CFA News

CFAnews Update – October 14, 2020

FCC Urged to Leave Reform of Section 230 of the Communications Act to Congress

Section 230 of the Communications Act of 1934 is suddenly in the headlines after President Trump tweeted a call for its repeal last week when one of his tweets was flagged by the social media site as providing misinformation about COVID-19. The President’s tweet came on the heels of a proposal from the National Telecommunications and Information Administration (NTIA) calling on the Federal Communications Commission (FCC) to establish new rules regarding Section 230.

In response to the NTIA proposal, CFA Director of Research Mark Cooper and CFA Antitrust Advocacy Associate Amina Abdu submitted comments to the FCC early last month urging the agency to leave reform of Section 230 to Congress. Section 230 provides online platforms with immunity from civil liability for third-party content and for the removal of such content in certain circumstances.

While acknowledging that “immunity from liability is a serious and important issue that should be addressed as antitrust and regulatory oversight are recalibrated to deal with the digital economy,” Cooper and Abdu argued that “it would be a mistake to deal with these challenging issues in a piecemeal, ‘siloed’ approach. A much more comprehensive review of antitrust and a new regulatory agency are necessary to address the many harms that have been visited on consumers by the dominant players in the digital communications sector,” they argued.

Cooper and Abdu recently published a series of working papers and reports to aide policymakers in addressing problems in the digital communications sector. These reports are especially relevant in this context, since “Section 230 liability raises many issues that are not simply economic in areas like privacy and universal service where the FCC has been entirely ineffective,” Cooper and Abdu stated. “Over-broad immunity also has implications beyond the communications sector in product safety, where platforms use section 230 to avoid liability under safety laws,” they added.

With the FCC likely to take very weak action on issues that fall outside its jurisdiction, such as this, Cooper and Abdu argue this is neither the time nor place for this proceeding, as a serious rebooting of antitrust and regulation of the digital communications sector is needed.

“There are serious questions about whether Section 230’s liability shield has let digital platforms get away with too much, but there is a delicate balance between protecting the Internet as we know it and preventing abuses online,” said Abdu. “We hope Congress will be up to the task of finding such a balance.”

Public Health Authorities Should Keep Tabs on Antibiotic Overuse in Pandemic

Twelve consumer, environmental, and public health groups, including CFA, sent a letter to the Department of Health and Human Services (HHS) and the Centers for Disease Control and Prevention (CDC) in August urging them to better monitor antimicrobial use in COVID-19 patients, and to make the data it collects as widely available and accessible as possible.

Recent studies suggest that healthcare providers may be dramatically overprescribing antibiotics to COVID-19 patients, only a small percentage of whom suffer from bacterial co-infections. At the same time, Trump Administration officials have reportedly sought to redirect the flow of COVID-19-related hospital data to bypass the CDC, a move that would insert unneeded complexity into existing data reporting channels, and would diminish the transparency and completeness of established data repositories maintained by CDC.

In their letter, the groups highlight the need for the CDC to provide more data. Specifically, the groups called for “robust, nationally representative data on antimicrobial use in COVID-19 patients … [and] national data on secondary bacterial infections in COVID19 … including antimicrobial treatment and antimicrobial resistance associated with these infections.”

The groups also note that, while antimicrobials are essential tools for protecting public health, developing resistance to these drugs complicates recovery of patients who have secondary bacterial infections. A large “review of published studies of COVID-19 patients found that while 72% were given antibiotics, only 8% had bacterial or fungal co-infections. [Furthermore] a doctor in Michigan noted that of more than 1,000 COVID-19 cases in Michigan, only 4% of those admitted to a hospital had bacterial co-infections, yet most patients were nonetheless given antibiotics soon after they arrived,” the groups wrote.

This overuse of antibiotics –  along with CDC’s efforts to redirect COVID-19-related hospital data on testing, capacity, resource utilization, and patient flows to HHS – raises serious concerns. As the nation’s primary healthcare-associated infection tracking system, CDC’s National Healthcare Safety Network (NHSN) provides healthcare facilities, states, public health departments and laboratories, and the nation with essential data needed to identify, mitigate, and ultimately eliminate healthcare-associated infections, including co-infections related to COVID-19.

“Depriving NHSN of these important data elements, including information on inpatient administration of the antiviral therapeutic Remdesivir, unduly burdens hospital and State and local data reporting channels already struggling to maintain operability throughout the pandemic,” the groups concluded.

FTC Urged to Study How Commercial Data Uses May Reinforce Bias and Discrimination

Twenty-seven digital and civil rights, racial justice, and consumer groups, including CFA, sent a letter to the Federal Trade Commission (FTC) early last month urging the agency to use its 6(b) authority to help the agency better understand how commercial use of data may reinforce bias and discrimination. Section 6(b) empowers the agency to require companies to answer questions about their conduct and practices for research and other non-enforcement purposes.

