As the House Financial Services Committee today considers the industry-backed Bean (D-IL) amendment to roll back proposed legislation, the Consumer Financial Protection Agency Act, that would reinstate federal bank laws as a floor not ceiling of protection, a new study documents that nationally-regulated banks were -- despite their claims to the contrary -- at the center of the system that failed and that any claimed increased cost of multiple state laws is small. The new report released by the Center for Community Capital at the University of North Carolina documents the link between Federal preemption of state anti-predatory lending laws and the risky subprime mortgages that collapsed, triggering the foreclosure crisis. It also finds that national banks showed a marked increase in subprime lending following federal preemption which took full effect after 2004 actions of the federal Office of the Comptroller of the Currency (OCC). (Our archival OCCWatch pages.)

The House Financial Services Committee began debate today over the Obama-backed Consumer Financial Protection Agency that is opposed by the U.S. Chamber of Commerce and major bank associations. Votes may occur as early as Thursday. Meanwhile, state attorneys general joined advocates around the country in supporting the bill's central reform-- making federal law a floor not ceiling of protection. In Illinois, Attorney General Lisa Madigan, who also met with president Obama Friday, held a news conference (her release and a WGN video) urging Rep. Melissa Bean (D-IL) to drop her gutting amendment that would retain the preemption regime currently in place. Madigan's letter to Bean. Also, Ohio Attorney General Richard Cordray joined Ohio PIRG (story) to urge his delegation to support stronger state laws. Iowa Attorney General Tom Miller also weighed in. The National Governors Association led by California Republican Arnold Schwarzenegger and New Jersey Democrat Jon Corzine also weighed in on behalf of the states.

The Sunlight Foundation has ranked FIRE (Finance, Insurance and Real Estate) campaign donations to members of the House Financial Services Committee. Leader of the "PAC" is Rep. Melissa Bean (D-IL), with $269,800 of FIRE donations in 2009 out of a total of $634,535. Bean is expected to offer the worst gutting amendment to the Consumer Financial Protection Agency Act. The Bean amendment - as it is widely understood although not yet circulated - would eviscerate the bill's reinstatement of the longstanding policy that federal law serve as a floor but state laws could go higher. Under Bean, we would roll back to the recent system of federal preemption of stronger state consumer laws. Somnolent federal regulators that ignored, or aided and abetted, the growth of unfair and abusive practices leading to the crisis, would stay in charge, if you call it that. As I told the AP a few days ago: "That's the system we have now. That's the system that failed." The picture above links to the full picture at Sunlight.

The Energy and Commerce Committee will consider a data security bill, HR 2221, this morning. We joined other groups in a letter urging that its provisions preempting state laws be eliminated. Otherwise, it is a decent bill, but preemption is never a good idea.

Chairman Barney Frank (D-MA) and his Financial Services committee hold their latest hearing (all witness testimony and live video link) on the Consumer Financial Protection Agency this morning. One of the key issues will be whether business-oriented conservative Democrats on the committee succeed in eviscerating the bill by winning an amendment to remove its provision restoring federal law as a floor not a ceiling, which would eliminate the last 10 years of aggressive preemption rulings by federal bank regulators and once again allow states to respond to problems quickly. As I told the Associated Press (via Albany Times-Union) yesterday: "That's the system we have now. That's the system that failed." As New York Bank Superintendent Richard Neiman (also a member of the Elizabeth Warren-led Congressional Oversight Panel on the TARP) said in a letter in today's Wall Street Journal:

national banks fueled the broader credit crisis through their origination, wholesale funding, investment, and securitization activities. But perhaps their most insidious contribution to the housing crisis involved dubious credit-card practices that drove many struggling consumers into unsustainable subprime mortgages for debt consolidation.

Neiman also pointed out that allowing the states to pass stronger laws doesn't mean they will, unless national standards turned out to be inadequate. We agree. And we like what White House press secretary Bob Gibbs said yesterday -- that Obama would consider a veto of the consumer agency bill if it isn't strong enough. Several of the witnesses today are members of the PIRG-backed Americans for Financial Reform.

I posted that last blog before it was done because I wanted to get the Consumer Financial Protection Agency link out there. I've skimmed the bill and no big surprises. It proposes a strongly independent consumer agency with broad authority to enforce federal consumer law, as a floor not a ceiling. The two other items I'd wanted to mention concern the important idea of a floor of protection:

Sorry for the blank space for a few days: I've been in the northeastern U.S. but in a large forested area apparently abandoned by my very large wireless telecom provider formerly known as Ma Bell.

Last week, U.S. PIRG Media and Telecommunications Reform Attorney Amina Fazlullah joined nine other advocates in a news event demanding baseline privacy protections against widespread behavioral tracking and targeting on the Internet. Our joint release including links to materials. USA Today blog.

On Wednesday, I will join many of the same groups in a news event (advisory) to discuss Congressional and administration efforts to either enhance or diminish both on- and offline privacy. I fully expect that in every battle over privacy we will face an ugly fight over whether or not the states -- the absolute longtime privacy superstars -- can continue to lead the way, or whether the demands of corporate interests for weak, preemptive federal laws will prevail.

You know where we stand. So long as federal laws are strong enough, there is no need for the states to act, and they will not. That's not rational. But if federal laws fail to do the job, we need the states as first responders-- their rights to act should never be taken off the board. That's not rational. But it serves corporate privacy invaders well.

Two dozen state and territorial attorneys general have endorsed the Obama proposal for a new Consumer Financial Protection Agency. Excerpt from their letter to Congressional leaders:

One of the most important reasons that we support this legislation is because it preserves the states’ ability to protect consumers. Historically, states have been proven leaders in fighting unfair and deceptive practices. We believe that state consumer protection laws should apply equally to all banking and financial institutions within the states’ jurisdiction, regardless of whether they are state or federally chartered. The legislation as introduced gives state regulators authority to enforce their consumer protection laws against federally chartered institutions, and we urge Congress to keep this provision in the final bill.

A U.S. district judge has ruled in favor of expansion of New York's returnable beverage container deposit law to include bottled water (Plastics News). Protecting and expanding the bottle bill has been a longtime major campaign for NYPIRG (Bigger, Better Bottle Bill campaign page). The water guys had hidden behind the Constitution -- generally one of the last refuges of a corporate scoundrel -- in their efforts to continue to externalize and place the burden of excessive beverage container waste on cities and towns and states and consumers, instead of on themselves, the companies whose products create the waste. From the Binghamton Press:

"This decision is more refreshing than an ice-cold beverage on a hot summer day," Laura Haight of the New York Public Interest Research Group said in a statement.

The story And You Thought a Prescription Was Private by Milt Freudenheim in today's New York Times will probably shock a lot of people. But the fact is, despite major improvements made by the American Recovery and Reinvestment Act (ARRA) of 2009 to the Health Insurance Portability and Accountability Act (HIPAA) of 1996, neither your prescription privacy nor your medical privacy more broadly are yet fully guaranteed. When the ARRA changes take full effect, you'll be better, but not fully, protected. The story explains how "de-identified" information can be "re-identified;" how hackers and voyeurs can gain access to your records, and also some of the "therapeutic" and other exceptions to supposed limits on marketing. It also explains important efforts by states to rein in drug marketing and protect privacy.

The World Privacy Forum has prepared a detailed Patient’s Guide to HIPAA: How to Use the Law to Guard your Health Privacy, written by Bob Gellman, one of the experts cited in the NYT. The WPF also explains why consumer-controlled Personal Health Records (PHRs) may sometimes be covered by HIPAA, but not if provided for you by a non-covered entity, such as a website. In that case you may only be protected by the website's privacy policy. Other good resources are PatientPrivacyRights.org and the EPIC medical privacy page. Also, check out this New York Times blog page of reader comments largely opposing direct to consumer advertising of drugs.

Last week we participated in a press conference to introduce federal legislation banning the use of credit reports by most employers; today the New York Times has a page one story on Another Hurdle for the Jobless: Credit Inquiries. The story reports on several states that have restricted the practice (Washington State and Hawaii) and several where it has been under consideration (Michigan and Ohio, with California governor Arnold Schwarzenegger vetoing a similar proposal). Opposition to use of credit reports is for several reasons:

“How do you get out from under it?” asked Matthew W. Finkin, a law professor at the University of Illinois, who fears that the unemployed and debt-ridden could form a luckless class. “You can’t re-establish your credit if you can’t get a job, and you can’t get a job if you’ve got bad credit.”

Others say that the credit check can be used to provide cover for discriminatory practices.

Over at Business Week, check out Old Banks, New Lending Tricks:

...some of the world's biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors.

"In the past two years lawmakers in 15 states have capped interest rates on short-term loans or kicked out payday lenders altogether. The state of Ohio, for example, has imposed a 28% interest rate limit. But ...nationally chartered banks don't have to follow local rules. ... Cleveland-based Fifth Third, which has 400 branches in [Ohio] ... introduced its Early Access Loan, with an annual interest rate of 120%. "These banks are skirting state laws," says Kathleen Day of advocacy group Center for Responsible Lending."

In his press release accompanying his testimony today before a Senate Banking Committee hearing on regulatory reform, the OCC chief, Comptroller of the Currency John Dugan, once again attacks the proposed Consumer Financial Protection Agency (CFPA):

“It makes sense to consolidate all consumer protection rulewriting in a single agency, with the rules applying to all financial providers of a product, both bank and nonbank,” he said in testimony. “But we believe the rules must be uniform, and that banking supervisors must have meaningful input into formulating them. Unfortunately, the proposed CFPA falls short on both counts.” The rules would not be uniform because states could adopt different laws and regulations, and national bank preemption would be repealed, Mr. Dugan said.

State enforcement actions have been hamstrung by the dual forces of preemption of state authority and lack of federal oversight. The authority of state attorneys general to enforce consumer protection laws of general applicability was challenged at precisely the time it was most needed – when the amount of subprime lending exploded and riskier and riskier mortgage products came into the marketplace. For example, the Office of the Comptroller of Currency has taken the position over the past several years that it has authority to prevent state attorneys general from enforcing state fair lending and consumer protection laws against federal banks and bank subsidiaries. This position effectively created a void that was previously covered by state consumer protection and civil rights laws.

