CFPB Allows Predatory Lenders to Target the Nation’s Military Personnel

The Consumer Financial Protection Bureau (CFPB), under Acting Director Mick Mulvaney, announced last month that it plans to end supervisory examinations for violations of the Military Lending Act (MLA), which is designed to protect military service members and their families from predatory lending.

The CFPB is claiming that it does not have the statutory authority to ensure MLA compliance through preventative supervisory audits of financial institutions, despite having done so since 2012. In contrast to the CFPB’s claims, a new CFA report confirms the agency’s statutory authority to ensure MLA compliance.

“It is completely unacceptable for the Trump Administration to abandon those who have sacrificed in defense of our country,” said Christopher Peterson, CFA Director of Financial Services and author of the report.

Passed by Congress in 2006, the Military Lending Act addressed the predatory lending that was affecting both the morale and financial stability of the nation’s military personnel and thereby impacting the nation’s overall military readiness. The MLA caps interest rates on loans made to service members and their families at 36% and prohibits the extension of payday loans, vehicle title loans, and other types of harmful credit products to military personnel.

The legal analysis released by Peterson, a former CFPB attorney, shows that the CFPB has supervisory authority under its enabling statute, the Consumer Financial Protection Act (CFPA), as well as the MLA itself, for the following reasons:

• Violations of the MLA render service members’ loans void, thereby triggering concurrent violations of federal consumer financial laws under CFPB’s supervisory jurisdiction.
• Federal law directs the CFPB to “obtain information” about “compliance systems or procedures” of large banks and payday lenders covered by the MLA.
• Under the CFPA, the CFPB can cover MLA violations within its exams for the purpose of “detecting and assessing risks” to consumers.
• The MLA requires the CFPB to enforce the MLA the same way that the CFPB enforces the Truth in Lending Act and expressly directs the CFPB to use “any other applicable authorities available” to protect our men and women in uniform.

The report makes clear that, in providing oversight guidance, Congress did not forbid the CFPB from including the MLA within preventative audits. “For some inexplicable reason, the Trump Administration is directing the CFPB to overlook illegal, usurious lending to our troops within supervisory exams. America’s military families deserve the protection from predatory lending offered by the Military Lending Act – not to be abandoned by the CFPB,” Peterson said.

CFA Urges USDA to Protect Consumers from Salmonella in Meat and Poultry

Citing the stubbornly high rate of illnesses caused by Salmonella over the past decade, CFA is urging the U.S. Department of Agriculture (USDA) to exercise its authority under the law to set and enforce more rigorous standards to protect consumers from Salmonella contamination in meat and poultry. To make the case for more rigorous standards, CFA released an in-depth analysis last month of current regulatory practices, the legal and scientific foundations for USDA policy on Salmonella, and the consequences of that policy for public health.

Illnesses from Salmonella in the U.S. have remained more or less constant during the past decade. In contrast, rates of salmonellosis in the European Union have declined dramatically during the same period, to less than half what they once were, thanks in large part to a farm-to-fork Salmonella control initiative launched in 2003. The situation in the U.S. seems to have gotten even worse in the past few months, with a rash of Salmonella outbreaks linked to meat and poultry causing hundreds of confirmed illnesses.

“USDA needs to develop better standards for Salmonella, and establish more effective enforcement,” said CFA Director of Food Policy Thomas Gremillion. “This report presents a straightforward roadmap for how to do so.”

CFA’s report, Taking Salmonella Seriously: Policies to Protect Public Health under Current Law, details significant scientific advances in detecting Salmonella, preventing contamination in food and food animals, understanding the severity of Salmonella infections, and documenting the resilience of Salmonella to common cleaning and cooking practices, which support modernizing consumer protections against the bacteria. The report, summarized here, also explores more rigorous Salmonella control programs in foreign countries, and the barriers to adopting similar reforms in the United States.

USDA has claimed that the law restricts how it can enforce limits on Salmonella contamination in meat and poultry. According to CFA’s analysis, however, this legal interpretation relies on outdated precedent – in particular, a 1974 decision’s declaration that “American housewives and cooks normally are not ignorant or stupid and their methods of preparing and cooking of food do not ordinarily result in salmonellosis.” “The law and science have evolved significantly in the past 40 years,” said Gremillion. “USDA has the authority to much better protect consumers.”

