CFA News

CFAnews Update – October 26, 2020

Auto Insurers Reap Billions in COVID Windfall Profits, Regulators Urged to Provide Relief

New evidence confirms that auto insurers have reaped tens of billions in windfall profits due to the reduction in crashes and miles driven during the Coronavirus pandemic, as CFA and Center for Economic Justice (CEJ) predicted earlier this year. In a letter to state Insurance Commissioners sent last month, CFA and CEJ took the regulators to task for failing to prevent windfall auto insurer profits as auto claims dropped.

Over the past nine months, CFA and CEJ have collected and analyzed crash data from Texas and Massachusetts and provided updates in several letters to Commissioners urging givebacks for consumers because of the COVID-19 pandemic and its impact on driving. The most recent statistics from July 2020 indicate that crashes remain between 14% and 20% below their 2019 level in Texas, and between 32% and 40% below normal in Massachusetts.

While regulators in four states—California, Michigan, New Jersey, and New Mexico—initially ordered refunds for consumers, only California has mandated ongoing premium relief.

The result of that inaction can be seen on auto insurers’ bottom lines. Progressive recently reported a 177% increase in monthly profits over August 2019, and noted that its losses were substantially lower than usual due to the pandemic and various measures to combat it. Similarly, GEICO reported $2.1 billion in second quarter 2020 earnings before income taxes compared with just $393 million in the second quarter of 2019, again due to fewer car crashes and reduced claims.

“The facts make clear that the inaction by most state Insurance Commissioners to assure refunds are adequate has lined the auto insurers’ pockets at the expense of American consumers,” said CFA Director of Insurance J. Robert Hunter. “The overwhelming need for Insurance Commissioners, who are charged with ensuring rates are not excessive, is to direct insurers to provide the appropriate premium relief from mid-March to the present, and this need continues. Consumers will require premium relief into the future as long as the pandemic depresses vehicle miles traveled and accident claims.”

In the letter CFA sent to Insurance Commissioners late last month, Hunter and CFA Insurance Expert Doug Heller highlighted these excessive windfall profits as well as the significant changes American families have experienced in how often they are driving and number of crashes. Hunter and Heller also noted that this change in driving habits may be here to stay for the foreseeable future.

“Though driving has risen since the spring, vehicle miles and accidents remain well below the levels that were used to establish the in-effect rates for most companies. We expect this to be the case for the foreseeable future,” they wrote. “Millions are out of work and millions more are working from home. According to J.D. Power, 59% of auto insurance customers believe that they will be driving less in the future.”

Due to these substantial changes, Hunter and Heller called on Commissioners to not only provide premium relief, but also to re-rate policyholders to reflect their new driving habits.

“When we first called for refunds in March, insurers scoffed at the idea, but they eventually ended up giving back about $8.5 billion to customers. We consider that a down payment on what is due to American customers, but getting the rest is going to require state Insurance Commissioners to be more actively involved in protecting policyholders,” stated Heller.

Groups Call on CFPB to Rethink Flawed Qualified Mortgage Rule

The Consumer Financial Protection Bureau (CFPB) recently proposed a flawed, pricing-based approach to Qualified Mortgages (QM) that prompted strong opposition from housing advocacy groups, including CFA. In a letter to the CFPB last month, the groups objected to the rule on the grounds that it failed to satisfy the Bureau’s obligation to ensure that homeowners can obtain mortgage market access that is affordable and responsible.

Specifically, the groups criticized the CFPB proposal for assuming “loans will be affordable based on early, market-wide defaults rates, an approach that will leave many vulnerable homeowners with unaffordable loans and little recourse. This pricing model also incorporates existing racial disparities in loan pricing and exacerbates the negative impacts of both market expansions and contractions,” the groups wrote.

They also criticized CFPB for failing to adequately consider reasonable alternatives to its proposal, including: “extending the [Government Sponsored Enterprises (GSE)] patch while conducting research to determine a more holistic measurement of [Ability to Repay (ATR)] than debt-to-income (DTI); a compensating factors approach modeled on existing underwriting requirements; or a hybrid price and DTI approach.”