At the same time that preemption of state consumer protection powers gained ground, federal agencies failed to fill the gap in regulation with uniform market-wide standards that ensured lenders did not engage in fraudulent, deceptive or unfair lending practices. Our federalist system of government is premised on the notion that federal and state regulation can co-exist and are in fact complementary. Moreover, even if sufficient federal regulations had been promulgated, they are only effective to the extent that the administration in power is interested in enforcing them. Recognizing the important role of the state attorneys general will restore an effective check on banking and financial institutions.

The void created by preemption in the face of a failure of federal oversight added a number of impediments for state attorneys general in pursuing enforcement actions against predatory lenders.

Brian Krebs of the Washington Post reports that web services firm Network Solutions Says Hackers Accessed 573,000 Card Accounts. Officials of the firm then complain that the real problem is with state laws, not their own failure to guard confidential information:

"Network Solutions has begun notifying affected stores by e-mail and postal mail, and it is offering to notify the stores' customers as well. Forty-five states and the District of Columbia have enacted laws requiring customer notification when a data breach or loss jeopardizes the security of information, but the rules for complying with those laws differ from state to state. "We feel terribly about it, to burden them with the notification process, which can be kind of tricky because there is no one federal data breach statute," Wade said."

Consumers: this is why I would never, ever, use a debit card, especially on the Internet. With a debit card, fraud occurs against your own checking account and the law supposedly protecting you -- the Electronic Fund Transfer Act is weak. Plus, it's your own money you're missing until when and if the bank refunds it. Fraud against a credit card, on the other hand, is covered by the stronger Truth In Lending Act and the bank has a greater incentive to work hard to stop it. All plastic should be protected the same way credit cards are. If we get a new consumer agency, that could be one of its first efforts.

Update: Pam Martens has an extensive story on arbitration in CounterPunch: Judicial Apartheid: Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud.

In a major victory for aggrieved consumers, the arbitration mill known as the National Arbitration Forum has capitulated and settled with the Minnesota Attorney General. In a story first broken today by Business Week and reported also by the Associated Press and Minnesota Star Tribune, Minnesota Attorney General Lori Swanson has brought the arbitration mill known as the National Arbitration Forum to heel. According to her lawsuit last week, the firm had contracted with credit card companies, debt collectors and others in deceptive ways to abuse consumers, some of whom may not have even owed debts, according to previous studies. From Business Week:

After coming under increasing fire for bias towards major credit-card companies, the nation’s largest arbitration firm involved in adjudicating delinquent credit-card debt has agreed to pull out of the business, Minnesota Attorney General Lori Swanson disclosed on Sunday, July 19.

At a news conference this afternoon in St. Paul, Swanson said that National Arbitration Forum was owned by a New York hedge fund that also ran a debt collection agency and that the company was involved in more than 200,000 arbitration proceedings each year.

"The playing field is tilted against the consumer toward the company," Swanson said.

According to Swanson's office, the company's sales pitch to credit card companies included these lines: "The customer does not know what to expect from arbitration and is more wiling to pay. They ask you to explain what arbitration is, then basically hand you the money."

Just as the banks that helped destroy our financial system are fiercely opposing transformative financial reform, the health insurance lobby that has failed to develop a business model that will cover all Americans fiercely opposes the reasonable, but transformative, reform of offering a public plan option. Watch a video with U.S. PIRG's Larry McNeely at U.S. PIRG's Health Care pages. Read a column by Florida PIRG's Brad Ashwell Choice: Public Health-Care Option in the Lakeland, Florida Ledger newspaper. Excerpt after jump:

The reality is that the public option will be well positioned to implement the type of smart cost controls that the private insurers should have adopted long ago, but few of them did. It could create incentives for primary care, prevention and wellness; pay doctors for good health outcomes, not just the number of tests run and procedures performed; create incentives for utilizing patient centered research on which drugs and treatments work best; and ignore the hyperbolic sales pitches of drug company salesmen, instead opting for what is proven to work.

UPDATE: LA Times story. New York Times story. USA Today story. Finally, here is the Forbes story. The bank kids do a good job in all these stories of sticking to their tired, false "patchwork" messaging. They seem to like that better than "balkanization" these days even if neither is accurate. What happened is this: The court simply put real corporate crime cops back on the beat enforcing their narrow set of non-preempted laws. The next step, reinstating all the other state laws OCC wrongly preempted, is up to Congress.

Original post: The Supreme Court has issued its decision in Cuomo vs. Clearinghouse and OCC, holding that when a state attorney general seeks to enforce state laws over national banks in his or her role as the state's chief law enforcer, he or she is not preempted by the overly-broad OCC preemption rules. However, the decision is not 100% on our side, as it is unclear how investigations could be conducted under the lines drawn by the court. In any case, we knew that win this case or not, we'd still need Congress and the President to go further to reinstate state rights, as the President has proposed. We'll have more after our legal eagles analyze the scope of the decision.

We were amicus in the case on the side of the states. Dow Jones via CNN Money. Lauren Saunders of the National Consumer Law Center has issued a statement: Excerpt:

“The Supreme Court today has given states only a limited ability to enforce state fair lending laws. States can sue if they are confident that a violation has occurred, but cannot act responsibly by investigating first. Banks’ lending practices are a black box, and states cannot peer inside to see what is really happening. The decision also leaves in place a number of other decisions and regulations, based on the same Civil War-era law, that continue to allow banks to ignore state predatory lending and other consumer protection laws."

We expect to see legislative language from the Treasury Department implementing President Obama's proposal for a Consumer Financial Protection Agency (CFPA) sent to the hill, probably Monday. Following Wednesday's House Financial Services hearing on the proposed CFPA (watch video, download testimony), the fight is just getting started. Industry groups have staked out their position: they strongly oppose an agency to protect consumers. They like the current system. But that system failed, the last I checked. But the bankers like it because they dominate its captured regulators. As the American Bankers Association's Ed Yingling testified as he sat right next to me: "We believe that a separate consumer regulator should not be enacted…." Further, the U.S. Chamber of Commerce will oppose a standalone agency "that cannibalizes regulatory expertise, adding yet another regulatory layer." (AP) The Chamber has also launched a $100 million campaign against “mounting government regulations:” (National Journal). Even the Wall Street lobby group (Securities Industry and Financial Markets Association-SIFMA) whose members’ excesses and greed exacerbated the collapse has a new campaign on ‘Populist Overreaction’ (Bloomberg).

The New York Times, in its editorial today On the Road to Regulation, points out that a key test of the new CFPA legislation will be whether it gives consumers the right to enforce the banking laws, too.

"Lawmakers will also have to ensure that the administration’s very good idea (link to previous editorial) for a consumer financial-products safety commission translates into a truly robust agency. One sign that is happening would be for the law to include a right for consumers to sue firms that violate certain doctrines established by the new agency."

After the jump, I have a lot more commentary plus links to news stories on what will be a critical reform battle between the banking lobby that failed our economy and the people and groups trying to ensure that it won't happen again.

That Times editorial On the Road to Regulation goes on to critique other parts of the Obama reform proposal, including its failure to democratize the Fed. Our coalition, Americans for Financial Reform, has made similar critiques. We look forward to working with the White House and the Congress to broaden and strengthen the proposals. We expect that the financial industry, whose excesses and greed led to the world's biggest economic collapse since 1929, will use its network of political connections and continued massive campaign contributions to oppose sensible improvements to and even attempt to weaken the Obama plan. As we told Business Week for their aptly titled story this weekend Financial Regulation: Industry Objections Increasing--Obama's plan for financial reform has sparked a growing chorus of protest from banks, hedge funds, and other interests, part of the industry's strategy is to "blame it on the other guy—they're hoping to water down reform, deflect criticism of their industry." Another way to look at what they are doing is this: invoking the Bart Simpson (video) defense: "I didn't do it, no one saw me do it, there's no way you can prove anything! Of course, the banks did do it, everyone saw them do it, and we can prove it." But, on Capitol Hill, "blame the other guy" works well to confuse and delay needed reforms.

There is plenty of coverage of the fight over the CFPA. Kevin Hall for the McClatchey papers Debate joined over new Consumer Financial Protection Agency:

In sometimes-testy exchanges, [Professor Elizabeth] Warren fought off suggestions by several Republican lawmakers that a new entity isn't needed, just new powers for existing regulators. "Congressman, that sounds like a good plan but that's what we have been doing for the last 70 years, and it hasn't worked very well," Warren responded.

Financial services companies are coming up with cash nobody knew they had to fight the proposal, which would put hidden credit card fees on a par with faulty bike helmets and flammable pajamas.

Denial, noun: An unconscious defense mechanism characterized by refusal to acknowledge painful realities, thoughts or feelings. The banking industry wasted no time declaring its opposition to President Barack Obama's recent proposal for a regulatory agency that would protect consumers from rapacious lending practices.

U.S. banks are fighting the Obama administration plan to create a consumer agency for financial services as they seek to protect fees, such as credit-card penalties that have almost doubled to $19 billion in five years.

Rep. Scott Garrett (R-N.J.) called the proposal an example of an "Orwellian, heavy-handed, government-knows-best mentality," and [Rep. Jeb] Hensarling [R-TX] said the new regulators would rule as "un-elected philosopher kings" over the financial services industry. Edward L. Yingling, president of the American Bankers Assn., also opposed the plan.

The chairman of the House Financial Services Committee, Barney Frank, scoffed yesterday at assertions that a new consumer protection agency would morph into “some out-of-control entity. There is no pattern of overregulation I can see in the consumer area, and I don’t see one here,’’

“Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.”

The best part of the plan is the creation of a Consumer Financial Protection Agency that would limit or forbid many of the worst bank practices still allowed under law. That includes excessive and surprise overdraft fees and outrageous credit card interest rates.

Over the past decade, federal bank regulators looked the other way as responsible loans were crowded out of the market by aggressively marketed financial products carrying hidden costs and fees. Tricky products, whose most “innovative” feature was their ability to obscure their true cost, led a race to the bottom that stifled innovation of any benefit to consumers. The aggressive marketing of these products caused an enormous loss of wealth across the middle class and sparked the current economic crisis.

Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. On top of that, it began charging a one-time fee of $35 if the account remains in the negative for more than five days. The bank also raised the monthly fee on My Access checking accounts to $8.95 from $5.95.

