Trump’s Proposed Decision to Freeze Light Bulb Standards Will Cost Consumers almost $173 Billion

Following a recent U.S. Department of Energy (DOE) decision to roll back efficiency standards for certain categories of lighting products, CFA submitted comments on the agency’s notice of proposed determination that no lighting standards are needed calling into question the analysis upon which the proposed decision was based.

The DOE’s Proposed Determination essentially will freeze efficiency levels of all General Service Incandescent Lamps (GSILs). As CFA has pointed out previously, it is based on flawed assumptions and methodology.

• In its analysis, the DOE only looked at one single technology that is extremely and unjustifiably high in cost ($7.00/bulb), low in efficiency (only 34.5 lumens/watt), and has a very short lifespan (only 1,000 hours).
• Meanwhile, the best alternatives available in the market today are less than half the cost ($3.00/bulb), have almost three times more efficiency (88.9 lumens/watt), and last 15 times as long (15,000 hours).

“For the Department of Energy to fail to recognize the best and increasingly most prevalent technology when evaluating the merits of its standards is simply gross negligence,” said CFA Director of Energy Programs Mel Hall-Crawford. “If the DOE had analyzed the lighting technologies available today, rather than only older high cost, low efficiency, short-life options, it would have concluded that a reasonable, performance-based standard would save consumer billions while addressing climate change at the same time.”

In its comments, CFA also analyzed the macroeconomic impact of DOE’s Proposed Determination. In the aggregate, taking a 30-year time horizon, CFA’s analysis estimates the following costs would be imposed on consumers by the Administration’s action:

• it would cost consumers over $80 billion;
• the environmental/public health costs would be nearly $20 billion; and
• macroeconomic losses would be $73 billion.

“The DOE’s decision to freeze standards for lighting products will cost consumers almost $173 billion in foregone benefits,” explained CFA Director of Research Mark Cooper.

“It is important to note is that the agency has violated executive branch regulatory guidance issued over almost 40 years ago by the Presidents of both parties which lay out the requirements by which regulations are to be considered and adopted. The failure to conduct sound benefit/cost analysis as part of the regulatory review is so egregious it has led the DOE to violate the underlying statute,” Cooper continued.

In short, the DOE’s proposed action contradicts four decades of strong political consensus on the goals of the standards, as expressed by Congress in the original legislation, the Energy Policy Conservation Act, and the most recent amendments to the underlying law in 2007, CFA argued in its comments to DOE. For these reasons, CFA called on the DOE to withdraw its Proposed Determination, expand the coverage of standards for lighting products, and faithfully enforce the backstop performance standard of 45 lumens/watt as enacted by Congress.

“This Administration’s assault on energy efficiency standards in general, and lighting standards in this case is unconscionable. Consumers, our economy and the environment are being unnecessarily harmed”, concluded Hall-Crawford.

Landmark Bipartisan Bill Would Protect Veterans and Consumers At-large from Predatory Lending

Bipartisan legislation was introduced in the House and Senate earlier this month to extend Military Lending Act (MLA) protections against predatory lending to veterans, Gold Star Families, and consumers at-large by capping interest rates at 36%.

The Veterans and Consumer Fair Credit Act (VCFCA) was introduced by Rep. Jesús “Chuy” Garcia (D-IL) and Rep. Glenn Grothman (R-WI) in the House and Sen. Sherrod Brown (D-OH), Sen. Jeff Merkley (D-OR), Sen. Jack Reed (D-RI), and Sen. Chris Van Hollen (D-MD) in the Senate. “This bipartisan bill is an incredibly important piece of legislation that extends a critical protection for servicemembers to all consumers,” stated CFA Director of Financial Services Christopher Peterson. “A super-majority of both Republican and Democratic voters support reestablishing the traditional interest rate limits that were in effect throughout the vast majority of American history,” he added.

Payday loans, car title loans, and similar forms of high-cost debt have long put families at risk of financial instability due to their triple-digit interest rates. Moreover, problems with the repayment of payday loans and similar forms of high-cost debt rarely end with the next paycheck. Instead, predatory loans trap families in cycles of debt with triple-digit interest rates, leading to ever-increasing loan balances that the vast majority of borrowers will struggle to repay. In fact, more than 80% of payday loans are re-borrowed within two weeks, and lender profits depend on a consistent cycle of re-borrowing.

The MLA, which was passed in 2006, caps the Annual Percentage Rate (APR) on loans offered to servicemembers and their families at 36%. Unfortunately, the MLA does not protect veterans, their surviving family members, or the broader American public. The VCFCA would close that gap.

It would also reinforce the MLA itself following an earlier Consumer Financial Protection Bureau (CFPB) decision to stop including MLA compliance within the agency’s preventative audits of lenders, banks, and other financial companies. That move by the CFPB drew widespread condemnation by consumer rights organizations, Members of Congress, and military and veteran support organizations. If adopted, the VCFCA would effectively force the CFPB to resume including MLA compliance within preventative exams.