CFA urges USDA’s Food Safety and Inspection Service to announce an interpretive rule under which the agency will consider raw meat and poultry “adulterated” if it is contaminated with Salmonella. The report describes the pros and cons associated with five policy options for implementing such a rule, namely:

1. A zero tolerance approach to all Salmonella.
2. Prohibiting particular Salmonella serotypes associated with human illness on raw foods.
3. Prohibiting Salmonella strains associated with an ongoing outbreak.
4. Prohibiting Salmonella resistant to certain medically important antibiotics.
5. Prohibiting high loads of Salmonella.

“Any of these policies would protect public health better than the status quo,” concluded Gremillion.

New Jersey Weighs Adoption of Fiduciary Rule for Investment Advice

Acting on a priority outlined by Governor Phil Murphy, New Jersey is considering a proposal to require broker-dealers, like investment advisers, to be subject to a fiduciary duty when providing investment advice. CFA Financial Services Counsel Micah Hauptman testified in support at a November hearing held by the state’s Division of Consumer Affairs, arguing that all those who hold themselves out as advisers or provide advisory services, including not just brokers but also insurers, should be subject to a strong fiduciary standard backed by restrictions on conflicts of interest.

Hauptman noted that broker-dealers and insurance firms want to have it both ways, arguing in court that they are merely salespeople and should be regulated accordingly, but marketing themselves to potential customers as trusted advisers.

“Despite their legal arguments to the contrary, broker-dealer and insurance firms hold themselves out as trusted investment advice providers and seek to foster relationships of trust and confidence, which is the hallmark of a fiduciary relationship at common law,” said Hauptman. “Applying a fiduciary duty to these relationships is entirely appropriate given their advisory role. The harm to investors is immense when they reasonably, but mistakenly believe they are getting advice that’s in their best interest based on a trusted relationship with their advisor.”

Under the approach outlined by Hauptman, brokers and insurance agents that wish to avoid being held to a fiduciary standard could do so, but only if they refrain from holding themselves out as advisers or offering advisory services.

But it is not enough simply to apply a fiduciary standard, Hauptman said. The specific formulation of the fiduciary standard of conduct is critical. That standard should include both an explicit duty of loyalty and duty of care, and it should be backed by restrictions on conflicts of interest that undermine compliance with that standard, he explained.

With the Department of Labor fiduciary rule having been struck down in court, and the Securities and Exchange Commission having proposed a weak an ineffective rule, Hauptman praised states like New Jersey “that have been willing to look at ways they can step in to fill the void by providing investors with the protections they need and deserve.”

Consumer and Privacy Groups Criticize FTC for Staff Comments on Privacy

In a letter to FTC Chairman Simons, consumer, privacy, and civil liberties organizations, including CFA, expressed disappointment with comments Federal Trade Commission (FTC) staff recently made to the National Telecommunications and Information Administration. Referring online advertising that targets consumers based on their personal information, the FTC staff stated that that a policy approach in which consumers would be opted out of those ads by default would not be appropriate because “the likely result would include the loss of advertising-funded online content.” The groups complained that this position is based on a study by the advertising industry which fails to cite any empirical data for its contention that without targeted advertising, free online content will decrease, and suggested that such a narrow-minded economic balancing test ignores the fundamental right to privacy that should be the proper starting point for analysis.

“The FTC’s stated position ignores the fact that contextual advertising, which does not raise the same privacy concerns as behavioral advertising, would still be possible,” the groups wrote. “In addition, the FTC fails to recognize that placing the burden on individuals to deal with the privacy-intrusive nature of behavioral tracking and targeting is unfair. That is why the General Data Protection Regulation (GDPR) in Europe places the burden on data controllers to demonstrate that they have a legal basis to collect, use or share an individual’s personal information.”

“As federal privacy legislation is contemplated, the FTC should be a strong voice for advancing Americans’ privacy interests in a meaningful way, not parroting the advertising industry’s talking points,” said Susan Grant,” said CFA’s Director of Consumer Protection and Privacy.

“We appreciate the fact that the FTC continues to call for Congress to enact privacy and security legislation, and we support enhancing the agency’s resources, rulemaking authority and enforcement capabilities,” the groups wrote. “We do not believe, however, that the scale should be tipped in favor of corporate interests over the fundamental civil and human rights of individuals.”