She added that in some cases, the bank changes have favored consumers. For instance, she said, the bank reduced the overdraft fee to $10 an item if overdrafts in a day total $5 or less.

Finally, this Huffington Post blog reports on an excellent exchange of views between Rep. Donald Manzullo (R-IL) and me, and fellow witnesses Elizabeth Warren and Ellen Seidman, during Wednesday's hearing. I think most Congressional witnesses would join me in saying that we enjoy engaging with the members. It's a lot more interesting than when a member uses most of his or her 5 minutes in a long statement with no real question involved.

Kudos to Florida's Republican governor Charlie Crist who, unlike his legislature, stood up to the powerful insurance lobby and just vetoed an outrageous legislative giveaway to the biggest property insurance companies. Here is Florida PIRG legislative advocate Brad Ashwell's statement praising the veto. (Previous blog has link to Brad's op-ed explaining the issue.) Florida Sun-Sentinel:

Although the legislation (HB 1171) was called the "consumer choice" bill, it actually would have allowed about 40 of the largest property insurers to start charging virtually any price they want for policies with hurricane coverage, and to bypass regulations the state imposes on other companies.

John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation today announced a Senate Commerce Committee investigation into certain e-commerce marketing practices that generate thousands of mysterious monthly charges to consumer credit cards.

On many well-known websites, including Fandango.com and Orbitz.com, after consumers make a purchase, a hyperlink or “pop up” window appears and offers consumers a cash back reward if they sign up for a company’s online membership service.

The practices? Pre-acquired account telemarketing and "free-to-pay" scams. Without your informed consent, if any consent at all -- a company you "trust" (some of the companies you used to trust were called "banks") shares your confidential credit card, debit card or even checking account information with a "marketing partner" that it "trusts" to provide it with massive commissions after it signs you up for products you didn't order and clubs you didn't join.

In the free-to-pay variant, you might get a few weeks free. But unlike the Mickey Mouse Club, you don't even get a cool hat. You just get monthly bills and find it a royal pain in the neck to get your money back.

Yes, Virginia, it is "very true" that websites are sharing your credit card number with third parties that bill you for products you didn't order and club memberships for clubs you didn't join. But, you say, "I just clicked on a "special offer" popup and immediately closed the horrific page of junky offers. I had no idea they could, or would, enroll me for looking at a page for two seconds. They can do that?"

Yes, websites could and yes, they would. And they have for years (my previous blog). But maybe, as part of this investigation and the renewed Congressional oversight of the financial system, the old problem of "pre-acquired account telemarketing" will finally be solved.

The 1999 Gramm-Leach-Bliley Financial Services Modernization Act was supposed to fix a lot of things. It was supposed to remove barriers that prevented financial firms from becoming giant one-stop financial supermarkets that would create synergies, boost competition, offer consumers choices, lower prices and make America strong. How's that going for you?

In response to a rotten privacy scandal involving Memberworks and U.S. Bank, first uncovered by the Minnesota Attorney General, GLBA was also supposed to stop banks and other firms from sharing your credit card, debit card and even checking account numbers with "trusted" marketing partners without your consent. Who needs identity theft? An identity thief didn't steal your information and sell it. Your bank had it already and sold it.

Just as its consolidation of the banking industry didn't work out, GLBA didn't completely solve this problem, either, so after pressure from the state attorneys general, the FTC made changes to the Telemarketing Sales Rule to further limit the seamy practice of "pre-acquired account telemarketing" as explained in these supplemental comments of the Minnesota and Illinois Attorneys General. As the Minnesota comments make clear, it isn't just hard to avoid being signed up without consent, it's hard to cancel.

Some financial institutions have a “hotline” system so that consumer calls can be transferred directly from the customer service center at the financial institution to the retention department of the preacquired account seller. As one bank told its customer service representatives: We prefer that cardmembers contact the Business Partner directly when
attempting to cancel. However, when a call comes into [Bank], we will attempt to re-route the call to the Business Partner via an abbreviated warm transfer, i.e., we introduce the caller and then the Business Partner handles the call.

Unfortunately, GLBA and the TSR include only limited protections against pre-acquired account telemarketing and related "free-to-pay" scams. Let's hope Senator Rockefeller's investigation leads to more financial privacy reforms, including on the Internet.

Believe it or not, Vertrue even has a page warning about pre-acquired account telemarketing, even though that's its game.

More links:

My testimony from a 2002 Senate hearing on privacy and Gramm-Leach Bliley. Other pro-privacy witnesses at the hearing included the Minnesota and Vermont Attorneys General and Phyllis Schlafly, head of the conservative Eagle Forum. Among the industry witnesses was John Dugan, now head of the obscure, but powerful, federal OCC (previous blog).

An article from the Multinational Monitor about Memberworks and U.S. Bank.

New credit law will regulate Freecreditreport.com, a classic free-to-pay scam.

Well. as you can see, I am so excited about this investigation, this blog could go on and on...

President Obama Curtails Bush's Policy of 'Preemption' (Washington Post). Over the last eight years a supposedly conservative president advanced policies that were more pro-big-business than in favor of the small government he allegedly espoused. In particular, he demanded that his business-lobbyist dominated federal agencies assert sweeping, ungiven powers to eliminate longstanding state powers to protect their citizenry from harm. Here is the new Obama Preemption executive order. Previous blog on a recent Supreme Court finding that state common laws giving injured musician right to recover damages from drug company whose actions resulted in loss of an arm are not preempted by an FDA rubber stamp. Consumers are not protected by federal agency guarantees; only the threat of action by state attorneys general or private lawsuits helps prevent unsafe products. Consumers are not compensated for harm by federal agency guarantees. Only the right to sue under common law guarantees compensation to harmed consumers (it also deters wrongdoing). Previous blog on the orchestrated campaign by industry lawyers and Bush White House to write agency rules that asserted preemption authority that the Congress had not given them.

Over at Work Forward, the blog of the National Community Tax Coalition, Mike Evangelist reports that predatory payday lenders are paying bloggers to promote online payday lending. Arthur Delaney first broke the story as Army Of Paid Bloggers Suddenly Promoting Online Payday Loans over at HuffPo.

State attorneys general have long led the fight against payday lenders and are leading new actions against the variant making loans online that are harder to track and harder to hold accountable. For the scoop on payday loans, go to the Consumer Federation of America's paydayloaninfo.org. In HuffPo, Arthur notes that the FTC is considering rules to require paid "bloggers" to disclose that they are shills, not journalists. Good idea.

Clarification: Advocates like the change on preemption, but the rule itself is still weak and won't improve safety much if at all. It's a gift to manufacturers.

In a return to normalcy after a Bush Administration attempt to reverse longstanding doctrine, a new roof crush rule (release) for light vehicles does not preempt state common law rights. From the rule: “We have reconsidered the tentative position presented in the NPRM. We do not foresee any potential State tort requirements that might conflict with today’s final rule. Without any conflict, there could not be any implied preemption.” Previous blog.

We are amici, or friends of the court, in Cuomo v. Clearinghouse and OCC, an important case heard at the Supreme Court yesterday (transcript of argument). Advocates are hopeful that the federal OCC's massive power grabs over the last 20 years or more will be partly negated by a positive pro-state decision. In those power grabs, the Office of the Comptroller of the Currency, an obscure but powerful arm of the Treasury, largely preempted all state laws and state enforcement against national banks and even their state-licensed non-bank subsidiaries. The OCC did say that a few state laws, including fair lending laws, did still apply to national banks, but that only the OCC can enforce them. A favorable decision in the case would reinstate the right of state regulators to enforce state laws. All 50 state attorneys general support our position (their brief). Detailed analysis at SCOTUSblog. All briefs.

Bob Hunter of the Consumer Federation of America and Birny Birnbaum of the Center for Economic Justice -- the nation's leading insurance consumer advocates -- have sent a sharply worded letter to members of the National Association of Insurance Commissioners (NAIC) urging them to reject a proposal they will consider later this week to deregulate auto and homeowners insurance and slash protections for consumers. Hunter, an actuary, is a former Texas and federal insurance commissioner; Birnbaum, an economist, was his associate commissioner in Texas. From the letter from Hunter and Birnbaum:

The NAIC jumped on the deregulation bandwagon in 2000 with its plan for modernizing insurance regulation that featured Speed to Market -- ways for insurers to get their products to markets sooner in part from less regulatory oversight. There was never any consumer demand for insurers bringing products to markets sooner or for insurers bringing ever more complicated and confusing products to market. It is time for the NAIC to acknowledge that Speed to Market should follow -- not replace -- careful regulatory oversight.

“It is astonishing that the states would consider a proposal to deregulate auto and home insurance at a time when even Alan Greenspan has recognized the failure of weak government oversight of the financial services industry” said J. Robert Hunter, Director of Insurance for CFA and former Texas Insurance Commissioner and Federal Insurance Administrator.

“Americans, struggling to make ends meet, need increased, not reduced insurance price protection by the states, especially if they are required by law or by lenders to purchase auto or home insurance,” he said. “State insurance commissioners defend state-based insurance regulation by claiming they are tuned in to local markets and consumer issues. But, the paper and recommendations represent a startling lack of understanding by regulators of the problems insurance consumers face today when buying auto or homeowners insurance,” said Birny Birnbaum, executive director of CEJ.

NYPIRG, with the Center for Medical Consumers, has a new report The Price Is Not Right: A Review of New York's Prescription Drug Pricing Website. From the Associated Press via Forbes:

A new report says a state Web site designed to help consumers shop around for the least expensive medication offers inconsistent pricing information, with wild cost differences on the same drugs in different pharmacies.

Along with over 130 consumer, labor, civil rights, community and responsible investing organizations, U.S. PIRG and the state PIRGs have urged the Obama administration and all members of Congress to base financial reform legislation on the recommendations of the Special Report on Regulatory Reform issued by the Congressional Oversight Panel. We are following up the Call with meetings on the hill and administration from representatives of the broad civil society signers of the "Call to Action." Excerpt:

In the face of a full-blown global economic crisis, bold action is needed now by leaders in Congress, the Administration and the federal government to repair our nation’s broken financial system, establish integrity in the financial markets, and facilitate productive economic activity that benefits all segments of our communities. It is only in doing these things that we can meaningfully address the public’s shattered confidence in the fairness of the financial marketplace and establish a healthy, robust and productive economy.