“The Military Lending Act provided essential protections to our active duty servicemembers, who despite their service to our country had been relentlessly targeted by unscrupulous lenders. It is time that Congress extend this protection to veterans and their families who can be similarly targeted today. Ultimately the VCFCA will prevent consumers from falling prey to debt traps by restoring reasonable interest rate limits, which existed at the founding of our nation.” concluded Peterson.

Federal Appeals Court Rules that DOE Illegally Delayed Four Efficiency Standards

A favorable decision was rendered by the 9^th Circuit in a lawsuit filed by CFA, other groups along with states and municipalities to compel DOE to publish the 4 efficiency standards that were signed under President Obama – covering portable air conditioners, air compressors, commercial package boilers, and uninterruptible power supplies. The court affirmed the District Court’s decision that DOE did not have discretion to keep from publishing the rules.

“Efficiency standards for these products are way overdue and should never have been held up.  Consumers will benefit from these rules through savings on their energy bills and through broader economic benefits that will flow to them in the form of lower costs in goods and services when the commercial and industrial sectors reduce energy consumption,” said CFA Director of Energy Programs Mel Hall-Crawford.

FCC Urged to Reject Telemarketer’s Effort to Circumvent Robocall Consent

CFA joined with other consumer groups to file comments with the Federal Communications Commission (FCC) last month urging the agency to reject a telemarketer’s argument that calls made with soundboard technology should not be considered robocalls requiring consumers’ consent to receive.

Yodel Technologies LLC (Yodel) requested that calls made with soundboard technology—which uses audio snippets of prerecorded voices in calls to customers—should not be governed by the explicit requirements imposed on calls with a prerecorded voice under the Telephone Consumer Protection Act (TCPA). Failing that, Yodel asked for a retroactive waiver from the liability it faces from a federal court determination that it violated TCPA by making tens of millions of telemarketing calls without consent.

The consumer groups stated that neither of these requests is justified, and both requests would be contrary to current law. The groups made five major points:

• The statue is clear: calls with prerecorded voices require consent. It does not apply only to calls that are “entirely prerecorded,” as Yodel claims.
• Congress explicitly imposed the consent requirements on calls in which a human plays a prerecorded audio clip, as is evident from the legislative history.
• The FCC lacks authority to exempt the petitioner’s prerecorded telemarketing calls from the TCPA. Under the TCPA, the FCC has the authority to dispense with the called party’s prior express consent for calls to residential lines that use a prerecorded voice only if the calls are not made for a commercial purpose, will not adversely affect the privacy rights that the TCPA is intended to protect, and do not introduce any advertisements.
• Both a federal court and the Federal Trade Commission have considered this exact issue and found that these calls require consent.
• There is no authority or adequate basis for a retroactive waiver. It is Congress, not the Commission, which specifically articulated the prohibitions against making “a call to a residential telephone line using a prerecorded voice to deliver a message without prior express consent of the called party.” The FCC has no authority to grant a waiver of a statutory requirement, regardless of whether the request is based on a claim that the petitioner misunderstood the requirement.

The consumer groups reminded the Commission that it has said repeatedly (including in a recent tweet) that: “Unwanted calls—including illegal and spoofed robocalls—are the FCC’s top consumer complaint and our top consumer protection priority.” If the Commission were to grant this petition, the groups warned that the result would undoubtedly be an escalation in unwanted, unconsented-to telemarketing calls to the American public.

”This company can yodel all it wants, but it can’t escape responsibility for complying with consumers’ robocall rights,” said Susan Grant, CFA Director of Consumer Protection and Privacy.

 House Votes to Empower SEC to Improve Disclosures

On a party-line vote of 229-185, the House voted last month to adopt legislation that would improve the disclosures the retail investors receive about both investment products and investment professionals by requiring the Securities and Exchange Commission (SEC) to incorporate disclosure effectiveness testing into their development and review process.

CFA sent a letter to members of the House in advance of the vote, urging their support for H.R. 1815, the SEC Disclosure Effectiveness Testing Act.

“The sad reality is that the disclosures investors receive when choosing investment professionals or evaluating investment options often do a poor job of conveying critically important information in a way that typical retail investors can understand,” CFA wrote. “This includes cost disclosures that don’t clearly convey costs, risk disclosures that don’t clearly convey risks, and conflict of interest disclosure that do not clearly convey the nature or impact of those conflicts.”

The legislation is necessary, according to CFA Director of Investor Protection Barbara Roper, because the SEC has failed to take action to address a problem it has been aware of for many years. “Instead, recently developed disclosures, such as the new Customer Relationship Summary for brokers and advisers and a proposed summary prospectus for variable products, simply perpetuate the problems that have plagued previous disclosures. The SEC can and should do better in designing disclosures that typical investors can understand. H.R. 1815 would help to ensure that they do,” she added.

“Disclosure is both an important investor protection tool and a regulatory requirement that imposes significant costs on industry,” the letter concludes. “We, therefore, have an obligation to make those disclosures as effective as possible. H.R. 1815 would help to achieve that goal by updating the SEC’s approach to disclosure development. Anyone who supports common sense, evidence-based regulation should support this legislation.”

