Congress Acts to Protect Service Members from High Cost Credit

Service members using higher-cost credit products, such as payday and auto title loans, will be better protected from abusive interest rates and loan security requirements as the result of recently passed amendments to the Military Lending Act (MLA).  The amendments were included in the conference report of the National Defense Authorization Act (NDAA) for fiscal year 2013 (H.R. 4310), which was approved by both the House and Senate shortly before they left for Christmas.  “These amendments are a positive step forward and will ensure that financial protections for service members, including the 36 percent rate cap, are adequately enforced,” stated CFA Senior Advisor for Financial Services Jean Ann Fox in a news release issued in the wake of the congressional action.  “We look forward to working with the Department of Defense as it reviews and regulates credit options available to service members to ensure that the financial protections envisioned by Congress are fairly and evenly applied.”

As documented in an earlier CFA study, enforcement authority has been insufficient, and some lenders have modified products slightly to evade existing protections.  The amendments address those problems by empowering the Consumer Financial Protection Bureau and the Federal Trade Commission to enforce the MLA’s 36 percent rate cap and other protections for loans made to service members.  In addition, the Department of Defense (DoD) is required to conduct a detailed study in the coming year of abusive credit products frequently used by service members.  Following that report, the DoD is required to review the effectiveness of existing MLA rules and determine if new rules are needed to ensure that service members are adequately protected from abusive products.

A version of the bill that passed the Senate earlier in December included stronger protections that were, unfortunately, not incorporated in the conference report.  It would have expanded the 36 rate cap and prohibition on certain forms of loan security to longer-term loans and open-ended credit and would not have required a lengthy study and rulemaking process.  “The amendments included in the Senate version of the National Defense Authorization Act would have ensured that service members were protected from loans designed to evade the rules,” said Fox.  “As we work towards closing these loopholes, we urge the Department of Defense to move quickly and complete the necessary report and initiate a new rulemaking to protect our men and women in uniform and their families from abusive lending.  The Consumer Federation of America would like to thank Senators Blumenthal, Levin and Reed, and Congressman Frank for their hard work and their commitment to enacting these important reforms,” she added.

Reform of Nation’s Restructured Electricity Markets Urged

Excessive generator profits and higher electricity prices for consumers are the result of the restructuring of the nation’s electricity markets, according to a comprehensive analysis released in December by CFA and the American Public Power Association. A report based on that analysis describes the most problematic features of the restructured wholesale electricity markets operated by Regional Transmission Organizations (RTOs) and the primary evidence of the adverse impacts of the markets. It concludes that “the economy has been significantly and adversely impacted by electricity industry restructuring, as it has been practiced.”  CFA and APPA estimate that the restructured electricity markets cost consumers, businesses and factories over $10 billion each year.

“It is crucial that the Federal Energy Regulatory Commission determine whether RTO markets are in fact producing electricity prices that are just and reasonable, as required by law, and, if not, to implement needed reforms,” said CFA Executive Director Stephen Brobeck.  APPA President and CEO Mark Crisson concurred, adding: “It has been exactly five years since 41 national and regional industrial and consumer representatives asked the Commission to comprehensively investigate the justness and reasonableness of wholesale power supply prices in the markets administered by RTOs. Although FERC rejected that request, the evidence continues to mount that these markets are simply not competitive and are detrimental to the economy.”

FTC Strengthens, House Acts to Weaken Privacy Protections

Children’s personal information will be better protected when recently announced changes to the Federal Trade Commission’s Children’s Online Privacy Protection Act Rule take effect next July. These amendments strengthen and update the rule, which was first put into place in 2000. Since then, social networking, apps and other technological developments have changed how children access and use the Internet and how information about their online activities can be tracked. CFA and other consumer and privacy groups supported the amendments, which advocated were adopted by the FTC, including:

• Clarifying that the “personal information” that can’t be collected about children under age 13 without parental notice and consent includes geo-location information, photographs, and videos;
• Extending the definition of “personal information” to cover persistent identifiers that can recognize users over time and across different websites or online services, such as IP addresses and mobile device IDs;
• Closing a loophole that allowed apps and websites directed at children to permit third parties to collect personal information from children through plug-ins without parental notice and consent.

