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Earlier this month, the Supreme Court heard oral argument in connection with the cases Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, which challenged the Chevron deference doctrine. Based on the nature of their inquiries and remarks, the Supreme Court’s six conservative justices indicated that they may very well upend Chevron deference. Such a ruling would hamper federal agencies from continuing to do their important work, give corporations the ability to effectively gridlock policymaking, and ultimately, eliminate important safeguards for American consumers. 

This blog provides some examples of how overturning Chevron deference could adversely impact each key issue area that the Consumer Federation of America focuses on. We aim to shed light on the potential challenges and setbacks in advocacy and policy enforcement and emphasize the critical role that Chevron deference plays in supporting the work of federal agencies.  These potential impacts underscore the importance of maintaining Chevron deference for the continued protection and promotion of consumer interests and well-being. 

Food Safety  

Food safety advocates understand all too well that consumers face a gauntlet of preventable harms in the food system not so much because federal regulators enact bad policies, but because they do not take any action at all. Cronobacter in infant formula, dangerous Salmonella in poultry, literally thousands of chemicals in food with unexamined safety records, alcoholic beverage labels that fail to disclose ingredients, allergens and other basic facts—all of these problems and more require new rulemaking, which regulated industry may challenge in court. Despite Chevron deference, the industry and its throngs of well-paid lawyers often prevail, and years of work can go down the drain. Decades of regulatory dysfunction may follow, as has happened in the wake of a federal court of appeals ruling that invalidated the Department of Agriculture’s rules on Salmonella in meat and poultry in 2001. Indeed, USDA’s failure to protect consumers from foodborne illness has become so dire that several large companies have joined consumer groups in support of reform. Many factors undoubtedly contribute to regulatory inertia—a conflicted mission at USDA, a culture of timidity at the U.S. Food and Drug Administration, the revolving door between industry and regulatory agencies in general, the list goes on. However, should the U.S. Supreme Court rule that regulatory agencies are even more susceptible to second-guessing from the courts, the tendency to use litigation risk as an excuse for inaction will grow, and consumers will pay the price.   – Thomas Gremillion

Investor Protection 

A potential U.S. Supreme Court decision in Loper Bright to unravel the Chevron doctrine poses a significant threat to the Securities and Exchange Commission’s (SEC’s) ability to protect investors from bad actors, promote market integrity and fairness, and ensure investors have the information they need to make informed decisions.  At a time when markets, technology, and financial risks are evolving rapidly—perhaps unprecedentedly so given the rise of artificial intelligence, the risks of climate change, and the growth of cryptocurrencies—it is imperative that the SEC keeps pace. Upending Chevron would fundamentally jeopardize the SEC’s ability to do so. 

Even now, the SEC’s investor protection efforts continually face the threat of litigation from industry opponents. If the Court tips the scales even further by limiting the SEC’s authority to interpret and apply the securities laws, then the prospects for strong, lasting investor protections would only get worse.  Policing our markets and protecting investors from misconduct demands a level of expertise and precision that only the SEC possesses, and that neither courts nor Congress can match. Limiting the SEC’s ability to exercise its authority would only serve to harm investors, diminish market integrity, and destabilize our financial system. – Micah Hauptman / Dylan Bruce

Housing 

The overruling on Chevron deference would have far-reaching consequences for the ways Americans are housed. Over the last forty years, this jurisprudence has supported the ability of federal agencies to effectively regulate American corporations and protect consumers. Within housing this includes the ability of agencies to implement federally- mandated rental protections and housing counseling, offer fair housing oversight, enforce federal emission and building standards, and protect homeowners against exploitative mortgage products. For example, in 2023, after years of collaboration between three federal banking agencies (the FDIC, Federal Reserve Board, and OCC) and several rounds of vigorous public input, new, modernized rules interpreting the 1977 Community Reinvestment Act were released: a deeply collaborative product that responds to the unique realities of banking and community development today.

The overruling of Chevron risks making these types of rulemakings all but impossible and allows the worst acting corporations and their trade groups to gridlock policymaking by tying decisions up in courts. By contrast, federal agencies are led by politically appointed leaders, are accountable to Congress, and staffed by policy experts who often bring decades of experience. It is essential that we allow federal agencies to continue to do their important work and make sure that American consumers live in safe and affordable homes, are protected against housing discrimination, and can rely on fair and transparent mortgage products. – Sharon Cornelissen

Product Safety  

The U.S. Supreme Court’s decisions in Loper Bright Enterprises v. Raimondo and Relentless v. Department of Commerce could undermine consumer safety and health.  The potential safety ramifications are enormous and could implicate vehicle safety standards, phthalates concentrations in children’s toys, drugs, medical devices, and so much more. The federal agencies tasked with ensuring public health and safety rely on their agencies’ vast technical and scientific expertise. Subject matter experts can include engineers, epidemiologists, chemists, and other complex fields. Neither Congress nor judges have access to the expansive technical expertise of federal agencies. Unlike the judicial system, federal agencies provide the public with the chance to comment on proposed regulation. As such, health and safety agencies can utilize critical information from product safety professionals and safety advocates. The foundational principle of Chevron enables agencies to keep consumers safe and healthy. – Courtney Griffin 

Consumer Protection 

The Chevron doctrine correctly defers to subject matter experts at agencies like the Federal Trade Commission who live and breathe consumer protection on a daily basis and who are accountable to the public through legislative oversight and extensive transparency requirements. If the Supreme Court strikes down Chevron, inexperienced and uninformed political appointee judges can freely question regulatory interpretations and create harmful case law that is difficult to overturn. Such a decision will inevitably erode longstanding, strong safeguards that keep Americans safe, healthy, and shielded from predatory and fraudulent practices. – Erin Witte  

Financial Services  

Without Chevron deference, the current practice of permitting regulators to interpret regulatory ambiguities in consumer financial protection law will make consumers vulnerable to discrimination and undermine innovation in the marketplace. 

In almost every facet of our economy, technology is disrupting business practices and permitting new risks to consumers. Since the 19th century, commercial banking has been understood to consist of lending money, taking deposits, and paying checks. A judge with experience in banking law should readily grasp the meanings of those activities and their implications for our economy. On the other hand, emerging technologies require policy professionals with a deep understanding of highly technical topics. Federal regulatory agencies employ these experts. Their wisdom benefits policymaking. 

Addressing discrimination in artificial intelligence is among the developments likely to require deep understanding as a precondition for successful regulatory implementation of existing banking laws. Even an attorney with a career of experience in fair lending law would be challenged to evaluate the fairness of an AI-driven algorithm, for example. The Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), the Fair Credit Reporting Act (FCRA) and the Federal Trade Commission Act (FTCA) are among the laws whose fairness standards can be applied to algorithmic decision-making in lending and lending-adjacent activities. 