Finally, they argued that the CFPB proposal fails to grapple with the requirements of the Dodd-Frank Act to ensure the supply of responsible, affordable mortgage credit. “This language is a mandate to the Bureau to make sure that [the mortgage] credit that is extended [under the QM definition] is both affordable and responsible; it does not authorize a balancing test. Although the Bureau repeats those words, it does not examine what is meant by either “responsible” or “affordable” or demonstrate how its proposal would ensure that credit provided was either,” the groups wrote.

In addition to failing to satisfy legal mandates or to consider reasonable alternatives, the groups also noted that the Bureau is rushing this proposal through the process without adequate time for comment. “The … proposal was published in the Federal Register in July, with a sixty-day comment period, overlapping with two other proposals also touching on QM,” the groups complained. Requests for a time extension have also been denied despite the current COVID-19 pandemic up-ending the daily lives of millions.

The groups closed their comments by urging the Bureau to stop this rulemaking, extend the GSE patch, and conduct “the foundational research necessary to answer the difficult and essential questions about how to ensure access to affordable and responsible mortgage credit for all consumers.”

“There is no question that, should the Bureau choose to proceed with their current approach, many consumers could, once again, be faced with the prospect of obtaining unaffordable, and even predatory, mortgages without any meaningful consideration of their actual ability to repay the loan,” said Mitria Wilson, CFA Director of Housing Policy. “Dodd-Frank was specifically enacted to ensure meaningful evaluation of a consumer’s ability to repay a mortgage loan as a mechanism for protecting against that result and acknowledged that, when that process didn’t take place, consumers should retain the right to challenge a foreclosure for the life of the loan based on that failure. The fact that the CFPB, the federal agency specifically charged by Dodd-Frank with the responsibility to protect consumers from financial abuse, fails to recognize the pitfalls in moving forward with this proposal is truly troubling.”

Senate Privacy Bill Fails to Protect Consumers

The Senate Commerce Committee held a hearing last month addressing the need for federal privacy legislation, but a broad coalition of consumer and privacy advocacy groups panned a recent Senate privacy bill, the SAFE DATA Act (S. 4626), for failing to adequately protect privacy in the United States.

The bill, introduced by Committee Chairman Sen. Roger Wicker (R-MS), has some good provisions, but in their letter, the groups highlight four areas of particular concern:

  1. Privacy protections must be strong, meaningful, and comprehensive, with a focus on implementing Fair Information Practices (FIPs).

“The bill lacks adequate corporate obligations to prevent the invasive tracking of internet users and lacks provisions that give users meaningful control over their personal data and how that data is used,” the groups stated. To make matters worse, the SAFE DATA Act also allows for “approved certification programs,” more commonly known as safe harbors, which may allow the largest companies to write their own compliance regimes.

  1. Data practices must protect civil rights, prevent discrimination, and advance equal opportunity.

Despite the growing mountain of evidence of data being used in a discriminatory fashion to deny protected classes critical opportunities, the SAFE DATA Act fails to protect civil rights. Instead, the bill would merely grant the Federal Trade Commission (FTC) a supporting role to work with other agencies, which it already does, and requires the FTC to report annually to Congress and conduct two studies on algorithmic bias within eight years.

  1. Governments at all levels should play a role in protecting and enforcing privacy rights.

“The bill includes an extremely broad preemption provision that would remove state legislatures completely from protecting privacy, which would have the effect of nullifying state consumer protection and civil rights laws as they relate to the sharing or use of personal information,” the groups wrote. State laws, including the California Consumer Privacy Act, Illinois Biometric Information Privacy Act, and Maine Broadband Service Provider Privacy Act, are stronger than the SAFE DATA Act and would be preempted by it.

  1. Legislation should provide redress for privacy violations beyond those causing financial harm, and should recognize and include intangible harms.