The FTC has already launched some high-profile 6(b) investigations, including one last year designed to examine the privacy practices of broadband providers. However, as the FTC carries out these important investigations, it should “…include questions designed to better understand how commercial uses of data may reinforce bias and discrimination against historically disadvantaged communities,” the letter states.

The urgent need to answer these questions is underscored by recent research, the groups argue. “For example, in recent years, research has demonstrated that data-driven search engine ads disproportionately and unjustly suggest that Black people may have arrest records, that social media platforms use algorithms that distribute housing and employment ads disproportionately to different demographic and racial groups, and that algorithms that optimize the distribution of online content for ‘user engagement’ tend to amplify hate speech and other racist content,” the groups write.

The groups included eight questions that the FTC should include in future 6(b) investigations such as: what information the company collects about its users’ race, color, ethnicity, religion, national origin, sex, gender, gender identity, sexual orientation, age, familial status, lawful source of income, or disability; how that information is processed and analyzed; and for what purposes it is collected and processed.

“The Federal Trade Commission must use the full spectrum of powers it has to understand the data companies are collecting about individuals and how they are using it in order to take appropriate action to protect people’s privacy, especially those who are most vulnerable to unfair treatment based on their personal information,” said Susan Grant, CFA Director of Consumer Protection and Privacy.

CFA’s High Cost Lending Lobbying Campaign Goes Virtual

A broad coalition of consumer advocacy, civil rights, social justice, military and veterans, and faith-based organizations joined together this fall to continue the fight to end predatory lending. Participants representing 31 states met virtually with 57 Senators and 61 members of the House of Representatives as part of this year’s version of the annual High Cost Lending Lobby Day, which like other CFA events was moved to the virtual space in response to the COVID-19 pandemic.

The meetings, in which participants advocated for the passage of legislation to enact a federal interest rate cap, the Veterans and Consumers Fair Credit Act (H.R. 5050/S. 2833), occurred over the course of a month from early September to the first week in October. During the event’s kickoff, participants heard from Rep. Chuy García (D-IL), the original sponsor of the House version of the bill. Rep. García highlighted the need for this important legislation, especially in light of the current financial crisis, as well as how predatory lenders target communities of color and especially harm his district, Illinois’ 4th District.

“CFA thanks each of our state and national partners for their commitment to protecting consumers and their hard work throughout this campaign,” said Rachel Gittleman, CFA Financial Services Outreach Manager. “Advocates shared consumer stories and discussed the innovative approaches they are taking to help consumers during this pandemic. We look forward to our continued partnership as we build more support for the Veterans and Consumers Fair Credit Act.”

New Bill Would Prohibit Use of Socioeconomic Factors in Auto Insurance

Sen. Cory Booker (D-NJ) introduced important legislation — S. 4755, the Prohibit Auto Insurance Discrimination (PAID) Act—late last month to address the issue of auto insurers using socioeconomic factors and proxies for race in determining eligibility for auto insurance and premium increases.

Already introduced in the House, where it is sponsored by Representatives Bonnie Watson Coleman (D-NJ) and Rashida Tlaib (D-MI), the PAID Act would be a big victory for both consumers and social justice, according to CFA’s insurance team.

The bill would forbid the use of “income proxies such as a driver’s education level, occupation, employment status, home ownership status, credit score, consumer report, previous insurer, and prior purchase of insurance” to determine if consumers are eligible for auto insurance and to increase their premiums. Insurers currently use these factors as proxies for income, and indirectly for race, and they contribute greatly to systemic racism, according to a short CFA analysis issued in June and a more extensive CFA report issued in 2015.

These qualities “unfairly discriminate against people for reasons that have nothing to do with their driving records,” explained CFA Insurance Expert Doug Heller. “This makes auto insurance more expensive and less accessible to millions of Americans and has the additional effect of increasing the number of uninsured motorists, which raises premiums for everyone on the roads. People should be rated on how they drive, not their job title or if they lost their job; not whether or not they went to college; or whether they rent or own their home; or if their credit score has fallen.”

“The PAID Act would put a stop to that discrimination by working to ensure that consumers are charged more fairly for auto insurance regardless of their race. The United States is currently deep in the grips of a deadly pandemic and a deep economic downturn; and consumers are suffering. Their voices should be heard,” Heller said.

Real Estate Referral Fees: What are they and do they Harm Consumers?

A new report released by CFA last month examining real estate referral fees shows that these fees, typically representing 25% of the commission collected by an agent, do not ensure the best customer service and contribute to high, uniform commission rates across the industry.

Referral fees, the practice among real estate agents of collecting and paying fees to other agents for referrals of consumers who buy or sell a home, are controversial even within the real estate industry, according to CFA’s report. Some agents refuse to collect the fees on ethical grounds.