 Inaction by the institution with authority for AI governance, be it a regulator or the Courts, will lead to problems for all affected stakeholders. Consumers will be vulnerable to discrimination and without regulatory clarity, lenders will be anxious to try AI out of fear of legal jeopardy. Markets need clarity on how fairness is defined and measured and even on how to identify protected class status when lenders are prohibited from soliciting demographic information directly. The Supreme Court must uphold the principle of Chevron deference. – Adam Rust   

The post What’s at Stake for Consumers if the Supreme Court Overturns “Chevron Deference” appeared first on Consumer Federation of America.

As background, a SPAC serves as a vehicle for private companies to enter the public markets without going through the traditional IPO process. SPACs effectively function in two phases – the SPAC phase and the de-SPAC phase. In their first phase, SPACs function as mutual funds – a type of investment company. In their second phase, de-SPACs function as IPOs – the first time a private company is introduced to the investing public.

With these transactions, however, SPACs’ complex, opaque, and speculative qualities often lead to profound disadvantages and risks for retail investors, especially as compared to a SPAC’s sponsors and early institutional investors. As a result, many SPAC transactions have resulted in significant harm to investors when they lost significant value in the public markets after its sponsors and early investors had exited the company and liquidated their stakes.

The risk and volatility of this market is further demonstrated by the reality that the once booming SPAC market, which peaked in 2021, has given way to a cratered SPAC market today.

[2]

Critically, during the initial stage of a SPAC transaction, nearly all SPACs meet the definition of an investment company, as they are engaged primarily in the business of investing, reinvesting, or trading of securities. And because these entities mirror the operations of investment companies, like money market mutual funds, they should adhere to the same requirements of the ICA as any other investment company. Indeed, the ICA imposes a comprehensive regulatory framework on investment companies which includes rules designed to protect investors whose funds are managed and controlled by another entity.

However, many SPACs have failed to follow even the most basic of ICA’s requirements and therefore operate as illegal investment companies. Among other violations, SPAC sponsors’ compensation structure is likely to be impermissible under the ICA, SPAC sponsors and their affiliates engage in conflicts of interest that are impermissible under the ICA, SPACs issue warrants with terms that are impermissible under the ICA, and many SPACs’ governance structures are impermissible under the ICA.

When the SEC proposed its new SPAC rules, it provided a new safe harbor under the ICA that would have provided special treatment to SPACs, allowing them to effectively function as investment companies for two years without having to comply with the investor protections afforded by the ICA. Accordingly, CFA raised strong objections to this part of the proposal, arguing that this safe harbor exceeded existing limits for inadvertent investment companies. CFA’s comment urged the Commission to significantly narrow the scope of any safe harbor and emphasized that SPACs operating outside the safe harbor should always be deemed in violation of the law.

In response to these concerns that were raised by CFA and others, the SEC adjusted its approach in the final rule, eliminating the proposed safe harbor.

In addition to this important adjustment, the final rule retained other investor protections from its proposal, and adopted reforms that will benefit market integrity writ large. For example, the rules will require additional disclosures about SPAC sponsors’ compensation and conflicts of interest, disclosures about possible dilution of investors’ shares, and other information that is vital to investors involved in SPAC transactions.

In conclusion, the SEC’s efforts to strengthen investor protections in the SPAC market is laudable, and CFA applauds the SEC for addressing concerns related to illegal investment company practices within the SPAC market.

[1] See Consumer Federation of America, Comment Letter Re: Special Purpose Acquisition Companies, Shell Companies, and Projections at 1 (June 13, 2022), https://bit.ly/3UsDq5W.

[2]  Bailey Lipschultz, SPAC Industry Fears SEC’s Rules Could Finish Off Ailing Market, Bloomberg (January 24, 2024), https://bit.ly/47Yjw5U.

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The Department’s proposed rule would ensure that all investment professionals provide advice that is in retirement investors’ best interest and that any conflicts of interest do not taint their advice. We urge the Department to finalize this proposal without undue delay.

The post In Coalition with a Diverse Set of Groups and Individuals, CFA Supports the Department of Labor’s Retirement Security Proposal appeared first on Consumer Federation of America.

The proposal would honor retirement investors’ legitimate expectations when receiving advice from investment professionals who hold themselves out and function as trusted advice providers, providing retirement investors with the strong protections they need.

The post Consumer Federation of America Supports Department of Labor Retirement Security Proposal appeared first on Consumer Federation of America.

“As we all know, retirement investing can be complicated, and many retirement investors turn to financial professionals for advice. Retirement investors reasonably expect and believe the financial experts they turn to will act in their best interests, and retirement investors trust and rely on the advice they receive.”

“You know what retirement investors don’t want or expect? To be steered to overpriced, suboptimal products or services that aren’t in their best interest by people who seek to evade their regulatory obligations and accountability, all so they can get a big payday.”

The post Statement Before the U.S. Department of Labor Retirement Security Proposal Hearing appeared first on Consumer Federation of America.

The DOL’s proposed rule would close the current regulatory loopholes to ensure that all investment professionals provide advice that is in retirement savers’ best interest and that any conflicts of interest do not taint their advice. This “best interest” standard would apply across the board: to any investment professional advising on retirement accounts for any recommended investment product.

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“Based on our initial review, the DOL has drafted a strong rule that would help bring millions of retirement savers much closer to a secure, dignified retirement. This rule aims to protect workers and retirees by closing significant legal loopholes, ensuring that the retirement investment advice they receive serves their best interests rather than the self-interest of financial professionals they turn to for advice.

Among other important protections, the proposed rule covers advice about rollovers to IRAs, the most important financial decision many people will ever make. It also covers advice to retirement plans, such as 401(k)s, where savers hold a significant portion of their retirement investments. The rule also covers advice about insurance products that are not currently protected under the securities laws or are covered insufficiently under weak and ineffective state insurance laws.

This rule promises to be a major improvement over the status quo, which allows too many financial professionals and firms to offer self-serving retirement advice at the expense of retirement savers. Given the financial stakes, it’s not surprising that certain Wall Street and insurance industry allies have immediately begun attacking the rule. Despite these attacks, there are many financial professionals who already meet these standards and want to see rules in place that require high-quality retirement investment advice that is not tainted by conflicts of interest.

As the comment process moves forward, we’ll continue to evaluate all aspects of the rule to ensure it is as strong as possible. And we’ll encourage all savers to share their views with the DOL so they can finally get the unbiased retirement investment advice they deserve.”