“The bill envisions privacy harms as a matter of non-disclosure, but this is a fundamental misunderstanding of privacy harms. Beyond obvious financial harms like identity theft, privacy violations can lead to many types of harms, including but not limited to emotional or reputational harm, limiting awareness of and access to opportunities, discrimination against protected classes, informational disparities causing unfair price discrimination, and the erosion of trust and freedom of expression in society,” the groups concluded.

“To ensure that our personal information is truly safe from inappropriate collection, use and sharing, we need robust privacy rights at the federal level as well as strong state laws,” said Susan Grant, CFA Director of Consumer Protection and Privacy. “The SAFE DATA Act doesn’t measure up.”

Senate Urged to Protect Children from Deadly Furniture Tip-Overs

A child is sent to the emergency department every 56 minutes following a furniture tip-over incident. A Senate bill, the Stop Tip-overs of Unstable, Risky Dressers on Youth (STURDY) Act (S.1902), would help to put an end to this by enhancing safety standards. Thirty-one advocacy groups, including CFA, sent a letter to the Senate last month urging senators to support and pass this vital bill.

In their letter, the groups praised the STURDY Act for requiring the Consumer Product Safety Commission to create a mandatory rule that would: cover all clothing storage units, including those 30 inches in height or shorter; require testing to simulate the weights of children up to 72 months old; require testing measures to account for scenarios involving carpeting, loaded drawers, multiple open drawers, and the dynamic force of a climbing child; mandate strong warning requirements; and require the CPSC to issue a mandatory safety standard within one year of enactment.

“Consumers expect that furniture is stable and will not harm their children,” stated Rachel Weintraub, CFA Legislative Director and General Counsel. “This legislation will close the gap between consumer perception and reality.”

U.S. Falls Behind in Protecting Competition among Big Data & Big Broadband

As the European Commission’s Inception Impact Assessment explores the possibility of expanding its antitrust toolkit in light of concerns about gaps in the current EU competition rules, experts warn that the U.S. is falling behind. CFA and Public Knowledge teamed up to weigh in on the European Commission’s assessment earlier last month and released the fourth in a series of working papers exploring the reform of competition and antitrust regulations.

The newest of these papers, titled: Big Data Platforms, a New Chokepoint in the Digital Communications Sector, “outlines the primary challenge facing regulators today: harnessing the benefits of emerging technology, while ensuring that consumers, rather than a select few companies, are able to reap the benefits of innovation today and in the future.” The paper “addresses the structural features of digital markets that have given the largest tech companies outsized influence over the economy and over communications.”

Report author Mark Cooper, CFA Director of Research, also puts big data platforms in the larger context of structurally similar markets, like big broadband networks, internet service providers, and business data services, to understand the progressive policies that have been successful in the past and how they can be adapted for the digital age. “Network effects and economies of scope and of scale — structural characteristics that are particularly strong in these infrastructure industries — can make promoting competition a tricky task,” said Cooper. “But it’s a task we’ve faced before in other industries with pragmatic steps like sector-specific expert agencies and simple bright lines to prevent the worst abuses.”

Of particular concern are “gatekeepers,” companies that control access to customers or key infrastructure. As part of their investigation, the European Commission is looking into a number of structural challenges, including this type of gatekeeper control.

“We applaud the European Commission for taking an important first step to acknowledge and address the existing gaps in competition regulation and enforcement,” said Amina Abdu, CFA Antitrust Advocate. “But these issues extend beyond Europe. The difficulty of protecting consumer welfare while promoting efficiency and innovation is a problem with which many governments are grappling. The solution will require re-envisioning the status quo and developing new and creative pro-competitive, pro-consumer regulation,” Abdu concluded.

California Once Again Takes the Driver’s Seat, Bans New Gas-Powered Cars by 2035

In an effort to combat climate change, California Governor, Gavin Newsom mandated that by 2035, all new passenger cars and trucks sold in the state must be Zero Emission Vehicles (ZEVs), receiving widespread applause from consumer and environmental groups, including CFA.

Governor Newsom’s order is especially important given the Trump Administration’s rollback of national fuel economy standards despite compelling evidence showing the rollback will increase consumers’ costs, increase pollution and smog, and make American car companies supporting the rollback uncompetitive in the global market.

