 6(b), the CPSC is required to give a company an opportunity to comment on a proposed disclosure of information that names a company – or even if the public can “readily ascertain” the product. If the company has concerns about the wording or the substance of the disclosure, it can object. The CPSC must accommodate the company’s concerns or inform them that they plan to disclose the information over its objections. The company can then sue the Commission to stop it from disclosing the information.

“Section 6(b) creates a time-consuming process between CPSC and the affected company that often delays or stops the release of important consumer safety information,” Weintraub stated. She cited an example from 2019, when the CPSC was slow to release information about children’s products that were linked to infant deaths and injuries. “While the CPSC and companies quibbled about wording, consumers unknowingly continued to place their infants in an unsafe product,” she explained, and that delay led to additional deaths.

Broad Coalition Seeks Student Debt Relief

 A broad coalition of public interest organizations from student groups to faith and military organizations wrote to key officials in the Biden Administration in April urging them to take steps to provide relief to millions of Americans burdened by student debt.

CFA joined with nearly 100 other organizations in writing to Secretary of Education Miguel Cardona, urging him to “immediately undertake a review of the broken Public Service Loan Forgiveness (PSLF) program and ensure that all public service workers who have completed a decade of service receive the debt relief they were promised.”

Since the first public service workers became eligible for debt cancellation in 2017, 98 percent of those who applied have been rejected. “Despite reassurances from the Department of Education that these were just initial missteps and that rates of debt cancellation granted under this program would improve over time, year after year we continue to see widespread denials without explanation and no serious effort to address the underlying problems driving this systemic failure,” the letter states.

Actions to address the problem must not be merely prospective, they must also “provide immediate relief, and justice, to dedicated public service workers,” the letter adds. “Throughout the pandemic, these borrowers have remained on the hook for debts they should not owe, taking a heavy psychological and financial toll month after month.”

CFA was also among more than 415 organizations that wrote to President Biden and Vice President Harris calling on them to use “executive authority to cancel federal student debt immediately.” That action would “boost the economy, tackle racial disparities, and provide much-needed stimulus to help all Americans weather the pandemic and the associated recession,” the letter states.

“Before the COVID-19 public health crisis began, student debt was already a drag on the national economy, weighing heaviest on Black and Latinx communities, as well as women,” the groups wrote. “That weight is likely to be exponentially magnified given the disproportionate toll that COVID-19 is taking on both the health and economic security of people of color and women. To minimize the harm to the next generation and help narrow the racial and gender wealth gaps, bold and immediate action is needed to protect student loan borrowers, including Parent PLUS borrowers, by cancelling existing debt.”

CFA Urges SEC Chair to Act Quickly to Fix Advice Standards

In keeping with a 20-year tradition, CFA Director of Investor Protection Barbara Roper greeted newly confirmed SEC Chairman Gary Gensler with a letter last month urging him to act quickly and boldly to strengthen the standards that apply to broker-dealers and investment advisers. The letter details specific steps the SEC can and should take to clarify key components of the existing standards, fix weaknesses in those standards, and study issues related to conflicts of interest and disclosure effectiveness in order to lay the groundwork for further rulemaking.

The bad news, Roper wrote, is that Regulation Best Interest, the Investment Advisers Act fiduciary guidance, and the Customer Relationship Summary all have serious deficiencies. “The good news is that we do not believe it will be necessary to scrap these rules and start from scratch in order to deliver the protections investors expect and deserve when they turn to financial professionals for help with their investments,” she added. “Despite their many flaws, these regulations can provide a framework on which to build a more robust regulatory approach.”

“For decades, the Commission has failed to live up to its central investor protection mission when it comes to the regulation of broker-dealers and investment advisers,” Roper concluded. “You have an opportunity to correct that failure, and we urge you to do so. It is, in CFA’s view, the most important step you can and should take to protect the interests of millions of financially unsophisticated individuals who turn to the markets to save for retirement or other important life goals and desperately need advice they can trust to navigate those decisions. CFA stands ready to do whatever we can to assist you in this effort.”

Groups Urge Facebook Not to Create Instagram for Kids

More than 100 individuals and organizations, including CFA, wrote to Facebook CEO Mark Zuckerberg last month urging him to cancel plans to launch a version of Instagram for children under 13. The letter, spearheaded by Campaign for a Commercial-Free Childhood (CCFC), cites a recently published internal memo indicating that Facebook plans to build “a version of Instagram that allows people under the age of 13 to safely use Instagram for the first time.”

“We agree that the current version of Instagram is not safe for children under 13 and that something must be done to protect the millions of children who have lied about their age to create Instagram accounts, especially since their presence on the platform could be a violation of the Children’s Online Privacy Protection Act (COPPA) and other nations’ privacy laws,” the letter states. “However, launching a version of Instagram for children under 13 is not the right remedy and would put young users at great risk.”

CCFC is also circulating a petition opposing the plan. CCFC cites a “growing body of research” that “demonstrates that excessive use of digital devices and social media is harmful to adolescents.” It warns that, “Instagram, in particular, exploits young people’s fear of missing out and desire for peer approval to encourage children and teens to constantly check their devices and share photos with their followers. The platform’s relentless focus on appearance, self-presentation, and branding presents challenges to adolescents’ privacy and wellbeing.”

“For companies such as Facebook and Google, it’s all about getting young people hooked on social media and other online platforms in order to profit from their purchases and personal data when they’re older,” said CFA Consumer Protection Director Susan Grant. “The motivation for making versions of these services available for kids is exploitation, not safety.”

Report Highlights Needed Electric Sector Infrastructure Changes

 In recognition of Earth Day, CFA released a report – Building a 21st Century Electricity Sector with Efficiency, Distributed Resources and Dynamic Management – outlining the economic, environmental and health benefits of transforming the nation’s energy sector. The report outlines how efficiency and renewable alternatives will create a low cost, low carbon, low pollution energy sector, thereby creating millions of new jobs and distributing them more equitably throughout the country.

The report, authored by CFA Research Director Mark Cooper, examines the four key supply-side components of the new energy economy: efficiency, wind, solar, and batteries. It estimates direct and indirect annual savings of at least $500 per household from a fully transformed energy sector, and as much as $1,500 when declining costs and increasing value of benefits are considered.

“While some question whether the energy transformation belongs in an infrastructure bill,” Cooper stated, “the fact that a majority of economic output in the U.S. is dependent upon reliable energy makes it clear that the electricity sector constitutes a large part of the ‘infrastructure’ and a unique prerequisite to economic development in the 21st century. Transforming the grid involves large scale physical and institutional projects that are built and managed by a small number of entities, which makes them dependent on public policy, and these projects are certainly ‘shovel ready,’” he concluded.