MEDIA CONTACTS:

AARP is the largest nonprofit, nonpartisan organization dedicated to empowering Americans age 50 and older to choose how they live as they age. With a nationwide presence, AARP strengthens communities and advocates for what matters most to the more than 100 million Americans 50-plus and their families. To learn more, visit www.aarp.org. Media Contact: Colby Nelson, (202) 706-8416, media@aarp.org.

The AFL-CIO is a federation of 60 national and international labor  unions that represent 12.5  million working people.  To learn more, visit https://aflcio.org/about-us. Media Contact: Liz Vlock, (202) 637-5034, LVlock@aflcio.org

Americans for Financial Reform Education Fund is a nonpartisan, nonprofit coalition of more than 200 civil rights, community-based, consumer, labor, small business, investor, faith-based, civic groups, and individual experts.  We fight for a fair and just financial system that contributes to shared prosperity for all families and communities.  To learn more, visit www.ourfinancialsecurity.org. Media Contact: Carter Dougherty, Carter@ourfinancialsecurity.org.

Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in the financial markets. Better Markets advocates for reforms that stabilize our financial system, prevent financial crises, and protect investors and consumers, ultimately so that our financial system serves all Americans more equitably.   To learn more, visit www.bettermarkets.org. Media Contact:  Madeline Tucker, Press Secretary, at 202-618-6433 or mtucker@bettermarkets.org.

Center for American Progress is an independent, nonpartisan policy institute that is dedicated to improving the lives of all Americans through bold, progressive ideas, as well as strong leadership and concerted action. Media Contact: Sarah Nadeau, 603-496-9417, snadeau@americanprogress.org.

Consumer Federation of America is a non-profit association of more than 250 national, state, and local pro-consumer organizations. It was formed in 1968 to represent the consumer interest through research, advocacy, and education. To learn more, visit www.consumerfed.org. Media Contact: Micah Hauptman, mhauptman@consumerfed.org.

Economic Policy Institute is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans. To learn more, visit www.epi.org/. Media Contact: Monique Morrissey, 202-360-8526, mmorrissey@epi.org

The Pension Rights Center is a nonprofit consumer organization committed to protecting and promoting the retirement security of American workers, retirees, and their families. To learn more, visit www.pensionrights.org. Media Contact: Kate Pixley, (202) 296-3776, kpixley@pensionrights.org

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“The release of this rule is a major milestone in the long fight to bring millions of Americans one step closer to a secure, dignified retirement. We look forward to reviewing this proposal in detail, submitting our comments, and working to help craft the strongest possible rule to ensure that retirement savers receive investment advice that is in their best interest, not the self-interest of the financial professionals they turn to for advice about their retirement investments. If the proposal is as strong as we have urged, this will prove to be a banner day for retirement savers.”

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Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule

Department of Labor ERISA Council Must Protect Retirees and Workers Pensions

CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers

Tips for Saving Money on Your Auto Insurance

By: Michael Delong, Research and Advocacy Associate

Auto insurance is an interesting product: we are all required to have it if we own a car, but we hope never to have to use it, and we try not to think about it. But as insurance premiums continue to skyrocket, it has probably been on your mind more.  Even though we can face stiff penalties for driving without insurance, many drivers struggle to keep up with the rate increases.  In addition to the price pain, the insurance product itself can be kind of bewildering:  what are all these different “coverages,” which do I need, and (of course) why do they cost so much?

Consumer Federation of America (CFA) and America Saves are here to help. At its most basic, auto insurance covers damage or injury you cause to another car or person while you are driving.  Depending upon your state and the coverage you choose, your insurance policy may also cover your medical bills or damage to your car when you cause a crash, when you are hit by an uninsured driver, or when your car is stolen or crushed by a tree branch.

Every state except New Hampshire requires drivers to have auto insurance—and New Hampshire still requires financial responsibility if you cause an accident, so the overwhelming majority of people there have auto insurance. If you do not have auto insurance, you are breaking the law. And if you are caught you may be fined, have your license suspended and have to pay a fee to recover it, and possibly even face jail time.

Over the next several weeks CFA and America Saves are partnering on a series of articles on auto insurance—how to save money, what consumers should know, and several myths about auto insurance. Please note that these tips are general in nature and may not reflect every reader’s personal needs and situation; you should consult financial advisors and insurance professionals as you make decisions.

You can save money on your auto insurance with these tips:

1. Shop around—and shop around using multiple options. Auto insurers use a variety of driving and non-driving socio-economic rating factors to set your premiums. Driving-related factors include your driver safety record, the number of miles driven, and whether you have been in any accidents or filed any claims. Non-driving related factors include your gender and marital status, your credit score, your education level, your job or occupation, whether and how much insurance you’ve had in the past, and whether you own a home or rent. Insurers also place a lot of emphasis on where you live, often based on your ZIP code and even on which block you live in your neighborhood.

Each auto insurer calculates these factors and their impact on your premium in different ways – some rely heavily on your credit history and never consider your job title or educational history, while others may weigh several aspects of socio-economic status when calculating your premium. It is well worth your time to sit down and get quotes from different insurance companies. If one company charges you $120 per month and you find another company that only charges you $90 per month, that $30 savings per month will add up to $360 saved per year.

Consumers can compare quotes in several different ways:

• Online: You can go to different auto insurer websites, fill out your information, and get the quotes, and you can use comparison websites such as the Zebra, Bankrate, or ValuePenguin. These websites enable you to compare a few quotes more quickly and easily. It is important to note that these companies do not scan the whole market for you, and they get paid by insurance companies.
• Through an agency. You can contact licensed insurance agents to get additional quotes and guidance about insurance generally. There are some agents – known as “exclusive” or “captive” agents who only sell one insurance brand and may have deep knowledge about the offerings of their company. Others, known as “independent” agents and brokers, can scan several insurers’ offerings for you, including some that may not be available online.

We recommend that people shop around through each of these methods to get the best set of options and find the best price.  One note, some insurance sellers, known as “brokers” may charge an additional “broker fee” if you work with them. Unless you have a particularly unique situation – such as a very bad driving record or a very expensive or custom vehicle – we recommend against purchasing auto insurance from brokers who charge a fee.

