CFA’s Financial Services Manager Testifies to Senate Banking Committee
On September 13, Rachel Gittleman, CFA’s Financial Services Outreach Manager presented testimony to the U.S. Senate Committee on Banking, Housing and Urban Affairs on New Consumer Financial Products and The Impact to Workers.
In her testimony, Gittleman urged the Committee to meaningfully address the potential risks that emerging fintech products pose for consumers. New credit products, like Buy Now, Pay Later (BNPL) and Earned Wage Advance (EWA) products disguise credit and the true cost to consumers and regulators. Gittleman discussed how fintech providers are using the guise of innovation to offer “free” cash advance and overdraft protection products in exchange for purportedly voluntary tips and how Training Repayment Agreement Provisions (TRAPs) trap consumers in low paying jobs with the threat of unmanageable debt and high interest rates.
While these new consumer credit products and fee models are differ from one another, they share similarities in how they operate and use innovation, claiming that they do not fit within the existing regulatory framework.
“The credit products discussed during the Senate Banking hearing are distinct, but they share one thing in common: they disguise credit and its true cost to consumers and regulators alike,” said Gittleman. “Some of the fee models, schemes, and provisions discussed today are inherently deceitful and predatory. Others may help certain consumers manage their finances, but even those are not risk free.”
Despite the claim that these products to not fit within the existing regulatory framework and regardless of their individual structure, each of these products is credit since they provide funding today and are repaid later.
“Regardless, at their core, each of these products are credit that should be covered by basic consumer protections at the state and federal level, including interest rate limits, underwriting for ability-to-repay, cost transparency, dispute rights, and fair lending laws,” Gittleman continued. “These products should be independently examined for unfair, deceptive, or abusive practices and unlawful discrimination, especially given that they are disproportionately used by or marketed to lower income consumers and consumers of color.”
What is Happening with Airlines?
Airlines have had their fair share of negative attention. Despite receiving a $25 billion pandemic bailout, record delays, cancellations and poor customer service have plagued frustrated consumers, and the Department of Transportation’s (DOT) response has been lackluster. A glimmer of hope has come in the form of three proposed rules to provide some relief to airline passengers.
“CFA is committed to amplifying consumer voices by commenting on each of these proposals with recommendations to strengthen these rules and ensure that they are not watered down by the industry,” said Erin Witte, CFA’s Director of Consumer Protection.
- Minimum seat dimensions
Congress’ 2018 Federal Aviation Administration (FAA) Reauthorization Act mandated that the FAA establish minimum seat dimensions “that are necessary for the safety of passengers.” In the four years since this Act, the FAA has not complied with this mandate. Instead, it performed a flawed and problematic simulated evacuation “study,” which concluded that current seat dimensions used by airlines do not impact evacuation times. The FAA has not yet proposed the rule language, but it is currently seeking comment on seat dimensions.
- Cancellation refunds
The DOT has historically asserted that airlines’ refusal to provide refunds “when due” was an unfair practice, without specifically defining when such refunds are due. This rule is the DOT’s attempt to clarify this gray area, and (among other things) would require airlines to:
- Provide refunds for canceled or significantly changed flights,
- Provide non-expiring vouchers when public health restrictions prohibit travel, or when a consumer determines based on medical advice or public health guidance that they should not travel to protect their own health or the health of others.
Notably, the rule does not apply retroactively, despite the fact that cancellations and delays which were rampant at the onset of the pandemic clearly exposed the need for this clarification. The DOT seeks comment on many aspects of the rule and its implementation.
- Ancillary fees
The DOT has proposed a rule in connection with the Biden Administration’s focus on “junk fees” that drive up consumer costs. The rule would require airlines to clearly disclose fees that are “critical to consumers,” at all points of sale prior to ticket purchase. This includes fees related to baggage, changes and cancellations, family seating accommodations and applies to flights to, within, and from the U.S.
“We are glad to see this momentum from the FAA and DOT and are prepared to continue our history of advocacy on these issues,” Witte said.
Groups Support FTC Proposed Rule Regulating Unfair and Deceptive Automobile Dealer Conduct
Earlier this month, CFA, the National Consumer Law Center, the National Association of Consumer Advocates, Americans for Financial Reform, Consumers for Auto Reliability and Safety, Consumer Reports, the Center for Responsible Lending and U.S. PIRG led a group of over 100 national, state, and local consumer organizations to submit comments in support of the Federal Trade Commission’s (FTC) proposed rule regulating unfair and deceptive auto dealer conduct.
