CFA News

CFAnews Update – October 16, 2018

Public Interest Groups Urge Opposition to the “GRATER Act”

Public interest groups are calling on the House Oversight and Financial Services Committees to oppose H.R. 5381, the “GRATER Act,” which would require federal agencies to transfer all credit and guarantee risk assumed by the government to the private sector, to the maximum extent possible.

In a September letter to members of the two committees, CFA, Americans for Financial Reform, Center for Responsible Lending, Consumer Action, National Community Reinvestment Coalition, New Jersey Citizen Action, Prosperity Now, and Woodstock Foundation argued this mandate would put Wall Street in the driver’s seat in the pricing and execution of critical federal guarantee programs, ranging from mortgage and student lending to disaster relief, and could result in significantly increased costs for taxpayers.

In their letter, the groups noted that transferring credit risk to the private sector does not necessarily minimize the cost of such risk to taxpayers, since the private sector must be compensated to accept credit risk and the cost of such compensation often exceeds the financing costs that would be experienced by the federal government.

“In times of financial stress private sector guarantors are more likely to be unable to execute on their credit guarantees than the Federal government is,” they wrote. “Experience has shown that in times of stress investors often prefer to deal with the government and private sector guarantors may fail to deliver on credit guarantees.” They cited several examples of this during the financial crisis, including the failure of almost all private sector bond insurers, the inability of mortgage insurers to cover losses, and the exit of private lenders from student loan markets, which led the federal government to intervene to ensure students could continue to receive funding for college.

“This means that both taxpayers and beneficiaries of guarantees can benefit from risk guarantees that are assumed by the Federal government in a clear and transparent way,” the groups explained. “The appropriateness of private sector risk transfer is a highly context-specific determination. The sweeping mandate to transfer all risks to the private sector in HR 5381 is misguided and appears designed more to benefit financial intermediaries who want Federal government business than it is to benefit taxpayers or the public.”

In addition, the groups noted that the bill’s broad mandate to transfer all possible credit risk to the private sector could lead to profound changes across the varied financial markets where federal risk guarantees and backstops exist, including mortgage debt, student debt, and disaster insurance including flood and earthquake insurance. As a result, the bill’s implementation could lead to an increase in costs and a decline in funding reliability during emergencies, among other concerns.

“At the very least, much more study is called for in considering the kind of radical mandate included in HR 5381,” they concluded.

Privacy Hearings, Bills in Congress Raise Concerns for Advocates

The debate over privacy is heating up in Congress, spurred by the implementation of the General Data Protection Regulation in Europe and a new privacy law recently enacted in California. As the Senate Commerce Committee hearing was planning a hearing in September on “Examining Safeguards for Consumer Data Privacy,” CFA and other consumer and privacy groups sent a  letter to Senators John Thune (R-SD) and Bill Nelson (D-FL), chairman and ranking member respectively, complaining that only companies had been invited to testify and pointing out that consumers’ perspectives are essential to an informed discussions of the issues. CFA also submitted comments to the committee in advance of the hearing. “CFA’s view is that comprehensive federal legislation on privacy should only be undertaken if it is based on the premise that Americans have an inherent right to privacy and if it will require respect for that right to be integral to the development of commercial products and practices,” wrote CFA Director of Consumer Protection and Privacy Susan Grant.

“In far too many cases, Americans’ personal information is exploited, not protected. We see debacles such as the Cambridge Analytica case, in which consumers’ data was used for secondary purposes they never imagined or desired and the Equifax data breach where there did not seem to be a process for ensuring the security of highly sensitive information about millions of Americans,” Grant added.

“If Congress wants to undertake a serious effort to protect Americans’ privacy and encourage business models to be built on respect for this vital principle, it should consider legislation that guarantees individual privacy rights, ensures their just and fair treatment, places specific obligations and responsibilities on entities that handle their data, affirms the federal government’s role in protecting it, and gives an agency sufficient authority and resources to do the job,” Grant wrote. “Furthermore, Congress should not interfere with states’ abilities to provide stronger protections for their constituents when needed.”

The committee has now scheduled another hearing, on October 10, that includes witnesses from consumer and privacy groups, academia, and the European Data Protection Board.