     2. Consider whether you still need comprehensive and collision coverage. These options on an insurance policy will pay to repair or replace your car if it is damaged by you (such as accidentally crashing into a pole while parking), some natural event like a falling tree branch, or if it is stolen. If you have a car loan or lease your vehicle, these coverages are required, but if you own your car outright, they are optional. “Comp and Collision” are particularly helpful if your car value is still pretty high, but if your car is not worth much anymore, it may be time to consider dropping Comp and Collision. Since these coverages usually come with a deductible – typically $500 – that you have to pay first before any insurance payments kicks in, it may be better to try and set aside a little money each month just in case you damage the vehicle, rather than pay hundreds of dollars in premiums each year for a car worth only a few thousand dollars. As a thumbnail rule, if your car value is less than ten times what you pay for Comp and Collision, you might consider dropping it. That is, if your car is worth $10,000, it might not be worth it to spend more than $1,000 a year on Comp and Collision; if it’s only worth $3,000, think twice about a policy costing more than $300 for those coverages.

     3. Check your credit score for errors and try to improve it as well. We hate to make this recommendation, because it is ridiculous that this should impact your insurance premium. But, until politicians stand up to insurance companies and stop this practice (it is already prohibited in California, Hawaii, and Massachusetts), it is one of the biggest drivers of your auto insurance premium. Our research indicates that consumers with a perfect driving record and poor credit scores pay on average at least twice as much for auto insurance compared to consumers with a poor driving record and excellent credit scores.

The first thing you can do is examine your credit report for errors, which are unfortunately quite common, and demand that any errors be corrected. You can get a copy of your credit report at this link. If you find errors, contact your insurer and demand that they re-run your “credit-based insurance score,” re-price your policy if appropriate, and refund any excess they charged by using a faulty score. Over time, you can work on improving your credit score by following the credit score improvement strategies described here.

CFA is fighting to ban auto insurers from charging consumers more based on their credit; if you are interested in learning more or getting involved, email us at mdelong@consumerfed.org.

     4. Make sure your insurer knows how much you drive. Many companies charge lower prices to low-mileage drivers. If you are driving less (because you are working from home, out-of-work, or retired) than you used to, you may be paying more than you should. Find out how many annual miles the insurer is estimating for you when they set your premium and correct them if they are rating you based on out-of-date information.

     5. Improve your driving by taking a driving improvement course. Auto insurance companies charge far higher premiums if they believe you are a risky driver, since that increases the chances of your being in a crash and the insurance company having to pay a claim. If your driving record is checkered or you would like to save on your insurance, some auto insurers will offer you a discount if you take a defensive driving course. Check with your insurance company or agent to see if you qualify for a discount if you take this course, some of which can even be taken online.

     6. Pay your auto insurance premium in full instead of monthly. If you’re struggling to cover the cost of insurance, then you are probably paying in installments. It may be hard to imagine paying it all at once, but it’s worth calling your company and asking how much you would save if you did. With some companies it can be 5-8% or even as much as 12%. If you are on a six-month policy (where the pay-in-full amount is much less than an annual policy), and you pay a significant installment fee, consider paying all at once.

     7. Look for additional discounts. Many auto insurers offer further discounts if you meet certain conditions. Possible benefits include: discounts for having a paperless policy, a student discount, a discount if your car gets an anti-theft device, an automatic payments discount, or a discount for veterans/members of the military.

Auto insurance is required in most states, and it is also a crucial tool for financial security and economic mobility (as well as actual mobility in most places). Some of the reasons for high prices have to do with unfairness in the marketplace and company greed – CFA is working on improving laws and regulations to better protect consumers from these problems – but being a savvy insurance shopper and consumer can help. We hope that this will help you save on your auto insurance.

Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule

By: Erin Witte, Director of Consumer Protection

The Federal Trade Commission sells its Motor Vehicle Dealer Rule short when it estimates that consumers will only save $30 billion over ten years. The $30 billion number is the dollar equivalent of the time savings (on average: 3 hours per transaction) for consumers because the rule would prohibit dealers from advertising deals that are not available, and from wasting consumers’ time by making them call or physically go to a dealership to haggle over the price of the car. It is hard to imagine that anyone will be unhappy about having to spend less time at a car dealership – $30 billion is just icing on the cake.

But time savings, significant as they are, are only one small fraction of the ways consumers would save money with this rule. Dealers would not be able to sell worthless add-on products or deceive consumers into buying them. If the FTC’s cases against Passport and Napleton are any indicator, the cost savings here will well exceed the $30 billion estimate. Napleton alone allegedly charged over $70 million in deceptive and unauthorized add-ons. With over 45,000 dealers in the U.S. generating hundreds of thousands of complaints to government regulators, it is safe to assume that Napleton and Passport are not simply “bad apples.” Implementing safeguards to help prevent these and other deplorable practices will only put more money back in consumers’ pockets, stimulate competition, and make the process of buying a car slightly less painful.

Enter the lobbying powerhouse National Automobile Dealers Association (NADA), smelling blood in the water for dealers’ substantial profits, and predictably dipping into its well-funded coffers to generate a fearmongering survey and report about the FTC’s rule. Before asking a single question, the survey spends three pages striking fear in the hearts of dealers about expanded liability, exposure to significant monetary penalties, and “increase[d] consumer confusion and frustration.” It is no surprise that this “representative sample” of 40 dealers (out of “roughly 60,” handpicked by NADA) who managed to fully complete the survey (and “nearly fifteen” who were interviewed) want us to believe that the rule will cost consumers more than it saves. This simply is not true.

Perhaps it’s time we asked the people who rely on and pay increasingly high amounts for cars what they would like to see. Thousands of consumers responded to the FTC’s rulemaking, sharing horror stories and pleading for its passage. The least we can give them is a measly 3 hours and $30 billion back.

Department of Labor ERISA Council Must Protect Retirees and Workers Pensions

By: Micah Hauptman, Director of Investor Protection

On July 18^th, CFA’s Director of Investor Protection Micah Hauptman testified before the Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans, known as the ERISA Advisory Council. The purpose of the hearing was to help the Department determine whether it should update its longstanding guidance for pension plan fiduciaries in order to ensure that their decisions to transfer worker and retiree pensions to annuity providers are in the sole interests of workers and retirees.

Hauptman stated that in recent years many of the largest companies in the U.S. have transferred their pension obligations to insurance companies that provide annuities to workers and retirees. When companies do this, they shift risks onto insurance companies that, if not carefully controlled for, could undermine insurance companies’ abilities to fully pay those annuities to workers and retirees.

At the same time, insurance companies’ business models are evolving in ways that may increase risks for insurers, Hauptman stated. For example, private equity firms have become increasingly involved in insurance markets, introducing new sources of risk, complexity, and opacity to insurers’ businesses — risks that may undermine insurance companies’ ability to pay annuities to workers and retirees.