The good news is that a framework for the needed financial services regulatory reform already is in front of us: the “Special Report on Regulatory Reform,” released on January 29, 2009, by the Congressional Oversight Panel identifies the key principles essential for meaningful financial reform. Chaired by Professor Elizabeth Warren, the Panel was established by Congress to monitor the bailout and to help ensure that aid to the financial sector is accompanied by meaningful market reforms. The January report concluded that “the present regulatory system has failed to effectively manage risk, require sufficient transparency and ensure fair dealings.”

It proposes principles calling for reforms to:

more closely regulate financial institutions that pose systemic risk;

limit excessive leverage in key financial institutions;

increase supervision of the shadow financial system;

create a new system for federal and state regulation of mortgages and other consumer credit products;

put in place executive pay structures that discourage excessive risk taking;

reform the credit rating system;

establish a global financial regulatory floor; and

start planning now for dealing with the next crisis.

Along with other leading groups, we're joining onto critical testimony today by Jean Ann Fox of the Consumer Federation of America at a hearing of the House Financial Institutions and Consumer Credit Subcommittee. Unfortunately, our testimony happens to be in opposition to a proposal, HR 1214, by the subcommittee's chairman, Luis Gutierrez (D-IL) to legalize predatory payday lending at an allowable 391% interest rate (APR). Excerpt from our comprehensive testimony after the jump:

We oppose enacting legislation to sanction a predatory credit product that traps cash-strapped American families in a debt cycle of repeat borrowing. Congress outlawed these loans for Service members and their families in 2006 and should extend the same protections to all Americans. As American families struggle to make ends meet, protections against extremely expensive loans, unaffordable repayment terms, and loss of control of bank accounts are more important than ever. H.R. 1214 does not provide the protections that American consumers need or want.

Over at Mother Jones, Stephanie Mencimer had a story last week Why Is Obama Backing Bank of America in Court? The story concerns a California lawsuit over Bank of America's "right" to collect overdraft fees from protected Social Security deposits of elderly or disabled Americans. When the case began, the Bush Justice Department backed national banks' pet regulator known as the OCC in its request to back Bank of America. Mencimer says:

Now that the Obama administration is a shareholder in Bank of America, will it protect the interests of the bailed-out bank or those of customers targeted by its predatory practices?

We've joined a number of leading consumer and community groups in a letter to the full House in opposition to HR 1214, the Payday Lending Reform Act introduced recently by Rep. Luis Gutierrez (D-IL), chair of the House Subcommittee on Financial Institutions and Consumer Credit. We are disappointed that Mr. Gutierrez, with several other consumer champions as co-sponsors, has introduced a bill to legalize payday lending at the federal level at an allowable APR of 390% for a two week loan. It might better be called the Payday Lender Protection Act. Although Mr. Gutierrez has essentially said (statement) that because the lenders and the consumer groups both oppose it, he must be in the right place, we respectfully disagree. In actual fact, the lenders have supported large parts of his bill in state fights and must be privately cheering the federal proposal.

In 2006, Congress capped loans to military families at 36% APR. Similar protections should be extended to all Americans, especially in an economic downturn when financial scams become an even bigger problem for cash-strapped consumers. Payday lenders represent one of the worst examples of wealth-stripping financial predators in the marketplace today. They should be required to comply with the same rules as other small lenders, not given Congressionally carved-out safe harbors to ply their sordid trade. Long excerpt from our letter after the jump:

H.R. 1214 provides Congressional approval to payday loans at rates of 390 percent APR for two weeks or 780 percent APR for one week. The loan cap of fifteen cents per dollar loaned in HR 1214 authorizes lenders to charge $60 for a typical $400 loan, which is due in one pay cycle. This means that, for the typical borrower with nine loans per year, H.R. 1214 authorizes lenders to collect $540 in finance charges for a $400 loan taken out over an 18-week period.

While the bill purports to provide other consumer protections, these provisions will not stop this product from being a debt trap for borrowers because they are easily evaded. They also fail to address the fundamental problem with the payday lending model--requiring the borrower to repay the entire principle and interest from a single paycheck in just two weeks--that ensures the typical borrower cannot pay back a loan without needing to take another. The provisions of HR 1214 haven’t worked in states where they have been tried; indeed, the industry has supported most of them at the state level.

Legalizing payday lending at triple digit interest rates runs counter to President Obama’s promise to cap payday and other loans at 36 percent annual rates and to existing protections provided by Congress to Service members and their families. In 2006, Congress outlawed loans that are based on holding checks or debit authorization for future payment at the request of the Department of Defense. Our organizations have also endorsed legislation introduced by Senator Durbin (S. 500) and Representative Speier to cap rates for all forms of consumer credit at 36 percent, including interest and fees. Last fall, voters in both Ohio and Arizona soundly rejected payday loan industry ballot initiatives that would have continued payday lending at 390 percent APR or higher, despite the fact that they were bombarded with industry messages about “reforms” similar to the provisions of HR 1214.

Federal legislation to authorize payday lending, instead of prohibiting the predatory small loan terms, is particularly counterproductive when the economy is in recession and families can least afford triple-digit rates. A growing body of research demonstrates that using payday lending is harmful to borrowers. Using payday loans doubles the risk a borrower will end up in bankruptcy within two years, doubles the risk of being seriously delinquent on credit cards, and makes it less likely that consumers can pay other bills and get healthcare. Payday loan use also increases the likelihood that consumers’ bank accounts will be closed involuntarily. Given the lower bank account penetration rate for minority consumers, this product undermines progress being made to bring unbanked consumers into mainstream financial services.

Although the bill does not preempt stronger state rate caps, it would send a message approving usurious lending at triple-digit rates. The practical impact of Congressional passage of this bill will be to stop the progress of reform in the states. No state has legalized payday lending since 2005. Since then Ohio, Oregon, New Hampshire and the District of Columbia have either capped rates at low levels or repealed payday lending outright. The Arkansas Supreme Court recently overturned that state’s payday loan law for violating the state’s constitutional usury cap.

While Fed chief Ben Bernanke and Treasury Secretary Tim Geithner packed the Financial Services Committee across the hall, new FTC Chair Jon Leibowitz faced skeptical members of the House Energy and Commerce subcommittee on Commerce, Trade, and Consumer Protection at a less-crowded, but important, hearing today on Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public. The committee members' concerns were echoed by a panel of three expert witnesses. Law professor Chris Peterson of the University of Utah, Ira Rheingold of the National Association of Consumer Advocates and James Tierney, a Columbia professor and former Maine Attorney General, all gave excellent testimony on the failure of the Bush FTC to work well with state attorneys general or to bring significant numbers of cases against financial predators. As Ira Rheingold pointed out:

While the FTC has historically attempted to bring some enforcement actions against some of the bad actors in the consumer credit marketplace (most notably Associates, Household and Fairbanks), their lack of staff and resources, and more importantly the lack of political will at top of their agency has minimized the effectiveness of the results of these actions. Had the FTC been willing, like the Massachusetts Attorney General in its Fremont case, to use its “unfairness” authority to declare the lack of underwriting, risk-layering, poisoned products pushing business model that was prevalent in the mortgage market to be a violation of the FTC Act, a real stand could have been taken against our nation’s corrupt mortgage lending system.

If the federal government is going to succeed in comprehensively modernizing and reforming our consumer finance laws, it is likely that one of two plausible paths must be followed. First, Congress could attempt to pass a large, highly technical, and controversial bill that implements the needed changes across nearly a dozen different statutes, through many committees, and over the objection of powerful financial services industry advocates. Or second, Congress could pass the heavy and more technical lifting on such reforms to an administrative agency. [...] The current crisis suggests that it may be time to seriously consider proposals calling for a new regulatory authority tasked with an exclusive focus on financial consumer protection.

Chairman Barney Frank and the House Financial House Services Committee are holding an important hearing today at 10 am on Federal and State Enforcement of Financial Consumer and Investor Protection Laws. The testimony is already available for nearly all the federal agency and state agency witnesses. Also, you should be able to watch the video of the hearing at that link. The most important witnesses will be on the second panel, the state enforcers. In particular, consumer champion Lisa Madigan, Attorney General of Illinois, provides a scathing indictment of (1) federal preemption and (2) federal agency failure to enforce the laws they prevented states from enforcing as the twin accelerants that turned a house fire into a worldwide conflagration. From her testimony, on page 8:

State enforcement actions have been hamstrung by the dual forces of preemption of state authority and lack of federal oversight. The authority of state attorneys general to enforce consumer protection laws of general applicability was challenged at precisely the time it was most needed – when the amount of subprime lending exploded and riskier and riskier mortgage products came into the marketplace. For example, the Office of the Comptroller of Currency has taken the position over the past several years that it has authority to prevent state attorneys general from enforcing state fair lending and consumer protection laws against federal banks and bank subsidiaries. This position effectively created a void that was previously covered by state consumer protection and civil rights laws.

In a reprise of comments he makes all the time in defense of the reckless and arrogant actions his agency has taken to preempt strong state consumer laws, Comptroller of the Currency John Dugan's letter in today's New York Times purports to absolve his OCC, its regulated banks and their subsidiaries of all blame for the world financial economic crisis that was started with predatory lending. Dugan's letter, a reply to the Times editorial Common Sense in Lending (8 Mar 09), is also a shortened version of a longer letter he sent Congressional Oversight Panel chair Elizabeth Warren last month.

Dugan is wrong. Without question, Congress too deserves some blame. It listened for years to the bank lobbyists whose massive campaign contributions helped influence Congress to allow OCC to usurp its own Congressional authority to make laws. Congress also failed to conduct adequate oversight of OCC's abysmal enforcement record and hold it accountable. Nevertheless, history will show that the OCC's sweeping preemption rulings and actions by its regulated banks, their affiliates and subsidiaries have played a major role in the collapse of the world economy.