In another privacy-related matter, CFA joined other organizations in a letter to members of the House Financial Services Committee in September, urging them to vote against H.R. 6743, the “Consumer Information Notification Requirement Act.”

The bill – which might also be called the “Equifax Protection Act,” according to the groups – largely restates, and in some instances even narrows, modest data breach requirement currently in place while broadly preempting state authority.

The bill’s preemption provision is particularly dangerous, the groups argued, because it “replaces a narrow preemption provision in the existing GLBA with a sweeping provision that could not only eliminate all state data breach notice, data security and other privacy laws as they apply to financial institutions as broadly defined, but forestall further state innovation to protect their citizens from future privacy, data security threats.”

Consumer Groups Tout Benefits of Fuel Economy Standards

On Sept. 25, Jack Gillis, CFA’s Executive Director, testified on the Administration’s proposal to roll back money-saving fuel economy standards at a joint EPA/DOT hearing held in Dearborn, MI.  He spoke in support of the current standards saying, “The empirical basis for the standards is overwhelming. They deliver massive benefits to consumers and the nation. Hundreds of billions of dollars are split between pocketbook savings (50%), macroeconomic growth stimulus (30%) and environmental, health and other public benefits (20%).”  He highlighted the following: our economic analysis shows that fuel efficiency saves consumers money and sells vehicles; the benefits outweigh the cost and that consumers are buying more efficient vehicles, vehicles today are safer, lighter and more fuel efficient, and that the car companies are on track to comply with the standards in place.

CFA Director of Energy Programs, Mel Hall-Crawford testified at the public hearing in Fresno, CA. She explained the standards’ tremendous benefits to consumers, stating, “Since 2012, when the standards went into effect, the average efficiency of the American car fleet has risen by 3 miles per gallon. A consumer will save over $2,000 over the life of a vehicle (about 11 years) after the cost of the fuel saving technology is paid back. The proposed rollback will rob consumers of even greater savings.”

In addition to rolling back the popular national fuel economy standards, the Trump Administration has indicated that it plans to prevent states from adopting their own higher fuel economy standards. States have been able to set their own fuel economy standards since 1975, when the policy was adopted by the Ford Administration. Currently, twelve states and Washington D.C., representing 113 million Americans and over a third of the automotive market, have adopted an alternative standard. Two out of three Americans support their state’s ability to adopt fuel economy standards that result in greater fuel efficiency.

“The Administration’s proposal to roll back the fuel economy standards and revoke the authority of states is ill founded, misguided and will hurt American consumers and our economy. The Consumer Federation of America firmly believes the reasonable, achievable and money-saving standards, for which a strong record has been established, should remain in place without any changes that would weaken them and erode consumer benefits,” concluded Hall-Crawford.

Representatives of CFA member organizations: CalPIRG, PIRGIM and PennPIRG also testified at the field hearings (in Fresno, Dearborn, MI, and Pittsburg, PA respectively) making the consumer benefits case in support of the standards, especially to their states and spoke in opposition to the rollback.

Consumers Oppose Proposal to Roll Back Fuel Economy Standards According to Recent CFA Report

A significant majority of Americans support the nation’s current fuel economy standards, which are set to increase to 42 miles per gallon (MPG) on average by 2025 for cars and light duty trucks. This support is in contrast to the Administration’s plan to freeze the highly popular and cost-saving standards at their 2020 level, or roughly 24% below their original target.

According to a new CFA report, Consumer Attitudes Toward Fuel Economy Standards, released in September, 69% of Americans surveyed support the standards. Support is bipartisan, with 61% of Republicans, 77% of Democrats, and 66% of Independents in favor. In states where the economy is dependent on the auto industry, particularly Indiana, Michigan, Missouri, and Ohio, support for the standards is even stronger at 78%.

Since 2007, when CFA began surveying consumer attitudes toward fuel economy, overall support for fuel economy standards has been trending upward. Even during the recent years of lower gas prices, the level of support has remained strong and consistent.

CFA research shows that consumers not only say they support the standards, but are using their dollars to prove it. For example, SUVs, pickups, and crossovers whose MPG increased by over 15% from 2011 to 2017 saw a 70% increase in sales. On the other hand, those same vehicles with less than a 15% increase in MPG from 2011 to 2017 only experienced a 50% increase in sales. 