While state-based insurance guarantees may offer a partial backstop against the risk that insurance companies may not pay their annuity obligations, those guarantees are not as robust as the insurance guarantees that are provided under federal law by the Pension Benefit Guaranty Corporation (PBGC), Hauptman stated. Thus, the workers and retirees whose pensions are transferred to annuities are at risk of losing valuable benefits if the insurance company providing their annuity were to fail.

Given these heightened risks to workers and retirees arising from pension risk transfers to annuity providers, Hauptman urged the Department to preserve the protections in the current guidance for pension plan fiduciaries and offered several suggestions for the Department to consider to strengthen the guidance so as to ensure that any pension risk transfer arrangements do not leave workers or retirees worse off than they would be if they stayed in the defined benefit pension.  These included:

• Preserving the requirement for fiduciaries to select the safest annuity available;
• Requiring fiduciaries to select annuities that are independently reinsured; and
• Not permitting fiduciaries to satisfy their obligations by providing disclosures about the risks associated with the transfer or by accepting written representations by an insurance company that it is complying with state insurance laws.

Hauptman reminded the Department that workers and retirees have earned their pensions and depend on them for a secure retirement. Accordingly, the Department must ensure that those benefits and the protections afforded to workers and retirees are not compromised.

CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers

Earlier this month CFA released a new report – “A Surfeit of Real Estate Agents: Industry and Consumer Impacts” – revealing with industry data that there are too many residential real estate agents compared to the amount of homes available for sale. The report also found that this imbalance burdens consumers with higher commission costs and leaves them vulnerable to inexperienced real estate agents.

There are more than 1.5 million residential agents who belong to the National Association of Realtors and compete for home sales, with costs totaling between $5 to $6 million annually. The costs include:

• economic inefficiencies including an inordinate time spent by agents finding clients,
• relatively low incomes of many full-time agents,
• frustration by these agents and by many consumers who must deal with inexperienced agents,
• reinforcement of relatively high and uniform commission rates, and
• damage to the reputation of the industry.

“A large majority of practicing real estate agents have recently received their license or work part-time,” said Stephen Brobeck, a senior fellow at CFA and author of the report. “These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.”

Marginal agents with fewer than five sales a year receive an estimated 25-30 percent of commission income. The report found that the median net income of all sales agents was approximately $25,000, and the median net income of sales agents with less than two years of experience was $7,800. For all brokers and associate brokers, the net median income was $57,100.

“Without 5-6 percent commission rates, even fewer agents would survive financially in today’s marketplace,” said Brobeck.  “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”

A future CFA report will explore the ease with which people can obtain a real estate license compared to the difficulty for most licensees to learn how to succeed as realtors.

“To protect consumers and experienced realtors, the industry should discourage unqualified and insufficiently committed people from obtaining a license,” said Brobeck. “The industry should prioritize making it easier for capable, hard-working licensees to succeed. We look forward to expanding on this suggestion in a future report.”

The post CFAnews Update – July 27, 2023 appeared first on Consumer Federation of America.

1. Recent changes in insurance market practices have increased risks for insurance companies and the workers and retirees whose pensions are transferred to them.
2. State insurance guarantees are unlikely to provide the same benefits as Pension Benefit Guaranty Corporation (PBGC) guarantees.
3. The Department must ensure that plan fiduciaries that transfer pensions to insurance companies adhere to their fiduciary duties to ensure that any pension risk transfer arrangements are in the sole interest of plan participants and beneficiaries, and do not leave workers or retirees worse off than they would be if they stayed in the defined benefit pension.

Hauptman called on the Department to remember that workers and retirees have earned their pensions and depend on them to get through retirement. DOL must ensure that those benefits and the protections afforded to workers and retirees are not compromised.

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The post CFA Opposes the Expanding Access to Capital Act of 2023 appeared first on Consumer Federation of America.

• expose public school teachers saving for retirement to harmful, sales-driven conflicts of interest and the risk of unrecoverable losses,
• increase the amount of risky, costly, illiquid, and opaque private funds that are sold to retail investors, and
• undermine the SEC’s and state regulators’ ability to oversee and police private securities markets.

The committee’s ongoing deregulatory agenda, as further demonstrated by the proposals expected to be included in the markup, would expose retirement savers and other investors to dire and untenable risks, would further diminish market transparency, efficiency, and accountability, and would continue to expand risky, opaque private markets at the expense of our public markets.

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In advance of the markup, CFA sent a letter of strong opposition to many of these bills, including opposition to a “bipartisan” package of bills that, in part, would expand the “Accredited Investor” definition, the boundaries of which delineate which investors may be sold unregistered, private securities.

CFA also strongly opposed the antithetically-named “Improving Disclosure for Investors Act of 2023” (H.R. 1807), a bill that would severely diminish the effectiveness and accessibility of critical investor disclosures by defaulting investors into receiving them electronically, even when investors have shown a clear preference for receiving disclosures in paper. And finally, CFA wrote to oppose a package of partisan bills, the “Expanding Access to Capital Act” (H.R. 2799), that would recklessly expand private markets and diminish investor protections across the board, and another package of bills intent on defanging the Consumer Financial Protection Bureau (CFPB), entitled the “CFPB Transparency and Accountability Reform Act” (H.R. 2798).

Accredited Investor Definition

Notably, the bipartisan package of bills considered during the markup included a bill, “the Fair Investment Opportunities for Professional Experts Act” (H.R. 835), that would enshrine in statute the Securities and Exchange Commission’s accredited investor definition, one for which there is ample evidence showing that it is ineffective in defining a population of investors capable of truly fending for themselves without the protections afforded in the public market.

Coincidentally, the bill’s lead sponsor, Rep. French Hill (R-AR), said exactly this during debate of the bill, stating that “wealth is not correlated with wisdom” and, moments later, “I don’t think smart investing is correlated with wealth.” Moreover, the bill would expand the definition to include individuals who have “demonstrable education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment.” It’s not clear who would qualify under such a test or whether or how that person would have access to the information necessary to evaluate an investment and value any particular private securities. Troublingly, members of the committee opined that merely having a professional degree or certification, like investors with an MBA or law degree, or those who are a Certified Public Accountant (CPA) or even a “young PhD medical doctor,” to quote Rep. Hill, should qualify an investor to purchase private securities. All of these examples, and others that were floated during debate, are unproven and likely ineffective proxies for the sophistication necessary to fend for one’s own in private securities markets. And sadly, this bill is but one of several other problematic accredited investor-related bills that advanced on a bipartisan vote.

