With Cordray Appointment, CFPB Gains Expanded Authority

In a move that won enthusiastic cheers from the consumer community, President Obama used his recess authority to appoint former Ohio Attorney General Richard Cordray to head the new Consumer Financial Protection Bureau (CFPB).  Senate Republicans had kept the nomination on hold for months by refusing to consider any nominee to the post unless legislative changes were adopted to significantly weaken the agency’s authority and independence.  Without a director, the agency said that it could not use all of the powers it had been granted, including its authority to supervise non-bank financial institutions. “Until now, the CFPB has been fighting mounting consumer financial abuses with one arm tied behind its back,” said CFA Legislative Director Travis Plunkett.  Cordray’s background “helping consumers harmed by abusive mortgage and predatory lending practices” make him well suited to lead the agency, he added.

New Fuel Economy Standard Will Produce Immediate Consumer Savings

A preliminary CFA analysis of the consumer costs and benefits of the proposed new federal fuel economy standards, released last week at a joint tele-press conference with Consumers Union, indicates that the new standards will lower the cost of driving from the first month, because the reduction in gasoline expenditures is greater than the increase in the monthly payment to cover the cost of fuel saving technology.  Specifically, the analysis shows that a consumer who purchases a new car that meets the higher standard will typically have saved nearly $800 by the time they pay off the loan, with total savings rising to approximately $3,000 over ten years.

CFA will deliver its analysis at upcoming public hearings held by NHTSA and the EPA in Detroit, Philadelphia and San Francisco and in official comments to the two federal agencies at the end of January.  “We plan to testify on the immediate consumer pocketbook – not environmental – benefits of the new standard,” said CFA Research Director Mark Cooper.  “And by far the single largest benefit of ‘54.5 by 2025’ is the reduction of consumer expenditures on gasoline.  The consumer pocketbook savings for the typical consumer with a 5-year auto loan will be immediate and substantial.”

CFTC Approves Watered Down Protections for Vulnerable Swaps Market Participants

Municipalities, school districts, pension funds, and other less sophisticated swap market participants will receive at best modest new protections from abusive swap dealer practices under business conduct rules approved on a 4-1 vote last week by the Commodity Futures Trading Commission (CFTC).  “Based on our review of the Commission’s summary, it’s hard to see how this rule will force a meaningful change in the kind of abusive swaps dealer practices that have brought financial ruin on communities across the nation,” said CFA Director of Investor Protection Barbara Roper.

CFA’s analysis of the rule is based on summary materials released by the agency since the final rule language had not yet been published.  Based on that summary, the rule appears to contain a gaping loophole that will continue to allow swaps dealers to customize swaps for so-called “special entities” – government bodies, endowments, pension funds, and employee benefit plans – without regard to whether the entity could lower their costs or reduce their risks through an alternative approach, and even without regard to whether the customized swap exposes the special entity to greater risks than those it is attempting to hedge.  This “safe harbor” would be available if, among other things, the special entity has an independent adviser, a requirement Congress intended to supplement, not supplant, the best interest standard in the legislation.  But the rule appears to allow these supposedly independent representatives to operate with major conflicts of interest, as long as those conflicts are disclosed and appropriately managed.

“This is an issue where the devil is definitely in the details, and we won’t know just how bad the rule is until we’ve had a chance to carefully review the actual language,” Roper said.  “But it is clear from the summary materials that the final rule represents a major retreat from the Commission’s original strong proposal.  It sends a disturbing message about the degree to which the industry is succeeding in its campaign to undermine the Dodd-Frank Act’s effectiveness by weakening its implementing rules.”

CFA and Americans for Financial Reform (AFR) wrote to CFTC Chairman Gary Gensler last fall outlining both concessions that could be made to address industry’s more legitimate concerns and the key protections that must be retained in the rule to ensure its effectiveness.  That letter is available here.

FTC Proposal Would Strengthen Children’s Online Privacy Protections

The Federal Trade Commission’s proposed revisions to the Children’s Online Privacy Protection Rule represent “an important step in ongoing efforts to protect children on the Internet,” according to a comment letter filed in late December by more than a dozen children’s privacy advocates, including CFA.  “Since the initial COPPA Rule was adopted in 1999, the techniques used to track, profile, identify, target, and retarget individuals in the digital environment have become highly sophisticated,” the groups wrote.  “The dramatic growth of the digital marketplace and its increasing role in the lives of children make it imperative that the COPPA Rule be revised to ensure that the Rule provides effective safeguards for protecting children’s privacy.”  Although the groups suggested changes to strengthen the proposed rule, they expressed general support for its proposed revisions and urged the FTC to move forward quickly with final adoption.

CFA and CU Issue Consumer Guide to Buying Light Bulbs

With the law promoting more energy-efficient light bulbs taking effect this month, CFA and Consumers Union have released a new two-page guide with tips to help consumers select the light bulb that is right for them.  CFA and CU are promoting this new guide as part of a consumer education campaign aimed at making sure consumers understand the choices they have as the new law takes effect.  Under the new law, “consumers will save money on their lighting bills with the expanded choices,” said CFA Energy Projects Director Mel Hall-Crawford.  However, consumers will need to understand their choices so that, “when they go to the store so they can buy the product that meets their needs best. Our tips will help them do that.”