Consumers understand that the technology needed to increase fuel economy costs money, and may increase the overall vehicle cost. Three out of five consumers surveyed said they would accept a higher initial price for a vehicle knowing that savings on fuel costs would be “paid back” within three years. This builds on historical trends. In May 2011, CFA found that 64% of survey respondents supported a 46 MPG standard with three-year and five-year payback periods. Even a 10-year payback period saw clear majority support (58%).

The Trump Administration has attempted to justify its fuel economy rollback by claiming that higher standards would diminish auto safety, reasoning that more fuel-efficient cars will cause people to drive more, and therefore result in more crashes. In reality, today’s more fuel-efficient vehicles are also safer. CFA analysis has shown that 2018 model vehicles are safer, more fuel efficient, and weigh less than their previous models. Another CFA analysis has shown that the “all-new” 2018 vehicles now include 60% more safety features compared with their pre-standard counterparts.

Of all the survey responses, rejection of the Administration’s safety claim is the strongest and most uniform across political identification. A significant majority of consumers (76%) rejected this rationale, including 60% of Republicans, 80% of independents, and 90% of Democrats.

CFA Warns Consumers Against Potential Flood of Water Damaged Vehicles

When Hurricane Florence raged through the Carolinas in September, it flooded thousands of vehicles. Now, there’s a chance unscrupulous sellers will try and sell potential dangerous flood damaged vehicles, CFA Executive Director Jack Gillis warned in a press release. While these vehicles should have their titles marked flood damaged and go to salvage yards, “many will likely re-enter the market as used cars,” Gillis said. “Because of the computerization, electronics and sophisticated safety technology in today’s vehicles, it’s critical that you avoid getting stuck with one of these lemons.”

CFA provided tips for consumers on how to avoid flood damaged vehicles, including:

  • Check the VIN (Vehicle Identification Number) which is located on the driver’s side dashboard, visible through the windshield, against the National Motor Vehicle Title Information System established by the U.S. Department of Justice. You’ll have to pay a small fee for the information, but it’s the most comprehensive data base. You can also check with the National Insurance Crime Bureau (NICB) or CarFax (both currently offering free flood history information). Even if the database shows no flood information for a vehicle you are considering, beware. Fraudsters have ways of getting around VIN registration information, or it could be that the flood damage simply wasn’t reported.
  • Use your nose. Beware if the vehicle smells musty or damp or if you smell some kind of air freshener. Close up the windows and run the air conditioner and check for a moldy smell.
  • Look for dirt, mud and water stains. Check the carpets, seat upholstery, cloth lining inside the roof, and if you see any dirt or mud stains, beware. Feel under the dashboard for dirt or moisture and look in the glove box, ashtray, and various other compartments for moisture or stains. If you see straight stain line either on the inside of the door panel, engine compartment or trunk—watch out, that’s probably how high the water went in the vehicle. Tip: If the carpeting, seat coverings or headliner seem too new for the vehicle, that’s a sign that they may have been replaced due to flood damage.
  • Listen for crunch. Pull the seats forward and back and try all of the safety belts. If you’re looking at an SUV with folding seats, try folding them all. Listen for the ‘crunchy’ sound of sand or dirt in the mechanisms or less than smooth operation.
  • Check the spare tire (or inflator) area. Look for mud, sand or stains on the spare tire and jack equipment and the well under the spare tire. Check under the trunk carpet for a rigid board and look to see if it is stained or has water damage.

“Looks can be deceiving—with a nice cleanup, these water infested vehicles, may actually look pretty good—which means knowing how to identify a flooded vehicle is critical,” Gillis warned. “When it comes to buying a car, three out of four of us buy used. So there’s a big incentive for disreputable sellers to move flood damaged vehicles north hoping to sell them to unsuspecting buyers,” said Gillis. “While luckily fewer cars have been flooded compared to last year’s major storms – Harvey and Irma, flooded cars remain a significant risk to unsuspecting consumers. By following these tips, consumers can protect themselves from purchasing a vehicle which can put them and their families at risk,” Gillis continued.