Private Market Deregulation

 Even more unfortunately, these bills and others considered during this markup clearly illustrate the Committee’s recent and dramatic turn toward a deregulatory agenda that has occurred under Rep. McHenry’s (R-NC) chairmanship of the full committee and Rep. Ann Wagner’s (R-MO) leadership on the capital markets subcommittee. This pivot toward expanding private markets at the expense of public markets was made most evident by the “Expanding Access to Capital Act of 2023” (H.R. 2799). This package of more than a dozen partisan bills would expand private market exemptions, expand the accredited investor definition, and otherwise erode or negatively impact investor protections and public markets.

It is of profound concern that a significant part of the committee’s legislative agenda will apparently be to further deregulate our capital markets and expand the loopholes that have allowed private market capital raising to eclipse capital raising in public markets, the continuation of a troubling trend that has bedeviled investor protections and market integrity for decades. Private markets lack transparency, have limited regulatory oversight, and contain weak fraud prevention mechanisms, and the committee should be focused on minimizing the harms retail investors suffer when exposed to them—unfortunately, this markup displayed an intent to do just the opposite.

State Activity

The U.S. Congress, however, isn’t the only venue where efforts to expand the sales of private market securities to retail investors are occurring. For example, Nevada’s Assembly recently saw passage of Assembly Bill 75 (AB75), which would create an exemption to the federal securities laws for intrastate securities offerings to “Nevada certified investors.” In partnership with the University of Nevada School of Law’s Public Policy Clinic, CFA wrote to members of the Nevada legislature to oppose this bill, as it would expose Nevadans to the most speculative, risky, and illiquid securities, and would open the door to substantial fraud and abuse.

What’s Next?

For the bills that received bipartisan support, it is expected that they will move relatively quickly, and may advance to a floor vote in the House via “suspension of the rules.” For reference, the House suspension calendar is typically used to fast-track bipartisan, noncontroversial bills, meaning they do not have to go through the Rules Committee and the House does not need to adopt a rule to debate them, sidestepping procedural hurdles that commonly slows legislation in the House.

Other bills that advanced, however, including both the “Expanding Access to Capital Act” (H.R. 2799) and the “CFPB Transparency and Accountability Reform Act” (H.R. 2798), were advanced on a party line vote and therefore will likely have a more uncertain path through the legislative process.

And finally, one portion of the committee’s markup that deserves highlighting occurred during a colloquy between members while debating the “Improving Disclosure for Investors Act of 2023” (H.R. 1807): prior to passage of the measure (by voice vote), Ranking Member Maxine Waters (D-CA) was able to secure commitments from Chair McHenry and the bill’s lead sponsor, Rep. Bill Huizenga (R-MI), for further negotiations with Democratic members to determine the final version of the bill that would be brought to the House floor. This could provide a critical opportunity to amend the bill’s most problematic features.

Conclusion

 As these bills and others are deliberated further in both the House and the Senate, CFA will continue working to ensure that consumers’ interests are promoted, investor protections are preserved, and both public and private markets operate with integrity and transparency.

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The Revolving Door: How a Florida Insurance Commissioner is Going on a Lucrative Career as an Insurance Lobbyist — Likely at the Expense of Consumers

Rock n’ Play Recall Demonstrates How Secrecy Provision of Law Hides Product Dangers from Consumers

Group Letter to Chairman Gensler Spotlights Climate Risks in Private Markets

In the Face of FDA Inaction on Harmful Food Dyes, California Offers Hope of Protecting Consumers

By: Thomas Gremillion, Director of Food Policy

For far too many parents, navigating the food system feels like traversing a minefield. CFA is working to address one source of this anxiety: artificial dyes.

For decades, researchers have suspected that several artificial dyes contribute to hyperactivity and attention deficit disorder in children. These suspicions were recently confirmed by the California Office of Environmental Health Hazard Assessment. After comprehensively and systematically reviewing the evidence, the agency concluded in 2021 that several dyes “cause or exacerbate neurobehavioral problems in some children.” Specifically, the agency’s report fingers the color additives FD&C Blue No. 1, FD&C Blue No. 2, FD&C Green No. 3, FD&C Red No. 3, FD&C Red No. 40, FD&C Yellow No. 5, and FD&C Yellow No. 6.

Last year, CFA joined consumer advocacy partners in petitioning the California Department of Public Health (CDPH) to require a warning label on dye-containing foods and supplements to alert consumers about the adverse effects these dyes have on children’s neurobehavior. Earlier this month, I testified with other petitioner representatives, and experts including toxicologists, epidemiologists, and pediatricians, at a public hearing that CDPH held on the group’s petition. We sought to counter industry trade groups’ and paid consultants’ arguments against acting on the science.

One common argument was that these dyes are safe because the U.S. Food and Drug Administration (FDA) has approved them, and FDA is the expert. However, FDA’s approval of these dyes happened in the 80s or even earlier, before the dawn of the personal computer, never mind the genetic analysis technologies that have shed light on why food dyes appear to cause hyperactivity in some children, and even appear to have as large an effect on children’s behavior as lead does on children’s IQ.

Industry has argued that FDA’s ongoing market surveillance should suffice to ensure public protections against these food dyes remain up-to-date. However, FDA’s market surveillance of the harms caused by these dyes has let consumers down, in part because FDA is underfunded and under resourced. The entire FDA Office of Food Additives Safety—responsible for regulating more than 10,000 chemicals in food and a multi-billion-dollar industry—has just over 100 full-time technical staff. And it does not currently have a director.

According to a 2013 study of over 4,000 chemicals purposely added to food such as flavors, preservatives, and sweeteners, less than 22% had sufficient data to estimate how much is safe to eat, and less than 7% were tested for developmental or reproductive effects. FDA may not even know that a chemical is in the food supply, thanks to the Generally Recognized as Safe (GRAS) process, under which food companies have been allowed to determine themselves that over a thousand food chemicals are Generally Recognized as Safe.

Unfortunately, FDA is not going to stand up for consumers on food dyes, but California can. And one big reason for doing so is to establish a level playing field for companies that want to do the right thing. A few years ago, several large companies including General Mills, Kellogg, and Mars made bold pledges to remove artificial colors from their products, but most of them have not followed through. And no wonder! If a company’s competitors can save money and otherwise take advantage of using these chemicals, it’s hard to make the business case for change.

In Europe, public health authorities have required a warning label on most dyed foods for 15 years. The experience of many leading U.S. companies “across the pond” shows that reformulating foods to remove dyes is feasible and economical. If we arm American consumers with accurate information about food dye harms, we can be confident that it will move the market on this issue just as it has in Europe. Consumers have a right to make educated choices about what foods they purchase and consume. If the FDA can’t stand up to protect consumers, particularly young children, from harmful food dyes, then individual state public health departments should. California, CFA urges you to lead by example and put consumers first.