UConn Law Professor Patricia McCoy (praised in that New York Times editorial) and lending expert Elizabeth Renuart of the National Consumer Law Center explain in their 2008 Harvard Joint Center for Housing Studies article, The Legal Infrastructure of Subprime and Nontraditional Home Mortgages:

From The Legal Infrastructure of Subprime and Nontraditional Home Mortgages:

In the loan origination market, federal deregulation and preemption of state law combined to produce a system of dual regulation of home mortgages which precipitated a race to the bottom in mortgage lending standards. [...] As for the enforcement record of the OCC, in particular, it has been “undistinguished.” [...] In conclusion, the recent history of subprime and nontraditional mortgage loans is a story of failure and rank indifference by the federal government. [...] In a series of federal preemption rulings, the Office of the Comptroller of the Currency and the Office of Thrift Supervision excused national banks and federal thrifts and their nonbank mortgage lending subsidiaries from complying with the state laws. As a result, as long as lenders who enjoyed preemption complied with arcane federal disclosure laws, they could lend with impunity and pass off recklessly underwritten loans to unsuspecting investors through securitization. It only took three short years after the OCC’s preemption rule triggered a race to the bottom for recklessly underwritten subprime and nontraditional loans to plunge the U.S. economy into crisis.

The nation's two leading insurance watchdogs, Bob Hunter of the Consumer Federation of America and Birny Birnbaum of the Center for Economic Justice, have issued a warning to consumers to check their insurer's financial condition. The warning comes in the wake of revelations that some state insurance commissioners, often their own worst enemies in their self-preservation battles against federal preemption, have quietly changed rules to allow insurance companies to cook the books.

In recent weeks, insurance commissioners in a number of states have allowed some insurance companies to alter the way the insurers report the capital, assets and reserves that guarantee that consumers’ claims and benefits under the insurance policies will be paid. Under some of these “permitted practices,” insurers can, for example, now count more expected future tax credits (“deferred tax assets”) as part of their required capital – even though these deferred tax assets do not represent real money available to pay claims and benefits.

Here's the lede from the story Friday in the New York Times, Obama Seems to Be Open to a Broader Role for States, by John Schwartz:

The Obama administration seems to be open to a movement known as “progressive federalism,” in which governors and activist state attorneys general have been trying to lead the way on environmental initiatives, consumer protection and other issues, several constitutional experts say.

The other important way Congress gets ideas is from the states. There are numerous examples, as we discuss here in a paper and report. Powerful special interests, recognizing the success of state leadership, have demanded federal preemption and limits on state enforcement authority and consumer legal rights under state law as their too-high price for accepting modest federal regulations (Waxman report, 2006). They want federal law to be a ceiling; it makes more sense to have it as a floor, with the states permitted to experiment and innovate. This blog archive links to recent entries on current preemption issues before Congress, the regulators and the courts.

The Center for Progressive Reform is a think-tank of law professors and other university-affiliated scholars who promote sensible safeguards "to protect health, safety, and the environment through analysis and commentary." They've got two important new books on the importance of preserving state laws and state common law against the intense corporate pressure to preempt them. From the CPR blog:

Thomas McGarity has written The Preemption War: When Federal Bureaucracies Trump Local Juries, published by Yale University Press. William Buzbee has edited Preemption Choice: The Theory, Law, and Reality of Federalism's Core Question, published by Cambridge University Press and featuring chapter contributions from 15 experts, including Buzbee and McGarity, as well as a number of other CPR Member Scholars.

MASSPIRG testified this month that proposed regulations implementing an important new state law limiting drug company gifts to doctors and requiring disclosure of payments to doctors:

"do not adequately protect Massachusetts consumers.[...] The proposed regulations do not provide sufficient relief from the distortions caused by industry marketing practices that continue to drive up health care costs in Massachusetts and across the country."

Update: The award to Diane is from last year. The paper does say "last month."

In today's Arizona Republic, the story Gilbert woman takes aim at boosting local voter turnout quotes long-time PIRG staffer Diane Brown, founding director of Arizona PIRG, and points out that she recently won the Arizona league's "'Dangerous Woman Award' that goes to a member who makes an impact in the community." We are not surprised.

The Supreme Court has agreed to review an important case that would determine whether rules issued by the obscure but powerful national bank regulator, the U.S. Office of the Comptroller of the Currency (OCC), overstepped its authority by preventing states from enforcing their own laws that even OCC admits still apply to national banks. We are amici for the states (previous blog) in Cuomo v. Clearinghouse Association and OCC. From the New York Times story High Court to Rule on State Inquiries on Banks by Adam Liptak:

The case arose from a 2005 inquiry by Eliot Spitzer, then New York’s attorney general, into possible racial discrimination in the real estate lending of Citigroup, HSBC, JPMorgan Chase and Wells Fargo. Mr. Spitzer said that information made public by the banks suggested that a much higher percentage of black and Hispanic borrowers were charged higher rates than white borrowers.

Attorney General Richard Blumenthal today announced that the owners of the Crystal Mall in Waterford will pay $308,736 -- mostly for refunds to thousands of consumers -- to settle allegations that they violated the state ban on gift card inactivity fees.

Now, the company's actions would be beyond the state law enforcement because it has shifted to cards issued through a national bank, deemed subject only to federal law. [...] Simon is now issuing gift cards through two national banks, MetaBank and U.S. Bank, to circumvent Connecticut's ban on dormancy fees. Because they are national banks, their cards are governed by federal law, which allows dormancy fees. Simon is charging $2.50 a month on cards 13 months and older.

Two important new reports opposing state consumer health and safety law preemption:

...industry lawyers are attempting to use the doctrine of regulatory preemption to shield their clients from liability. And in a 2006 rulemaking, CPSC took their side. The rule dealt with flammability standards for mattresses, and in it, CPSC asserted that the regulation preempted state tort laws. In [the paper] CPR Member Scholars [...] dispute that argument. The Scholars examine the law of preemption in the consumer product safety context and show why the defense attorneys’ arguments fail.

Arthur Bryant, executive director of the public interest law firm Public Justice, has a good editorial America's access to justice at risk in today's Trenton (NJ) Times. It's about the myriad threats to access to justice posed by a three-pronged attack by corporate lobbyists:

They are using many tactics, but three are critical -- federal preemption, mandatory arbitration, and class action bans. If these three succeed, most Americans can kiss many of their rights goodbye.

Former New York Attorney General Eliot Spitzer, who took on unsavory Wall Street practices while federal regulators weren't watching out for small investors, has a Washington Post op-ed How to Ground The Street with some interesting ideas. Meanwhile, over at the New York Times, Eric Lipton and Steve LaBaton report on former Senator Phil Gramm: Deregulator Looks Back, Unswayed.

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record. He blamed others for the crisis [...]

We've joined a number of public interest, civil rights and housing organizations in support of a petition for appellate review of the decision in Cuomo v. Clearinghouse Association and OCC. In previous decisions, the court held that even in circumstances where the federal Office of the Comptroller of the Currency (OCC) recognized that national banks still had to comply with state fair housing and consumer laws, that only it (the OCC), not state attorneys general or bank supervisors, could enforce those state laws.

The 2004 decision by the Office of the Comptroller of the Currency to displace states’ longstanding enforcement power with respect to state consumer protection and anti-discrimination laws severely disrupts states’ traditional law enforcement regimes. It directly contravenes this Court’s precedents and turns a fundamental principle of federalism on its head. The notion that valid and binding state laws may be enforced only by the national government is both perplexing and contrary to principles of federalism embedded within the Constitution.

This law review article by bank law scholar Professor Arthur Wilmarth explains some of the wrong-headed analysis by the lower court in one of the two predecessor decisions leading to this petition, OCC v. Spitzer (New York's attorney general previous to Andrew Cuomo).

As Congressional, regulatory and judicial threats to the right of states to enact stronger state laws to protect consumer health and safety continue to mount, the National Conference of State Legislatures is compiling its anti-preemption resources on a page.

Also on Tuesday, Californians approved by 52-48 the CALPIRG-backed Proposition 1A to promote the development of high speed rail. Most other large spending proposals were sent to defeat by voters (AP via San Diego Tribune). From statement of CALPIRG consumer advocate Emily Rusch:

We saw gas prices hover well above $4 a gallon in California all summer. California has three of the top five most congested regions in the country, costing commuters billions in time and money. Continued oil dependence puts our environment, our economy, and national security at risk.

High-speed rail will allow Californians to travel from the Bay Area to Los Angeles in two and a half hours, without the hassle of the airport. High speed rail is predicted to take up to 92 million drivers off the road annually and attract 18 million travelers who would otherwise fly. In doing so, high speed rail would eliminate the need for construction of 2,970 additional highway miles and 91 airport gates.

Kudos to the faith, consumer, civil rights, credit union and other organizations that joined together to win important predatory lending victories in Ohio and Arizona Tuesday. In both states, voters resoundingly rejected multi-million dollar astro-turf campaigns by out-of-state payday lenders to overturn state laws strictly regulating their previously mostly-unregulated triple-digit APR predatory payday loans. Don't let the door hit you on your way out, guys.

In Arizona, voters defeated Prop. 200 on a 60-40 vote (Arizona Star story and editorial). Defeat of Prop. 200 means an existing permissive law will likely sunset (or expire) as planned in July 2010 as we think the lenders have now exhausted both the legislature's and the public's patience in that state. Website of the Arizona PIRG-backed No On 200 coalition with their cute loan shark video take-off of the old SNL classic "land shark" pieces.

In Ohio, voters approved Issue 5 on a 64-36 vote, implementing new bi-partisan legislation strictly regulating payday loans (Cleveland Plain Dealer editorial). The Ohio PIRG-backed Yes On Issue 5 has some nice videos also.

Boring ballot question policy sidebar: Of course, except for certain spending laws in some states, legislative laws do not usually need to be approved by voters to take effect. In Ohio, the lenders were allowed to put the question on the ballot asking for a "No vote" against the new law. They cleverly reversed the typical wording "Yes, pass our proposal," to "No, defeat their proposal" in an unsuccessful effort to confuse voters. In ballot questions, when a voter doesn't care, or isn't sure, he or she is more likely to vote No, all other things being equal. Well, the lenders wrote their ballot question backwards, but the voters voted straighforwardly against predatory triple-digit loan sharking. Our previous blog.