“Governor Newsom’s decision to go forward with his ZEV goal is even more impressive given the fact that the Trump Administration is attempting to revoke the right of states to adopt a more stringent emissions standard guaranteed under the Clean Air Act since 1975. The Administration completely disregards the will of the fourteen states with 118 million Americans who have chosen to bring cleaner, cost-saving, fuel efficient cars to their communities,” said CFA Executive Director Jack Gillis.

For more than ten years, CFA has supported California’s Clean Cars Program and the ability of other states to adopt it. A CFA poll in August 2018 showed a majority of consumers believe that states should be able to lead when the federal government doesn’t and support the ability of states to adopt a higher standard.

“One of the great benefits of American federalism is that individual states can initiate better ways of accomplishing shared goals. The federal government should embrace California’s decision, and support California’s bold step in transitioning by 2035 completely to ZEVs, which due to their immense operating and maintenance cost savings will increasingly become the standard vehicle consumers purchase,” Gillis stated.

“Thanks to California’s foresight over a decade ago to promote Low Emission Vehicles (LEVs), ZEVs are increasingly becoming the consumer and manufacturer preferred choice. While the Administration is busy rolling back fuel economy standards, despite the serious economic consequences, Governor Newsom’s mandate helps ensure America stays competitive on the world automotive market. As countries around the world set increasingly shorter deadlines for a transition to ZEVs, being left technologically behind could threaten tens of thousands of good paying American jobs. CFA is proud to applaud this bold, but achievable goal to move fully to ZEV’s by 2035,” said Richard Eckman, CFA Energy Research Associate.

SEC’s Rule Proposal Sparks Strong Opposition

A Securities and Exchange Commission rule proposal that would exempt roughly 90 percent of institutional asset managers from a requirement that they periodically report their stock holdings has prompted strong opposition from investors, issuers, and even many asset managers. CFA Director of Investor Protection Barbara Roper was among those writing in opposition to the proposal.

The proposed rule would raise the reporting threshold under Section 13(f) of the Exchange Act from $100 million to $35 billion, dramatically reducing market transparency. In her letter, Roper criticized not only the substance of the proposal, but also the Commission’s complete lack of evidence to support its proposed approach and its failure to take into account significant market changes in recent years that make the reports more, rather than less, valuable.

CFA called on the SEC to withdraw the proposal “in order to conduct a more thorough and balanced analysis of the issue that takes into account the considerable negative impact the proposed increase in the reporting threshold would have on the many users of 13F data.” Should the SEC determine that an increase in the reporting threshold “is both warranted and permitted under the statute,” CFA urged the SEC “to include any such increase as part of a balanced package of reforms designed to improve the informational value of the 13F reports.” In particular, CFA argued that it is imperative that the list of 13F securities be updated to reflect market developments since the reporting requirement was adopted, and it urged the Commission to work with Congress to achieve that goal.

“It is disappointing, but unsurprising, that the SEC is once again advancing a radical, deregulatory proposal without conducting a careful analysis or considering the impact on investors,” Roper said. “This time, however, the proposal is opposed not just by investors, but by powerful corporate interests, suggesting that it may be possible to prevent this reckless proposal from taking effect.”

Consumer Champions Honored at CFA’s Lifetime Achievement Awards

CFA proudly hosted our first-ever Lifetime Achievement Awards last week, honoring four extraordinary individuals without whom our work would not be possible. The awards were presented to Speaker of the House Nancy Pelosi (D-CA), House Financial Services Committee Chairwoman Maxine Waters (D-CA), California Attorney General Xavier Becerra, and renowned consumer advocate Ralph Nader. Presenting the awards were four consumer champions in their own right, Congresswoman Jan Schakowsky (D-IL), Congresswoman Barbara Lee (D-CA), Minnesota Attorney General Keith Ellison, and MASSPIRG Executive Director and CFA Award Committee Chair Janet Domenitz.

Thank you to everyone who virtually joined us for this event. If you missed out on the opportunity to tune in, you can watch the recording of the event by following this link.