90 Years After the Crash of ’29, Markets are Once Again at Risk

In commemoration of the stock market Crash of ’29, which ushered in the Great Depression, CFA Director of Investor Protection published a blog arguing that our markets are once again at risk, with the biggest threat coming from the agency created in 1934 to police those markets – the Securities and Exchange Commission (SEC).

In responding to those cataclysmic events, Congress took steps to ensure that never again would companies be permitted to sell their securities to the general public without first providing the “essential facts” necessary to estimate the securities’ worth. That simple principle of transparency was the bedrock on which this country built capital markets that were the envy of the world, fueling an extraordinary and extended period of economic growth and innovation.

Unfortunately, that lesson appears to have been forgotten in recent years. And, with the health of our public securities markets at risk and trillions of dollars being raised in opaque private offerings, the SEC is threatening to further expand private markets at the expense of both our public markets and investor protection.

This shift to private capital raising has been bad for investors. When promising companies choose to remain private for years, those who want to invest in these companies while they are still growing must forsake the transparent public markets for private markets, where information is scarce, liquidity is limited, pricing in inconsistent and unreliable, and trading costs are sky high. Individual investors are at a particular disadvantage in private markets, stripped of regulatory protections designed to ensure they operate on a level playing field and offered access to only those deals shunned by larger institutional investors.

“On this 90^th anniversary of the Crash of ’29, we call on the SEC to recommit to that mission of promoting transparent markets. To do so, it will need to reverse course on its current deregulatory private offering agenda and look instead to rebuild the health of our public markets. Ultimately, the stability and vitality of the U.S. economy could depend on it,” the blog concludes.

Lack of Transparency Regarding Real Estate Commissions Undermines Competition

Only about one-third of Americans know that a typical real estate commission is five or six percent, according to a new report released by CFA last month, undermining price competition and driving up costs to consumers.

The report, which focused on real estate commissions and consumer knowledge, was based on a website study of over 250 agent and broker sites, conversations with 200 agents across 20 cities, a national representative survey of 2000 Americans, and a literature review. It found a number of commonalities among real estate firms and agents, including that traditional firms and agents:

• Do not advertise their commissions;
• Do not include information about their commissions on their websites;
• Rarely mention that commissions are charged (on these websites);
• Usually do not provide information about full commission levels during general phone inquiries; and
• Usually do not quickly provide information about commission levels in conversations with prospective home sellers in response to queries about seller costs (though eventually, nearly all did).

“The reluctance of traditional real estate agents and firms to provide information about commission levels helps explain why there is so little price competition in the industry,” noted CFA Senior Fellow Stephen Brobeck. “It also helps explain why most consumers, even recent home buyers and sellers, do not know that nearly all commissions range between five and six percent.”

The report also details the costs to consumers due to price opaqueness as well as how the lack of information potentially disadvantages buyers. In general, agents face little pressure to reduce commissions that represent a relatively large consumer expenditure – usually $15,000 to $18,000 on the sale of a $300,000 home. Sellers pay this commission.

According to CFA conversations with 200 agents in 20 cities, however, if the sellers inquire about its level, they are typically informed by listing agents that, if the seller offers a commission to buyer agents that is below the typical local level (usually 2.5% or 3%), these agents are less likely to show the home. And most listing agents (73%) refused to negotiate down their own portion of the commission.

Additionally, nearly all Multiple Listing Services restrict buyer access to information about the commission split to the buyer agent. This is a problem, Brobeck noted, because, if buyers were able to negotiate down the commission split, sellers might be more willing to lower the sale price of the home (without a loss of net income). Buyers without adequate information on commission splits are also vulnerable to steering by buyer agents away from low-commission properties.

In the conversations with 200 listing agents, the report uncovered that commission levels are highly uniform in most local markets. A large majority of all the rates quoted by these agents (70%) were for six percent. Most of the remaining rates quoted (19%) were for five percent. In local markets, there was even greater rate uniformity. In five of the 20 areas, all agents quoted a six percent rate. In ten other areas, seven to nine agents (out of ten) quoted the same rates.

The conversations with listing agents also revealed that only 27 percent said they would be willing to negotiate their rates. Those agents charging the highest rates in an area were most likely to be willing to negotiate, and vice versa. This conflicts with industry’s typical response to inquiries about commission levels, which is that “they are negotiable.”

The report suggests five ways that real estate commissions could become more transparent if:

• In initial interviews with listing agents, more home sellers asked about commission levels and the willingness of agents to negotiate them down.
• In initial interviews with buyer agents, buyers asked about commission splits and whether they would be shown homes with relatively low splits.
• Consumer groups, journalists, and other third parties provided more information locally about commission levels and their negotiability.
• The U.S. Department of Justice continued to investigate the lack of price competition related to commission splits and then requires remedial action.
• Other Multiple Listing Services (MLS) joined the Pacific Northwest MLS in permitting brokers to make available to home buyers commission splits offered on individual properties.

“The industry is beginning to feel more pressure from litigators and regulators to increase price competition,” stated Brobeck. “We believe that more visible pricing would not only lower costs for consumers but also increase consumer confidence in agents who play a critical role in most home sales,” he concluded.