CFPB Considers Limiting Class Action Bans in Consumer Contracts

The Consumer Financial Protection Bureau (CFPB) announced last week that it is considering proposing rules that would prohibit consumer financial companies from including arbitration clauses in customer contracts that prevent consumers from participating in class action lawsuits. Although the proposal falls short of the total ban on forced arbitration clauses long sought by consumer advocates, CFA Director of Financial Services Tom Feltner called the Bureau’s announcement “an important step forward in ensuring that consumers have access to the court system to seek relief when they have been harmed by a financial practice.”

“Financial services providers include arbitration agreements in their contracts for the purpose of limiting a consumer’s access to relief,” Feltner said in a press statement.  “This proposal, if finalized, would restore consumers’ ability pursue class actions when abuses are widespread and provide an important deterrent to future bad practices.”

Arbitration agreements are included in contracts for a wide range of consumer financial products, including credit cards and payday loans, and require that consumer claims be decided by a private entity chosen by the company rather than a judge and jury. In March 2015, the CFPB conducted a comprehensive study of arbitration clauses that found that consumers rely on class actions to achieve relief and that arbitration clauses act as a barrier to important class actions.

While the proposal would prohibit such class action bans, the proposal does not propose to eliminate arbitration clauses that prevent consumers from pursuing claims against a company as individuals.  Instead, the proposal would require companies to disclose the number of claims filed and awards issued in arbitration.

“Disclosure alone is not enough to protect consumers’ right to hold financial providers accountable for abusive practices,” said Feltner. “We urge the Bureau to prohibit arbitration agreements that limit consumers’ access to justice as part of a class action or individually.”

Amid Signs of Growing Support, DOL Moves to Final Stages on Fiduciary Rule

Amid growing signs of strengthened backing among congressional Democrats, the Department of Labor has closed the comment period on its rule to strengthen protections for retirement savers by requiring all financial professionals who provide retirement investment advice to act in their customers’ best interests and minimize conflicts of interest that interfere with that standard.  Barring interference from Congress, the Department is expected to finalize the rule sometime early next year.

In a comment letter submitted during the second round of comments, CFA reiterated its support for the rule proposal and called on the Department to resist industry efforts to water down the core protections of the rule.  The letter counters industry arguments aimed at reopening loopholes in the definition of fiduciary investment advice and weakening the fiduciary standard that applies to such advice and offers concrete suggestions for how sales-based financial firms can reform their compensation practices to better align with the best interest standard.

“While adjustments can and doubtless will be made to clarify and streamline certain of the rule’s operational requirements, the rule’s overall framework is sound,” said CFA Director of Investor Protection Barbara Roper in a press statement.  “None of the alternatives suggested by industry come close to matching its comprehensive protections, and nothing that industry has submitted during the comment process should deflect the Department from its goal of moving forward quickly to finalize this rule with its core provisions intact.”

In addition to attacking core provisions of the rule, industry opponents have submitted a variety of “studies” seeking to call into question the economic justification for the rulemaking.  The CFA letter scrutinizes these studies and concludes that most are simply advocacy pieces dressed up as economic analysis.

“These industry studies are not serious economic analyses. They have some common characteristics, including misrepresenting market data that is publicly available, making unsupported claims based on proprietary data that they refuse to make publicly available, and engaging in wild speculation about the rule’s effects without any basis in logic or fact,” said CFA Financial Services Counsel Micah Hauptman. “We’re confident that the Department will see through the glaring holes in these baseless industry attacks on their analysis.”

One week after the comment period closed, the House Financial Services Committee approved legislation (H.R. 1090) that would halt the Department of Labor’s efforts to strengthen protections for retirement savers and erect new barriers in the way of long-delayed Securities and Exchange Commission rulemaking to impose a fiduciary standard on broker-dealers when they provide retail investment advice.

In a press statement released in the wake of the vote, Roper pointed to the largely party-line vote as a sign of growing Democratic support for the Department of Labor’s rule proposal.  Only one panel Democrat, Rep. David Scott (D-GA), voted in favor of the bill.  Similarly, while a number of Democrats have sent letters calling on the Department to make adjustments to the rule before it is finalized, these letters have been focused on operational issues designed to make the rule easier to implement, rather than on its core protections.