The Revolving Door: How a Florida Insurance Commissioner is Going on to a Lucrative Career as an Insurance Lobbyist — Likely at the Expense of Consumers

By: Michael DeLong, Insurance Research Advocate

The fifty-one state Insurance Departments are responsible for regulating insurance, protecting consumers, and making sure that insurance rates are not excessive, inadequate, or unfairly discriminatory. Some commissioners are determined to help consumers. Others, less so. Some regulators seem to treat their time in government as a slow-moving job interview for a high-paying positions within the insurance industry. They exit their Department of Insurance through the “revolving door” that connects the agency with the industry, taking lucrative jobs as lobbyists or “government affairs” executives in the insurance sector after they leave their public post.

As the doors are revolving, we also see former industry staff moving into the public agencies as well. The problem is not just limited to the Commissioners—top-level insurance department staff also pass through too often, and it can result in an unhealthy relationship between the insurance industry and the departments that are supposed to oversee them. Not surprisingly, the revolving door can undermine consumer protection and enforcement of the laws. If an Insurance Commissioner plans to get a job at an insurance company after they leave office, they may avoid taking actions that would upset that company. Regulators may even take actions or make decisions enabling them to cash in later, when they join insurance companies that they have regulated. Insurance companies, in turn, hire former Commissioners and regulators to gain personal access to government officials, to seek favorable legislation and regulations, and to get inside information on what Insurance Departments are doing.

A recent poster child of this phenomenon is former Florida Insurance Commissioner David Altmaier, who abruptly resigned late last year to join an insurance lobbying firm.  For fourteen years, Altmaier worked in the Florida Office of Insurance Regulation (OIR), and from 2016 to 2022 he was Florida’s Insurance Commissioner, a period marked by hostility to consumer advocates and consumer protection, and, as his last year concluded, the extraordinary lapse in regulatory oversight of insurers that were low-balling and defrauding policyholders dealing with Hurricane Ian claims.

In late 2022, Altmaier urged the Florida legislature to pass sweeping law changes, claiming that they would stabilize Florida’s troubled property insurance market. The Florida legislature held a short special legislative session in 2022 and enacted these reforms, which created a new layer of reinsurance funded by the state, banned one-way attorneys’ fees in insurance claims litigation, and made it harder for policyholders to bring litigation against insurers.

In a December 2022 letter to Governor Ron DeSantis, Altmaier praised these new laws and wrote that “we have worked with the Florida Legislature to meet historic challenges with historic reforms.” But some observers were more skeptical, doubting that the reform would reduce property insurance costs. In a Twitter post, Florida House Democratic spokesman Jackson Peel asked, “What do you think will be announced first: The next insurance company leaves Florida’s collapsing market or his new high paying job in the insurance industry?”

The answer was the latter, with a slight twist: Altmaier obtained a high paying job at a lobbying firm, as a lobbyist, excuse me, “advocate,”  for the insurance industry. His new is quite explicit about the value of the revolving door: “I leverage over a decade of experience to help insurance and insurance-adjacent entities navigate the complex world of regulation and regulatory policy.”

In that same letter mentioned earlier, Altmaier submitted his resignation, which took effect on December 28^th, 2022—only a couple of weeks later. Why did he depart so quickly? Because on January 1^st, 2023, a new anti-lobbying law took effect. Before then, former Florida agency heads (including former Insurance Commissioners) would be banned from lobbying for two years, and this law extended that lobbying ban to six years. By resigning before the law became operational, Altmaier could avoid this extended ban.

And in March 2023, Altmaier announced that he had a plum new job: he would be joining the Southern Group, the top-earning lobbying firm in Florida. Florida Politics reported that Altmaier “will be utilizing his network of contacts to build a national insurance advisory practice.” Insurance Journal reported that the former Commissioner “will be ‘an extraordinary effective advocate’ at a time that insurance companies need those skills the most.” With no sense of irony or impropriety, the Southern Group’s website announces that “Today, the sharp lines between government, business, and constituencies have blurred.”

In his new job, Altmaier is taking advantage of another loophole in Florida’s anti-lobbying law. The law bans Florida agency heads from lobbying their former agencies—but not from lobbying Florida legislators. Altmaier’s salary is not listed. But we suspect that his new position is quite a bit more lucrative than his old position as Florida Insurance Commissioner.

To summarize: former Florida Insurance Commissioner David Altmaier, in charge of regulating insurance and safeguarding consumers, abruptly resigned from his job, where he was hostile to consumers and cozy with the insurance industry. And not even three months later, he joined Florida’s largest lobbying firm to advocate for insurance companies by using his former contacts and knowledge. This case is a perfect example of the revolving door, where some insurance regulators move seamlessly from public service to very profitable lobbying and influence-peddling.

We invite Florida’s new Insurance Commissioner, Michael Yaworsky, to chart a different path and pledge not to work for the insurance industry when his time at the agency ends.

Rock n’ Play Recall Demonstrates How Secrecy Provision of Law Hides Product Dangers from Consumers

By: Courtney Griffin, Director of Consumer Product Safety

The Consumer Product Safety Commission continues to find recalled Rock n’ Play sleepers listed for sale on Facebook Marketplace, despite representations from Meta, Facebook Marketplace’s owner, that it would take steps to prevent the re-sell of recalled products on its platform.  In his second letter to Mark Zuckerberg, CEO of Meta, CPSC Chair Alex Hoehn-Saric once again urged Meta to do more to stop the illegal sale of recalled consumer products.

In another letter to Mattel and its subsidiary Fisher-Price, Hoehn-Saric also urged the company to take additional steps to protect babies from the hazards posed by recalled Rock n’ Play infant sleepers.  Hoehn-Saric called on the company to announce the recall again and do more to remove Rock n’ Play sleepers from the resell market and homes. According to the CPSC, the average listed price of a Rock n’ Play sleeper on the secondary market is $25, more than what some consumers will receive if they act on the recall.

The CPSC issued a recall on Rock n’ Play sleepers in April 2019 and again in January 2023 because of poor results.  The sleeper has been linked to the deaths of almost 100 infants, with at least 8 occurring after Fisher-Price recalled the product. In a letter to members of Congress in March 2023, Fisher-Price stated that it has “completed more than 465,000 cumulative corrections related to recalled Rock n’ Play sleepers, including product in manufacturer inventory, retailer inventory, and with consumers.”  This amounts to less than 10% of the 4.7 million recalled Rock n’ Play sleepers.