Popular Toys Contain Toxics and Pose Other Hazards

Released last month in time for the holiday shopping season, U.S. PIRG Education Fund’s 33rd annual Trouble in Toyland report found evidence of toxic chemicals and other hazards in popular toys, including toxic amounts of boron in slime products and a failure by Amazon to appropriately label choking hazards. Consumer Federation of America joined U.S. PIRG in releasing the report in Washington, DC.

“The Consumer Product Safety Commission (CPSC) must rigorously conduct recalls to get potentially hazardous products off of store shelves, online sites, people’s homes and our children’s toy boxes,” said CFA Legislative Director and General Counsel Rachel Weintraub in a press statement. “The CPSC should be at the forefront of child safety and should take early, effective and decisive action to protect children from hazards posed by toys.”

For more than 30 years, Trouble in Toyland has issued toy safety guidelines and has provided examples of toys currently on store shelves that pose potential safety hazards to small children. Key findings from this year’s report include:

• Hazardous Slime: A number of popular ‘slimes’ had toxic levels of boron, likely in the form of borax, up to fifteen times the European Union’s limit. According to the EPA, ingesting boron can cause nausea, vomiting, long-term reproductive health issues and can even be fatal.
• Missing Online Choking Warnings: In a survey of five search pages for balloons sold on Amazon, U.S. PIRG found no choking hazard labels on 87 percent of the latex balloons marketed to parents of children under 2, an apparent violation of the law. Among children’s products, balloons are the leading cause of suffocation death.
• Privacy-Invasive Smart Toys: The report also highlights two smart toys, a robot toy and a tablet, with privacy concerns discovered through an investigation by the Mozilla Foundation. Every year, the potential for smart toys to expose private data becomes a more significant concern.

“No one should have to worry about whether or not the toy they’re buying is toxic or dangerous. But in 2018, we’re still finding hazards in some of the most popular toys. Toy manufacturers must do better to ensure their products are safe before they end up in children’s hands and mouths,” said Mike Litt, Consumer Campaign Director for U.S. PIRG Education Fund.

States Urged to Investigate Auto Insurance Affordability and Availability

In response to an insurance industry trade association campaign of obstruction and deception, CFA and the Center for Economic Justice (CEJ) are calling on state insurance regulators to reject insurance industry efforts to undermine research into auto insurance availability and affordability for low-income Americans.

In a letter sent last month to the National Association of Insurance Commissioners (NAIC), CFA Director of Insurance J. Robert Hunter and CEJ Executive Director Birny Birnbaum urged state regulators to conduct a fact-based, objective study of how much consumers pay for auto insurance and how much of a burden these insurance costs are on traditionally-underserved communities.

Drivers in every state except New Hampshire are required to purchase auto insurance. Therefore, state regulators have a special obligation to ensure that the product is available and affordable so that drivers are able to comply with laws, they argued.

The CFA-CEJ letter comes in response insurance industry efforts to undermine a proposed NAIC report on insurance availability and affordability and a report “outline” published last August by regulators. The letter criticizes this campaign by the industry, summarized in a letter and comments by the trade association PCI.

“PCI’s bad-faith arguments about trade secrets are part of its broader effort to undermine the work of the Auto Insurance working group to examine issues of affordability and availability of personal auto insurance,” wrote Hunter and Birnbaum. “PCI’s argument that only insurers and regulators have the knowledge and skills to analyze insurer data and evaluate these issues is, again, absurd and factually incorrect. It is profoundly anti-democratic for the practices of insurers and the regulatory oversight of those insurer practices to be unaccountable to the public.”

CFA and CEJ urged regulators to articulate the purpose of the study, consistent with the goals of the working group, by asking the questions that need to be answered:

• How do we measure availability and affordability of personal auto insurance?
• How does availability and affordability vary across different types of communities defined by geography, prohibited classifications and permitted classifications?
• Are there communities or groups of consumers for whom availability and affordability is limited, however defined?
• If availability is limited for some groups of consumers, can we identify the causes of availability problems?

The NAIC should be primarily focused on addressing its responsibility to serve as an unbiased resource for state regulators, they wrote, and it should reject the aggressive lobbying efforts of industry geared solely toward protecting company interests.