Meanwhile, in a setback for privacy, the House of Representatives passed H.R. 5817, which would under certain circumstances relieve financial institutions of the obligation to send consumers the annual privacy notices that are required under the Gramm-Leach-Bliley Act.  The notices would not have to be sent if consumers’ personal information is only shared with unaffiliated third parties for joint marketing purposes or to service their accounts and the financial institution’s policies in that regard have not changed since the last privacy notices was provided. The bill did not pass the Senate before the end of the session.

CFA and many other groups opposed the legislation, which was changed to remove other provisions that could have made the privacy policy disclosure obligations even weaker.  “The GLB annual privacy notices are an important consumer education tool,” said CFA Director of Consumer Protection Susan Grant. “Since financial institutions can ask consumers for consent to send them the notices electronically, the argument that this obligation is too burdensome is a red-herring.”

Consumer Adoption of High Fuel Efficiency Vehicles Increasing Dramatically

CFA presented new data to the Environmental Protection Agency in December showing that new federal fuel economy standards will act to rapidly accelerate consumer acceptance of advanced fuel economy technologies.  CFA Research Director Mark Cooper presented the findings of a new CFA study to the Mobile Sources Technical Review Subcommittee’s panel on Consumer Acceptance of Advanced Technology Vehicles. The panel is tracking implementation of the new federal 54.5 mpg by 2025 fuel economy standard.

Based on the study findings, Cooper testified that: “The gradual required buildup to the new 2025 fuel economy standards is ideally suited to meeting consumer demand for high fuel efficiency vehicles. The challenge for automakers will be to ensure that the supply of fuel-efficient vehicles is robust. The new fuel economy standards provide car companies with a road map to meeting what is clearly consumer demand going forward. The new standard represents the perfect balance between supply and demand as consumer adoption of high fuel efficiency vehicles corresponds directly to the car companies making them available.”

The report details, in graphs and charts, the increase in sales of two types of fuel efficient vehicles, hybrids and vehicles with 4-cylinder engines, showing that sales of these vehicles have increased by over 1.4 million units in the past ten years and now account for three quarters of all new cars and SUVs sold annually.  The report supports the consensus regulation approach which is not only possible, but serves the best interests of the car companies, consumers, workers and the environment.  “The data makes clear that consumers will adopt advanced fuel economy technologies as automakers incorporate them into new vehicles to meet the 2025 goal of 54.5 miles per gallon,” Cooper said.

Lower-Income Households Lack Emergency Savings

Few low- and moderate-income (LMI) households emerged from the Great Recession with heavy debt burdens, but a large majority of these households lack adequate emergency savings, according to new research released in December by CFA and the Employee Benefits Research Institute (EBRI).  The research, based on analysis of the Federal Reserve Board’s latest Survey of Consumer Finances (2010 data), focused on the financial condition of the 40 percent of all U.S. households with the lowest incomes (under $35,600 a year).

“Tens of millions of families struggle to afford a car repair or dental treatment because they lack sufficient emergency savings,” said CFA Executive Director Stephen Brobeck. “It is shocking that less than two-fifths of low- and moderate-income families even have a savings account,” he added.  Added EBRI President and CEO Dallas Salisbury, “Having emergency savings is a first step toward being able to save for education, retirement, vacations, and more.”

This research, assisted by Professor Catherine Montalto of The Ohio State University, was undertaken for America Saves, which sponsored by CFA, and for the American Savings Education Council (ASEC), which sponsored by EBRI.  Together they co-sponsor America Saves Week each year.  America Saves Week 2013 is scheduled for February 25-March 2.

During America Saves Week, ASEC and America Saves urge greater use of automatic saving by families and greater promotion of this saving by financial institutions and employers. “One of the most effective ways to save is through automatic payroll-deduction,” said ASEC Director Nevin Adams. “Once you’ve set it up, the savings continue, and if you do so with a savings plan at work that pays you a ‘matching contribution,’ the savings can add up even faster.”  CFA Associate Director and Director of America Saves Nancy Register added:  “Banks and credit unions should urge every customer to save automatically.  In particular, they should urge every low- and moderate- income customer opening a checking account to also open a savings account and agree to regular fund transfers from checking to saving.”