In today's New York Times Magazine, Gardiner Harris explains in a detailed story that the once gold-standard U.S. FDA has a growing "Safety Gap". He argues that the FDA is under-funded, that it hasn't kept up with the globalization of commerce, and that it cannot protect us from dangerous products, especially those from China:

But are the Chinese factories safe? Who knows? [...] China has in recent years exported poisonous toothpaste, deadly dog food, toys made with lead paint and tainted fish. In one infamous example this spring, Chinese manufacturers substituted a cheap fake for the dried pig intestines used to make the drug heparin, which is given to dialysis and surgery patients to prevent blood clotting. [...] The F.D.A. regulates more than $1 trillion worth of consumer goods, which amounts to about 25 cents of every consumer dollar spent in this country. This includes $466 billion in food sales, $275 billion in drugs, $60 billion in cosmetics and $18 billion in vitamin supplements.[...] Even the F.D.A.’s staunchest defenders now acknowledge that something is terribly wrong.

The American Association for Justice has an important new report Get Out of Jail Free documenting the unprecedented partnership between the Bush administration and corporate lobbyists to use agency rulemakings as a vehicle to diminish consumer legal rights. The strategy has been used by FDA (drugs and medical devices), NHTSA (roof crush) and CPSC (mattress fire safety). Each agency (absent Congressional authority to do so) has issued at least one (FDA many more) rule that claims that as long as a product meets the rule's requirements, consumers have no right to go to court if harmed. The new report is based on Freedom of Information Act (FOIA) requests.

The FOIA documents detail a Bush regulatory strategy called preemption. In short, the Bush administration has decided that federal rules should usurp – or preempt – the rights of states to protect their citizens with stricter safety standards. In turn, consumers can no longer use the state protections when harmed by negligence or misconduct, giving total immunity to corporations instead. AAJ has tracked how the administration’s first attempts to preempt states rights utilized friend-of-the-court briefs on behalf of corporations in civil justice cases. After only mixed success, the administration then shifted strategies, targeting instead regulatory agencies in charge of product safety oversight.

The Wall Street Journal has a story today by Alicia Mundy Bush Rule Changes Could Block Product-Safety Suits (pd. subs. req'd) on the preemption issue and on the U.S. Chamber of Commerce's efforts to limit consumer legal rights. From the WSJ:

The use of rulemaking to protect corporations from product liability was discussed from early in the Bush administration, said former Bush domestic-policy adviser Jay Lefkowitz, who was instrumental in the process.

Our previous blog on the "merry band" of industry lawyers moving between federal and lobbying posts to coordinate these tawdry efforts to limit access to the courts. There are two major reasons consumers need to be able to sue companies that make dangerous products. First, no rubber-stamp federal law is ever adequate to protect the public and no federal law is ever nimble enough to respond quickly to marketplace changes that increase safety risks. Only the threat of paying damages causes companies to make their products safer.

Second, no federal law provides compensation to victims who've been harmed by dangerous products. Without access to the courts, consumers have no access to justice and no compensation for their injuries.

Well, if all those Countrywide subprime option ARM loans were entered into by knowing consumers who understood the "fair" terms of their contracts, why has the new Countrywide owner, Bank of America, agreed to an $8 billion (record by far) settlement over predatory practices with those pesky state Attorneys General? From the Wall Street Journal (pd. subs. req'd):

With this settlement, we have the first-of-its-kind mandatory loan modification program," said Illinois Attorney General Lisa Madigan, who had filed a civil lawsuit alleging that Countrywide engaged in unfair and deceptive practices. "This program is going to help homeowners stay in their homes, which ultimately helps investors," she added. "It will shore up communities and therefore it will help with the economy.

“Unlike last week’s congressional bailout, this loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending.”

Countrywide deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.

Massachusetts regulators (their release, detailed regulations, Boston Globe story) have issued data protection rules for businesses, implementing its recent identity theft law, which was enacted following a spate (TJ Marshalls and other TJX stores, Hannaford Stores and Harvard U, etc) of high-profile data breaches right in the hub of Red Sox Nation. In addition, Governor Deval Patrick has issued an executive order

"requiring all state agencies to immediately take steps to implement security measures consistent with the requirements established by OCABR's regulations for private companies."

Shortly after the TJX incident, Patrick signed sweeping legislation requiring companies to notify the state of future security breaches and ordering the consumer affairs agency to craft new regulations. [...] After business groups raised objections to an early draft of the rules, Crane said, the agency made several changes. [...] Still, Eric Bourassa, a consumer advocate for the Massachusetts Public Interest Research Group, said he is pleased with the final version.

We've joined Public Citizen, the Center for Economic Justice and other groups (our letter) in opposing HR 5840 (Kanjorski-D-PA) to establish a federal Office of Insurance Information. That's a laudable goal, but despite Mr. Kanjorski's well-intentioned efforts to improve the bill, it still includes dangerous state preemption language that even goes so far as to give the U.S. Treasury Department unprecedented authority to preempt state laws on the basis of its interpretation of the intent of international treaties and trade agreements, or even to make such agreements and thus preempt state law. The bill may be voted on as early tonight and is being considered on the suspension calendar, usually reserved for non-controversial bills (does require 2/3rds vote in approval, no amendments are in order). Reps. Jackie Speier (her release) (D-CA) (former chair of the California Senate Insurance Committee) and Dennis Kucinich (D-OH) are leading the effort against the bill. From our letter:

Never before has the U.S. government allowed a federal agency to interpret or enter into international agreements on subject matter under the authority of the legislative branch, and then preempt states through rule-making on the basis that state policies are in contradiction to those agreements. HR 5840 would allow the Treasury to “coordinate federal efforts and establish federal policy on international insurance matters” (emphasis added) and then preempt state law via administrative action upon its own determination that the state law is “inconsistent with such policy.”

This week, the Ninth Circuit US Court of Appeals (decision, San Francisco Chronicle story) reinstated part of a landmark PIRG-backed California financial privacy law, SB 1, that will prevent banks and other financial firms from sharing some of your information with affiliates if you choose to opt-out. The new decision differentiates between sharing for credit purposes, which will still be subject to a "no-opt" rule and sharing for marketing or profiling purposes, which will have a newly enforced opt-out right. From the Chronicle:

For example, Deputy Attorney General Catherine Ysrael, the state's lawyer in the case, said customers provide personal and financial information to banks that maintain their accounts, and their credit card statements might reveal buying patterns that a bank could turn over to affiliated retailers. The law allows customers to block the sharing of such information.

Federal law (the 1999 Gramm-Leach-Bliley Financial Modernization Act) allows unfettered sharing between firms and their affiliates regardless of your preference; it only gives you a limited right to opt-out whenever information is shared with some third parties. California law now says that some sharing (for marketing or profiling) with affiliates requires the firm to first offer you a right to opt out (say no) and that all sharing with most third parties requires you to first affirmatively consent (opt-in or say yes). That part of the law had not been challenged and has been in force. (Note that some third parties selling financial products on behalf of the bank are treated as if they are affiliates; so, the opt-in that applies to "most third parties" applies primarily to sharing with all telemarketers and their ilk). SB 1 was championed by then-state senator Jackie Speier, who became U.S. Rep. Jackie Speier (D-CA) in a special election earlier this year following the death of Rep. Tom Lantos (D-CA).

During Congressional consideration of the 1999 Gramm-Leach-Bliley Financial Modernization Act, it became clear that information sharing among corporate affiliates was an issue of bi-partisan concern. While much has been written of the Victoria's Secret catalog that helped us, gross abuses of privacy by some of the nation's biggest banks -- including U.S. Bank and Bank of America predecessor NationsBank also helped us make the case for privacy. However, due to the power of the banking lobby, the final federal law resulted in privacy notices, but not much in the way of actual privacy rights. However, former Senator Paul Sarbanes (D-MD), a consumer champion, inserted language allowing states to pass stronger financial privacy laws. As it often does, California went first, passing SB 1. However, the legal turmoil (my 2005 blog entry) that ensued caused other states to drop similar efforts. The GLBA had unfortunately also included language preserving the Fair Credit Reporting Act. This conflict between its anti-preemptive Sarbanes amendment and its cross-reference to the preemptive Fair Credit Reporting Act's definition of affiliate led to the myriad court decisions before today. The court's decision this week recognizes that affiliate sharing not for credit reporting purposes should not be preempted by this cross-reference. This is important for privacy since it gives consumers the right to prevent unwanted marketing and invasive profiling. More older background from EPIC.

Well, it appears that the federal captive regulator known as the OCC (our historical page OCCWatch) was asleep at the switch again, as it apparently let Citibank steal from its credit card customers for over a dozen years, with the theft continuing even after a whistleblower informed higher-ups. Fortunately,

California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company’s use of an illegal “account sweeping” program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund. “The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

Yesterday NCPIRG staff attorney Shana Becker and coalition colleagues rolled out NC SAVE$, an alternative to the controversial Duke Energy plan to charge ratepayers $16 each for compact fluorescent light bulbs worth less than two bucks each, all supposedly in the name of energy conservation. The coalition (Carolina Newswire) proposed that the state Utilities Commission establish NC SAVE$, instead of allowing Duke to run a ratepayer-fueled boondoggle for its shareholders.

NC SAVE$ would be an independent non-profit established by the Utilities Commission. Historically, the Utilities Commission has established non-profits to meet needs underserved by the utility companies. Advanced Energy Corporation was established to promote alternative energy generation methods, and to maximize the energy currently produced.

Last night Governor Deval Patrick signed MASSPIRG's priority prescription drug marketing reform bill (MASSPIRG release).

"While the bill does not include a complete ban on industry gifts to prescribers it does make a giant step forward in shining the light on this marketing practice through the disclosure of anything of more than $50 value, giving the DPH authority to ban some gifts, and including significant fines for violations of the new regulations," said Deirdre Cummings, Legislative Director of MASSPIRG.

Over at the Wall Street Journal, in a followup story today on the indictment of 11 hackers (previous blog) over the theft of 40 million credit and debit card numbers, questions are asked. According to Some Stores Quiet Over Card Breach: Customers Not Told About Alleged Theft of Consumer Data by Joseph Pereira, Jennifer Levitz and Jeremy Singer-Vine, (pd. subs. req'd): While four chains clearly notified customers of massive data breaches as required by over 40 state laws (Consumers Union list), two chains did not and three chains won't say if they did or not.

Excerpt:

Dan Clements, chief executive of Affinion Security Center's CardCops unit, which monitors Internet chat-rooms for illegal trafficking of credit and debit cards, says many companies are reluctant to disclose breaches. "Telling the public that they've been breached is embarrassing for them, it makes them suffer a loss of goodwill and in the case of public companies, the stock price goes down."