In addition to highlighting how easy it is to purchase dangerous recalled products, the Rock n’ Play saga also demonstrates how dangerous products flood the market because of the unique restrictions that govern the CPSC’s public disclosure of information.  Section 6(b), 15 U.S.C. § 2055(b), a provision of the Consumer Product Safety Act (CPSA), prohibits the CPSC from disclosing information about a consumer product that identifies a manufacturer or private labeler unless the CPSC has taken “reasonable steps” to assure that the information is accurate, the disclosure is fair and reasonably related to effectuating the purposes of the CPSC.  As such, the CPSC must provide the manufacturer or private labeler with an opportunity to comment on the accuracy of the information, and the CPSC may not disclose such information for at least 15 days after sending it to the company for comment.  The reality, however, is that the process between the CPSC and manufacturers or private labelers often takes many years before the information can be disclosed to the public.

In the case of the Rock n’ Play, it remained on the market for a decade despite infant deaths tied to the product.  The CPSC issued an alert in May 2018 regarding “infant deaths associated with inclined sleep products,” but did not identify specific products in a way that was helpful for most caregivers.  However, it was an accidental disclosure of information that prompted the events leading to the Rock n’ Play’s recall.  While reviewing data it requested from the CPSC, Consumer Reports found several infant fatalities linked to the Rock n’ Play and similar products.  Under section 6(b) that data should have been redacted but the agency had made a mistake and released the information to Consumer Reports.  By the April 2019 recall, approximately 4.7 million Rock n’ Play sleepers had flooded the market.

Recently the CPSC issued a Supplemental Notice of Proposed Rulemaking to update the regulation interpreting section 6(b).  The Supplemental Notice of Proposed Rulemaking did not in any way repeal or significantly alter the main restrictions of section 6(b), but the proposed changes would streamline and modernize the regulation interpreting the statute.  CFA submitted public comments supporting the minor changes, but stated that repeal of section 6(b) is necessary to promote consumer safety and transparency.

Senator Richard Blumenthal (D-CT) and Representative Jan Schakowsky (D-IL) reintroduced the Sunshine in Product Safety Act in March 2023. In a related press release, Senator Blumenthal said: “This measure removes the regulatory straight jacket that deprives consumers of vital product safety information. Current regulatory requirements give companies the right to veto vital CPSC warnings and deny the truth to consumers. By repealing Section 6(b), our measure would free the CPSC to swiftly warn the public about hazardous products and require companies to put people ahead of profits.”

In the same press release Congresswoman Schakowsky said, “Section 6(b) of the Consumer Product Safety Act prevents the Consumer Product Safety Commission (CPSC) from telling the public about potentially dangerous products without the company’s permission. Simply put, it protects companies over consumers. This cannot stand.” 

Blumenthal and Schakowsky previously introduced the Sunshine in Product Safety Act in April 2021 after reports that Peloton obstructed the CPSC’s investigation following injuries and a child’s death.

CFA strongly supports the Sunshine in Product Safety Act, stating in the bill’s press release: “It is time for Congress to stop allowing companies to put the lives of consumers, especially our most vulnerable, in danger.  We applaud Senator Blumenthal and Congresswoman Schakowsky for valuing transparency and the lives of consumers by introducing the Sunshine in Product Safety Act. It is past time to repeal the gag order that is Section 6(b) and allow the Consumer Product Safety Commission to do its life-saving work to the best of its ability.”

Caregivers have an expectation that the products they purchase, especially products for babies and children, are safe.  Yet the CPSC cannot share critical, sometimes life-saving information.  CFA and other product safety advocates support the Sunshine in Product Safety Act for this reason.  It is important that we let our elected officials know that companies should not be able to hide or delay critical safety information.  Consumers deserve timely information about the potential hazards in their homes and babies deserve to sleep in safe products. It is imperative that Congress passes the Sunshine in Product Safety Act to protect consumers.

Group Letter to Chairman Gensler Spotlights Climate Risks in Private Markets

By: Dylan Bruce, Financial Services Counsel

On April 4, a diverse group of organizations, including investor protection and shareholder advocates, climate advocates, and businesses, wrote to Securities and Exchange Commission Chairman Gary Gensler to highlight how private markets contribute to and exacerbate climate-related risks for investors and our financial system and what the Commission must do to meet these growing risks.

Specifically, the letter discusses the troubling and emerging trend of public companies shifting carbon-intensive, “dirty” assets from their balance sheets into private markets, a practice known as “brown spinning.” These transactions, which can effectively remove high emitting assets out of publicly available disclosures and into the shadows of private markets, are increasingly being employed in emissions-intensive industries, often to meet seemingly altruistic climate goals. Regrettably, the net effect is that the climate impacting assets and activities continue unabated while the associated climate-related risks for investors and markets become worse and more difficult to assess. As the letter states, “The ability of private companies to stay dark and of public companies to shift dirty assets into the dark could mean that the overall levels of emissions and climate impacting activities could remain the same, or perhaps even grow. If private markets become a de facto risk repository for the dirtiest assets, then despite the Commission’s best efforts to facilitate relevant climate-related information, investors would remain in the dark about these risks, unable to price these risks effectively or ascertain their true exposure to these risks.”

To address this issue, the letter urges the Commission to take decisive action to limit companies’ ability to hide climate-related risks in private markets and to promote the health and vitality of public markets generally. This can be done in part by reining in the excessive growth of private markets. Accordingly, the SEC should move forward with several regulatory proposals that are currently on the Agency’s agenda, including updating the Accredited Investor definition, making modest changes to the Regulation D framework, and making long overdue changes to Section 12(g) of the Exchange Act. The letter observes that “these updates would stem the growth of private markets and encourage companies to go public, where they would be subject to public disclosure requirements, including disclosure of their climate- and other Environmental, Social, and Governance-related risks.”

Unless the structural problems that allow companies to effectively hide dirty assets in private markets are addressed, “the Commission’s efforts to improve climate disclosures [for public issuers] will, at best, be a partial success, leaving a wide swath of investors and our markets vulnerable to the profound risks of climate change, and compounding the unhealthy imbalance between public and private markets that exists today.”

The post CFAnews Update – April 27, 2023 appeared first on Consumer Federation of America.

The committee will also consider several bills that would further imperil the funding structure of the Consumer Financial Protection Bureau and irreparably harm its ability to protect consumers in the financial marketplace.

The committee’s deregulatory agenda, if enacted, carries dire risks for investors, market transparency, efficiency, and accountability, and would further destabilize financial system writ large.

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