Yet, while this is a hot-button issue for the industry, most consumers—60% according to the report—do not even know these fees are being charged.

The report, authored by CFA Senior Fellow Stephen Brobeck, finds that the practice of paying referral fees is quite prevalent, with nearly nine in ten (87%) of 1,200 agents surveyed in 2018 reporting that they received income in the previous year from referrals. In general, these fees range from 20-35% of the paid commission. Because the fees do not have to be disclosed, the industry has felt little need to justify the fees in terms of consumer benefits.

Other professions regard referral fees differently, the report notes. “Professions tend to restrict payment of referral fees to a greater extent than businesses. However, all professions and most businesses that permit these fees require or expect their disclosure. Typical fee levels, when representing a percentage of earned income, are usually below, often well below, the 25 percent fee typically paid by residential real estate agents.”

Whether real estate referral fees are harmful to consumers “depends on whether these fees tend to increase commission levels or reinforce their current high levels,” the report explains. “It also depends on whether the referring agent provides substantial value to the consumer in terms of useful information/advice and referral to an agent who provides good value.” While referral fees do not appear to have raised real estate commissions, they “clearly have supported, perhaps substantially, the current compensation system of high and relatively fixed commissions,” the report finds.

Consumers can be better protected and informed in three ways, according to the report: by decoupling listing and buying agent commissions, by having government play a role in investigating the practice of reverse competition, and by insisting on disclosure of referral fees.

Brobeck also offers some advice to consumers in dealing with referral fees and picking an agent:

  • Consumers should be aware that any referral from an individual agent or referral firm is likely to generate a fee that will make it more difficult to negotiate a lower commission charged by the referred agent.
  • Consumers should be especially wary of utilizing the services of referral agencies. Even if the referred agent is experienced and local, given the relatively high fees they are charged, they will be less likely to be willing to accept a lower commission.
  • Consumers now have the ability to search effectively and efficiently for their own agent. They can check out any agents suggested by friends and associates using information sources such as Zillow’s Agent Finder, which provides extensive information about a large majority of active agents. They can then interview several of these agents, asking a range of questions about representation, commission, and quality of service.

Delaware Court Decision Could Seriously Weaken Shareholder Rights

A decision by the Delaware Supreme Court earlier this year could open the door to broad new restrictions on shareholder lawsuits, with harmful implications for both investor protection and market integrity, according to a white paper released last month by Consumer Federation of America.

The white paper, Caution: Slippery Slope, How Delaware Supreme Court’s Blue Apron Decision Could Harm Investors and Undermine Market Integrity, examines the broader investor protection implications of the Court’s decision in Salzberg v. Sciabacucchi (commonly referred to as “Blue Apron”). That decision addressed a relatively narrow, though important issue – whether it is permissible under Delaware law for corporations to adopt charter provisions that require shareholder lawsuits under the federal Securities Act of 1933 to be brought exclusively in federal, rather than state, court. The court ruled that such provisions were facially permissible under Delaware law.

The paper details the logic the court used in its ruling that exclusive federal forum provisions for claims under the Securities Act of 1933 are facially permissible under Delaware law, then examines how that same logic could be used to justify much more extensive incursions into shareholders’ rights. “Taken to its logical extreme, the court’s ruling that corporations can include in their charters ‘any provision’ related to ‘the management of the business’ and the ‘conduct of the affairs of the corporation’ could result in its being applied much more broadly, including in areas with significant implications for investor protection and market integrity,” said CFA Director of Protection Barbara Roper.

While the paper does not predict how courts will decide these issues, it looks specifically at eight scenarios in which there is a plausible risk that the decision could be used to limit shareholder’s rights, with potentially harmful impacts on both investor protection and market integrity. It asks:

  • Will corporations be able to bind shareholders without their express consent?
  • Will corporate boards be able to regulate a broader range of investor claims?
  • Could the decision effectively eliminate shareholders’ ability to bring securities law claims derivatively?
  • Could corporations opt shareholders out of aspects of the federal securities laws, such as shareholder proposals?
  • Could corporations force investors to litigate federal securities law claims in private arbitration on an individual basis?
  • Could the decision enable corporations to include fee-shifting provisions for federal securities law claims?
  • Could the decision create a path for corporations to force internal corporate claims into arbitration?
  • Does the decision intrude on other states’ ability to protect their citizens and raise other federalism concerns?

The paper concludes that the risk of bad outcomes for investors are significant enough that they warrant a policy response, through the adoption of federal or state legislation, or both. “While we are not predicting how courts ultimately will decide these issues, the potential for harm is too dire for us to just sit back and hope for the best,” Roper said. “We need to be thinking now about the proper policy response. This white paper is intended to help launch that discussion.”