"The other retailers -- OfficeMax Inc., Barnes and Noble Inc., and Sports Authority Inc. -- wouldn't say whether they made consumer disclosures."

The state PIRGs and U.S. PIRG are devoting significant efforts to mass transportation, infrastructure rebuilding and state budget policies. We want to build a 21st Century transportation system. This week, Georgia PIRG attorney Sandra Glaze had an op-ed column The crack in bridge policies appear in the Atlanta Journal-Constitution. Also this week, U.S. PIRG senior analyst Phineas Baxandall, Ph.D., commented in a story Is leasing roads a viable option? by George Spohr in upstate New York's Times-Herald Record:

The downside is that states enter into long-term leases -- typically between 75 and 100 years — and there's no way of knowing how valuable the assets will be in the future, Baxandall said. And the private companies have leeway to get what they want to turn a profit. "It's a lot like your HMO, where you've got an army of lawyers aimed at providing as little service as they can," he said.

We continue to tussle on Capitol Hill against roadblocks and demands for special interest provisions thrown in the way of strong CPSC reform, which has stalled on the ten yard line due to consideration of the toy industry's intentional delaying efforts. Meanwhile, the CPSC reports that recalls in fiscal 2008 are up. And I thought that the toy industry's message was "not to worry, we had a blip last year, now all is fine." Nancy Cowles of Kids In Danger took the CPSC report and graphed it-- she used third quarter data since 2008 data are incomplete. Industry lobbyists continue to ask for (1) fewer protections against dangerous magnets and other toy hazards, (2) less public disclosure of potential hazards, (3) more preemption of stronger state laws, and (4) fewer protections against toxic chemicals -- such as lead and phthalates -- in kids' products. Regardless, Senate Leader Harry Reid (D-NV) and House Speaker Nancy Pelosi (D-CA) are pushing hard to send the bill to the President before the August break.

Oregon's payday lending industry shrank dramatically in the year since the state cracked down on the short-term lenders' soaring interest rates. Three out of four Oregon payday lending stores have closed, and most stores still operating depend on check cashing and other money services to stay in business.

Payday lenders fighting to repeal a statewide crackdown on their industry on Monday sued two of Ohio's top elected officials, arguing that repeated hurdles the lenders have faced in getting the issue on the November ballot are unconstitutional.

According to today's New York Times story Accounting Plan Would Allow Use of Foreign Rules, by Steve LaBaton, the Securities and Exchange Commission (SEC) is preparing rules changes that would allow U.S. companies to choose to be regulated under either international or U.S. standards. If adopted, the proposals would weaken investor protections. As the story points out:

James D. Cox, a securities law expert at Duke Law School who returned this week from teaching corporate law in Europe, said the shift to international rules amounted to "outsourcing safety standards." "We would not for a moment tolerate having American auto safety standards set by China or India," he said. "Why should we do it for financial safety standards? There has to be some accountability."

U.S. accounting rules, including a number of post-Enron, post-WorldCom (old enough to remember those debacles just 6 years ago?) investor protection reforms enacted as part of the Sarbanes-Oxley Corporate Reform Act of 2002, are so-called "rules-based" standards, while generally more permissive international rules are known as "principles- based" standards. Proponents of weakening U.S. law have used a variety of "apples-to-oranges" and, worse, deceptive arguments to claim that U.S. capital markets are both in the tank and in that tank because of the heavy hand of U.S. regulation. Yet as the the state and provincial securities cops (known as the North American Securities Administrators Association (NASAA), point out:

U.S. Markets Remain a Magnet for Capital

The cornerstone of the principles argument -- a claim of decreased foreign IPOs on U.S. markets -- is questionable, at best. In 2007, U.S. IPOs reached a record high, not seen since the year 2000, bringing in $54 billion, and including a large number of foreign IPOs from China.

Claims that the Sarbanes-Oxley Act (SOX) has driven away foreign companies that are unfounded. Currently, record IPO numbers in themselves argue against this claim. SOX is revered worldwide and SOX-inspired legislation has appeared in several foreign regimes, following the U.S.'s lead.

Foreign investors, counter to popular argument, are indeed drawn to U.S. listings due to the low cost of capital, high financial returns and premiums on home-market listings, and the fact that U.S. markets serve as a proving ground for foreign companies, which must demonstrate to investors and the financial community that they meet the U.S.'s high standards of investor protection and financial integrity.

The S.E.C. also plans to announce details of a pilot program that would enable foreign brokers to deal directly with American investors, while continuing to be largely regulated by the foreign country. The first country in the program will be Australia, although officials hope to eventually include other countries.

Members of the House-Senate conference committee on the CPSC Reform Act, led by Senator Daniel Inouye (D-HI) and Rep. John Dingell (D-MI), will hold their first official (it's public) meeting today at 3:30. Staff for the members have been meeting for many weeks, but several issues remain unresolved, including how many barriers to disclosure being demanded by industry will be appended to a critical new public hazards database requirement in the bill. That provision probably will not be discussed by the principals today, as negotiations are expected to continue into July. As one example of the need for the public database, we've known (from an activist baby blog) for over a month about hazards from Jardine cribs, but we didn't know how many complaints had been filed at the CPSC. Yesterday, we finally learned that at least 42 incidents had been reported, in the CPSC release Jardine Cribs Sold by Babies"R"Us Recalled Due to Entrapment and Strangulation Hazard.

Also today, on page one of the Chicago Tribune, Patricia Callahan and Amanda Erickson report in The Mattel loophole: Congress may back off pledge of independent toy testing that the independent lab testing requirement contains the "Mattel loophole," which we've been unable to remove from the bill. The loophole allows corporate proprietary labs to be approved and certified as independent.

Industry also continues to demand unheard of levels of preemption of state authority to protect their citizens from harm. Here's a story by Annys Shin -- Toymakers Frustrated by Patchwork of Safety Rules -- from yesterday's Post on the preemption debacle and a link to our consumer group letter, which the story refers to.

UPDATE: Alan White of Consumer Law and Policy blog has an item with links to the Illinois and concurrent filings by Washington State and California against Countrywide.

Original post: In today's New York Times, Gretchen Morgenson reports in Illinois To Sue Countrywide that Illinois Attorney General Lisa Madigan will file suit in state court today against Countrywide, the once-high flying predatory lender run by the flamboyant Angelo Mozilo. The firm is at the epicenter of the mortgage meltdown:

"People were put into loans they did not understand, could not afford and could not get out of," Ms. Madigan said. "This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo."

In response to eleventh hour efforts by a phalanx of special interest lobbyists demanding that Congress completely eliminate any state authority over product safety as an additional condition of their so-called support for the CPSC Reform Act, we've joined other advocates in a detailed letter urging rejection of the proposal for additional preemption. Previous blog has details on the state of play of the conference.

The word is that the Senate version of a housing assistance bill being negotiated (National Journal story on bill) by Banking Chairman Chris Dodd (D-CT) and ranking member Richard Shelby (R-AL) may not include the important and broadly bi-partisan House-passed Miller-Watt amendment (previous blog) that simply guarantees states the right to enforce state foreclosure laws (there are no federal foreclosure laws).

The American Banker has also reported that "a section on mortgage broker and originator licensing that would have specified that states could enforce stricter standards has been stripped." These are troubling developments.

This week, following a campaign led by the Media Mobilizing Project, a private investment group and Philadelphia's mayor announced (AP story) a plan to save the Philadelphia muni wi-fi project that was abandoned last week by its contractor, Earthlink. This is an important victory. Many observers believe that muni wireless can offer significant community and economic benefits and that the problem here was Earthlink's business model, piled on top of the baggage that the project had had from the start. The pioneering Philly wi-fi project has been under scurrilous attack by telco monopolist Verizon since it was an idea. Verizon sent a cadre of well-paid lobbyists to the state capital in Harrisburg to scuttle the plan, and pass legislation to make it difficult for other Pennsylvania cities to duplicate it, from when it was first announced in 2004. Verizon and its ilk have passed similar laws in other states. Nevertheless, thanks to the work of activists led by MMP, Philly wi-fi has another chance to help link communities together, and to the rest of the world.

The conference committee on CPSC reform is continuing its negotiations to reconcile the House and Senate-passed versions of product safety reform legislation. Along with other consumer groups, we continue to urge the conferees to take the strongest parts of each bill (Florida PIRG Sun-Sentinel op-edit).

Meanwhile over at the National Association of Manufacturers, they continue to say they are for reform, yet continue to push for gutting amendments to key parts of the proposals (NAM letter to conferees).

What does NAM want? Same as ever. Less authority to state attorneys general to protect the public, continued behind-closed-doors secret agreements between CPSC and manufacturers, lots more preemption of stronger state laws, fewer rights for whistleblowers, no Internet disclosure of hazard warnings and, of course, no ban on toxic phthalates. These pernicious proposals undermine the public's safety and should all be rejected.

If negotiations continue smoothly, the conference report could be sent to the President by July Fourth.

Here's a fact you may not know: The fastest growing uninsured population in the U.S. is young adults--of the 6.6 million people that have joined the ranks of the uninsured since 2000, nearly half are 19-34 year-olds.

So, Colorado PIRG Student Chapters have launched Colorado Health Care Alert to "question the myth that young adults in the state don't carry health insurance because we think we are invincible! While there may be a minority of young adults who reject health coverage, the vast majority of us want health care but experience difficulty."

Find out what other young people are saying about how the health care crisis affects them. Tell your story, too, at CoPIRG Student Chapters' Colorado Health Care Alert

Ensuring affordable and safe health care is a priority for all the PIRGs. Here's more on our prescription drug and other health care reform programs from MASSPIRG and CALPIRG.

Today the FCC held a hearing on cell phone early termination fees. At least two witnesses Pam Gilbert, an attorney representing California consumers and Pat Pearlman, a West Virginia state government consumer advocate representing the National Association of State Utility Consumer Advocates (NASUCA), cited our authoritative 2005 Locked In A Cell report. It describes the results of a nationwide survey of consumer opinion against these penalty fees of $150-200 or more that prevent you from switching cell service when you have shoddy service. The ETFs, of course, therefore allow the wireless providers to offer shoddy service, since you happen to be ... locked in a cell phone contract.