“Clearly, Democratic support for the Department of Labor rulemaking has solidified as members have recognized that the rule that has been proposed is balanced, that the Department is open to making reasonable changes to make the rule more flexible and streamlined, and that retirement savers cannot afford to wait for an SEC rulemaking that may never come,” Roper said.

CFA Calls for Strengthened Truck Fuel-Economy Standard

In a comment letter filed earlier this month with the National Highway Transportation Safety Administration (NHTSA) and Environmental Protection Agency (EPA), CFA voiced strong support for the agencies’ proposal to increase national fuel-economy standards for medium- and heavy-duty trucks but urged the agencies to consider even greater efficiency gains. A well designed proposal would both cut costs to consumers and benefit the economy, CFA argued.

“This is a key consumer issue, and NHTSA and EPA are on the right track,” said Mark Cooper, CFA’s research director. “The freight truck industry is dripping with potential to increase their miles per gallon. And these performance standards are an effective way to realize that potential.”

Moreover, consumers understand these benefits.  According to a survey conducted earlier, the vast majority of consumers (over 90 percent) understand that “some, most, or all” of the fuel costs of heavy-duty trucks are passed on to consumers, and a large majority (71 percent) support requiring manufacturers to increase the fuel economy of these vehicles. CFA research indicates that a higher fuel efficiency standard has the potential to save American families almost $1,200 per year.

While NHTSA and EPA have made positive steps towards creating a reasonable fuel efficiency standard, there is still a great deal of potential to increase fuel savings with an even higher fuel-economy standard, CFA argued in its letter.  Accordingly, it urged the agencies “to provide a much more thorough, evidenced-based discussion of why so much cost-beneficial energy savings has been left untapped.”

Senate Panel Urged to Investigate Healthcare Mergers

Nine consumer and labor groups sent a letter to the Senate Antitrust, Competition Policy, and Human Rights Subcommittee last month urging the panel to “undertake a thorough investigation” of proposed mergers between Anthem and Cigna and Aetna and Humana. By reducing the number of major health insurers from five to three, the proposed mergers would substantially lessen competition and thus pose the threat of substantial harm to millions of consumers, the groups wrote.

“Consumers are concerned that the market power achieved post-mergers will allow both Aetna and Anthem to raise costs on consumers while simultaneously eliminating innovation. According to one health economics expert at the University of Southern California’s Schaeffer Center for Health Policy and Economics, ‘when insurers merge, there’s almost always an increase in premiums,’” the groups stated in their letter. “There is little dispute that there is a direct correlation between insurance concentration and higher premiums. In fact, evidence shows that a state’s largest insurance company can increase its rates 75 percent higher than smaller insurers within the same state.”

“Given the current consolidated nature of healthcare system, the past-evidence of harm from prior insurance mergers, and the market overlaps in this matter, we believe the parties should provide answers and analysis on why these mergers would not substantially lessen competition in violation of the antitrust laws,” they concluded.

Groups Urge Agencies to Move Forward on Home Energy Efficiency Standards Affecting Federal Housing

A broad coalition of consumer and environmental groups wrote to the heads of the Department of Housing and Urban Development, the Office of Management and Budget, and the Department of Agriculture last month urging them to move forward without delay to issue an advance notice toward updating the energy efficiency requirements for public housing and  new homes with federally assisted mortgages to meet the latest model energy building codes.

“For more than two decades federal law has required that new homes with federally assisted mortgages and new public housing meet minimum energy efficiency standards,” the groups wrote. “This smart policy protects homeowners and renters in those homes from high energy bills, protects the agencies from loan defaults by reducing volatility of homeowner expenses, improves housing stock, and protects the environment by reducing energy waste. It also promotes federal policy under the Energy Policy Act of 1992 and the Recovery Act that encourages or requires states to adopt up-to-date building energy codes and improve compliance efforts.”

“Given the benefits to homeowners, federal agencies, and the environment, as well as the legal requirement, we urge you to issue the advance notice immediately, and to move quickly to complete the determination in less than a year,” the groups wrote.