Congress granted special rulemaking authority to the FTC in 2010 to regulate auto dealers when it exempted dealers from the Dodd-Frank Consumer Financial Protection Act. The FTC’s rule proposal is a historic move after over 10 years of research, roundtable discussions and enforcement actions. Cars are essential in today’s economy but increasing prices have resulted in “over 88% of new car purchases and 45% of used car purchases [being] financed.” The FTC and consumer advocates agree that dealer-arranged financing is fertile ground for deceptive conduct, underscoring the need for regulation when dealers exploit the power imbalance inherent in these transactions.
The rule attempts to rein in problematic advertising, pricing, and abusive add-on packing practices. The comments urge the FTC to adopt many of its proposals, including protections against useless and discriminatory add-ons, including the “offering price” in advertisements, providing financing disclosures, and imposing stronger recordkeeping requirements. The organizations also highlight additional actions for the FTC to consider, such as updating the Used Car Rule to curb the sale of unsafe and broken vehicles, prohibiting yo-yo sales, requiring language translations of key sale documents, and prohibiting the use of electronic repossession devices.
“Auto issues are one of consumers’ top complaints,” said Erin Witte, CFA’s Director of Consumer Protection. “There is an inherent power imbalance in auto sales that dealers frequently exploit, and we are hopeful that the FTC’s final rule helps to even the playing field for all consumers.”
USDA Must Follow Through on Reforms Targeting Salmonella in Poultry
CFA joined Safe Food Coalition members in a letter to U.S. Department of Agriculture (USDA) Secretary Tom Vilsack, expressing support for recent statements made by the Secretary regarding reforms to how the USDA regulates Salmonella contamination in poultry products, and urging the Secretary to follow through on the announcements with concrete regulatory proposals.
Salmonella illness rates in the U.S. have not decreased in the last 20 years, and more than any food category, chicken is to blame. Today, nearly a quarter of foodborne Salmonella illnesses are due to eating chicken or turkey, a proportion that has steadily risen over the past several years. To address this lack of progress, Safe Food Coalition members have long advocated for policy reforms at USDA’s Food Safety and Inspection Service “…including updated testing standards, greater disclosure of establishment compliance with food safety standards, and improved foodborne illness outbreak surveillance tools.” The reforms endorsed by USDA in recent statements—in particular, enforceable, product-based standards for all raw poultry products—have long been championed by Coalition members.
The Safe Food Coalition letter acknowledges that USDA will face strong opposition to reform. The letter points out how one chicken industry trade group has opposed standards that would prohibit Salmonella contamination in breaded and stuffed chicken products that consumers widely perceive to be ready to eat, and which have consequently caused 14 foodborne illness outbreaks in recent years. The letter cautions against bowing to industry pressure, however, arguing that “…to achieve real and sustainable progress in reducing the number of Salmonella infections, USDA will have to require stronger preventive measures for all raw poultry products, not just breaded and stuffed chicken products.”
“USDA leadership has announced a plan of action that, if implemented, will greatly reduce the burden of foodborne illness caused by contaminated poultry,” said Thomas Gremillion, CFA’s Director of Food Policy. “Now the agency must implement its plan. CFA and our partners in the Safe Food Coalition will be watching at every step of the regulatory process to make sure that consumers’ interests are not left behind.”
Over 100 Groups Call on CFPB to Act on Banking Fraud and Forced Arbitration
CFA joined over 100 consumer, civil rights, and labor groups in a letter urging Consumer Financial Protection Bureau Director Rohit Chopra to use the agency’s authority to limit forced arbitration clauses.
Forced arbitration clauses are commonly buried in the fine print of consumer financial contracts and eliminate the rights of customers seeking accountability when scammed, cheated, or defrauded by big banks and other actors in the financial marketplace. In the letter, organizations wrote that while “state and federal laws exist to empower and protect consumers when banks and financial institutions violate the law…without a regulation to limit forced arbitration, the promise of these laws will never be realized by most consumers.” Forced arbitration “…deprives Americans of their rights in cases of banks’ clear and widespread abuse,” and the “…CFPB should act to restore those rights.”
The organizations wrote that given “how deeply embedded basic financial services are in consumers’ everyday lives and the scale of harm that occurs in the financial services marketplace on a daily basis, it is essential that consumers have the ability to vindicate their rights in court.” The groups also urged Director Chopra to engage in public conversation about how forced arbitration leads to greater fraud in the financial sector.
“It’s time for the CFPB to stop letting big banks and predatory financial services companies hide their bad acts in private, forced arbitrations,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “We look forward to working with the CFPB to create a new rule that empowers consumers to assert their rights in the forum of their choosing.”