What is truly incredible and outrageous is that FCC Chairman Kevin Martin didn't hold this hearing in response to the pleas of the thousands of consumers who complain to the FCC about ETFs each year. He held the hearing in response to requests from a few powerful wireless companies that have asked him to enact a federal rule to protect them from consumers. The federal proposal Tom Tauke of Verizon and other special interest lobbyists back would have the effect of releasing the telcos from the liability they face if ETFs are held to be illegal and unconscionable under state law in several pending lawsuits. The real question is how far will Martin go in his last few months as chairman? Will he actually push for a vote to provide the telcos with an industry safe-harbor federal regulation that retroactively immunizes them from the liability they face for harms they have already caused millions of consumers? That is a bold step.

More and more, the Bush Administration appears to be a one-stop shopping center for companies seeking relief from strong state consumer laws. Previous blog.

Maryland PIRG has a new report: Toxic Baby Furniture: The Latest Case for Making Products Safe from the Start. From the Baltimore Sun story High levels of formaldehyde found in baby furniture by Dennis O'Brien:

The testing was conducted by Berkeley Analytical Associates, an environmental testing firm in Richmond, Calif. "If anything, their calculations are on the conservative side," said Thad Godish, an environmental management professor at Ball State University who was not involved in the report. Newborns and toddlers are more sensitive than adults to formaldehyde in cabinetry and other wood-finished furniture, he said, but cribs may be where babies are the most exposed.

Also today, the New York Times features Answers About Mass Transit from Gene Russianoff, longtime senior attorney for both NYPIRG and its highly-successful subway riders advocacy group, the Straphangers Campaign. From Gene:

You’ve pointed out one of the key challenges and tensions facing the transit system: Can New York afford to expand and still do the necessary repairs to the existing system? The Straphangers Campaign has always cast its lot with the latter, a subway that has 468 subway stations, 6,200 subway cars, 4,500 buses, hundreds of miles of track and tunnel lighting. That's the priority. Having said that, there are strong arguments for moving ahead on a handful of "mega" projects like the Second Avenue Subway, which would move hundreds of thousands of people the day it opens, as well as "decongest" several other lines. It would be great if our elected officials came up with the funding to do both. We will find out in the coming months.

Senator Mark Pryor (D-AR) held an important hearing yesterday exposing yet again the efforts by the Bush administration to write into its proposed auto safety roof-crush rules a provision asserting that compliance with the rule preempted all consumer state common law claims for harm. Incredibly, in his not-so-comprehensive, not-so-encyclopedic all-of-3-pages-long written testimony, the NHTSA bureaucrat James Ports didn't even discuss this critical matter. For that discussion, you'll need to go to pages 18-20 of Public Citizen President Joan Claybrook's encyclopedic testimony with exhibits. Claybrook ran NHTSA under President Carter. Both her testimony and that of Jacquie Gillan, vice-president of Advocates for Highway and Auto Safety, rip NHTSA's halfway effort on its technical merits as well. Of course, Congress never gave NHTSA -- or for that matter, FDA or CPSC -- the authority to claim that compliance with federal standards, no matter how weak, creates immunity from state consumer laws. But they've been claiming that power anyway. In fact, many of these statutes affirmatively preserve state law claims (previous blogs here and here).

FCC chief Kevin Martin has announced that

The FCC will hold a Public Hearing on early termination fees in the Commission Meeting Room directly following the June 12th open agenda meeting.

As I also note in a different previous blog, this unseemly effort is one of many by powerful interests to seek federal protection from enforcement of state consumer and public health laws. Big PhARMA, the car companies, medical device makers, banks and rent-to-own firms making predatory loans and others -- even including makers of flammable mattresses and chemical polluters opposing strong state laws against terrorist attacks -- are lined up before federal agencies, the courts and the Congress asking for protection from the powers of the states to protect the public, even when their products are defective or dangerous or their services sloppy and anti-competitive. While this Congress appears less pliant than previous ones on some matters, the Bush agencies and the courts are proving to be worse than complacent-- they are active aiders and abettors of the industry efforts.

UPDATE: over at his personal blog Gooznews, Merrill Goozner of the Center for Science in Public Interest blogs on the horrible Supreme Court decision in Riegel vs. Medtronic. The court held 8-1 that certain medical device companies whose devices have been rubber-stamped by FDA have immunity from lawsuits by injured consumers. As a commenter Marilyn correctly notes, "This is not a constitutional issue, so it could be remedied by legislation." We expect that even the Supreme Court will be shown that it has put its thumb on the scales on behalf of corporate interests quite a bit too heavily.

Check out this column by Adam Cohen, editorial observer, in today's New York Times: What Ever Happened to (the Good Kind of) States’ Rights?

The Bush administration and its Congressional allies have helped their friends in industry by enacting weak environmental, health and consumer regulations — and arguing that they wipe out more robust state protections.

John Dunbar of the Associated Press is reporting on negotiations between FCC Chairman Kevin Martin and Verizon, initiated at the behest of former Rep. Tom Tauke (R-IA), chief lobbyist for Verizon Wireless. If Verizon wins, Martin would slip a bad excuse of a federal early termination fee regulation into FCC rules, so that Verizon can avoid existing lawsuits under state law arguing that early termination fees are unfair and deceptive efforts to prevent cell phone customers from shopping around. The companies would be required to slightly lower and pro-rate the fees, but not enough to matter. This is an October surprise, in May, and could be scheduled for a vote as early as June 12 down at the FCC.

We issued a report, several years ago, called Locked In A Cell, and also joined AARP, Consumers Union and the National Consumer Law Center in comments to the FCC in its Early Termination Fee docket.

We also joined these groups and the Asian Law Caucus, and Disability Rights Advocates in joint comments and reply comments before the FCC in a related Truth In Billing docket.

Should your car insurance bill be based on how many claims, accidents and speeding tickets you have? Makes sense to us but not to the insurance industry. They want to base your rates on whether you paid your Mastercard on time last month and whether your credit score is high enough. Today, Consumer Federation of America's Bob Hunter (an actuary, a former Texas Insurance Commissioner and a former U.S. insurance czar) will urge the House Financial Services Committee and its Subcommittee on Oversight and Investigations to look at how insurance credit scoring is not based on legitimate insurance rating factors and hurts non-whites even worse than whites. Details in previous blog.

Years ago, the federal government foolishly deregulated interstate moving companies, leaving consumers whose goods are held hostage for punitive additional fees, or delayed weeks or even broken in transit with little recourse. With the arrival of mover advertising on the Internet, as the story Keeping 'Furniture Ransom' Off Your Moving Bill by Kristina Shevory in the New York Times notes, things have only gotten worse. The story does note a few sites where you can get information, at least, including the federal government site protectyourmove.gov and the bad mover warning and consumer advice site movingscam.com. The story notes that Florida and Maryland are among states with strong intrastate moving protections.

On Thursday, during consideration of mortgage meltdown response legislation, the House overwhelmingly passed on a 256-160 vote (Pro-consumer vote is AYE) the bi-partisan Miller-(D-NC)-LaTourette-(R-OH) amendment. This previous blog has details. Over at the Credit Slips blog, Professors Elizabeth Warren and Adam Levitin discuss the vote. Professor Warren (after noting that even the national bank regulator known as the OCC has previously ceded foreclosure law to the states) makes the following points:

There are no federal foreclosure laws. Any mortgage holder--including a national bank or thrift--must abide by the terms of the state's foreclosure laws. But in the past few weeks, national banks have started making a new argument: state laws are pre-empted whenever a national bank holds the mortgage, so the states can't make them follow the local rules.[...] The scope of this argument is stunning. Because there is no federal foreclosure law, would the banks be free to do whatever they wanted? Could they simply order families out of their homes? Would federally-charted banks start buying up troubled loans from other banks, then doing their own vigilante expulsions?

I would only add that for those who believe that we need a legal and policy marketplace with 51 or more -- not just one -- innovation centers, it's nice when we win, even when it appears that the correctness of our position is obvious to anyone with knowledge of the subject. But wherever they can, powerful interests are seeking to make it harder for consumers to obtain justice in the state courts, for state attorneys general to exercise their traditional police powers to protect their citizens and for state legislatures to act as laboratories of innovation. More than a few of the powerful interest efforts can be characterized as vigilante policy power plays, but the current courts and administration players are largely with them. We must exercise eternal vigilance to hold their efforts back.

Note that our letter refers to Miller-LaTourette as an amendment to HR 5830, the American Housing Rescue and Foreclosure Prevention Act. HR 5830 became part of a floor package known as HR 3221, which after consideration of a variety of amendments, passed the full House but faces a complicated road, as noted in today's New York Times story Housing Bailout Bill Seems to Be on Shaky Ground by Stephen Labaton and Steven Weisman.

As for the OCC, I have previously and variously referred to it as not just a regulator but as a regulator-cheerleader-preemptor-in-chief.

We have joined leading consumer community and civil rights groups in a coalition letter supporting a critical Brad Miller (D-NC) Steve LaTourette (R-OH) amendment to HR 5830, American Housing Rescue and Foreclosure Prevention Act of 2008, on the House floor. From our letter:

With two million families holding subprime loans projected to lose their homes due to foreclosures initiated over the next two years, and 40 million of their neighbors projected to lose collectively $200 billion in home equity, it is important that the federal government and the States use the means at their disposal to implement prompt, effective measures to mitigate the impacts of the crisis on homeowners, their communities, and the economy generally.

Meanwhile, the American Bankers Association has sent out letter making the patently false assertion that:

The Miller/LaTourette amendment, expected to be offered during floor consideration of the American Housing Rescue and Foreclosure Prevention Act of 2008, would alter long-standing authorities of the federal banking agencies to preempt state laws which conflict with federal law and which interfere with the safety and soundness and other regulation of national banks and federal thrifts.

This narrowly-crafted amendment does not overturn the recent Supreme Court decision in Watters v. Wachovia or other jurisprudence. Rather, the amendment is necessary to ensure that overzealous federal regulators do not change these current understandings in the future or attempt to use federal law to preempt such laws, to the detriment of families struggling to keep their homes.

When the somnolent regulators over at the regulator/cheerleader known as the Office of the Comptroller of the Currency (OCC) issue a civil penalty (OCC release) against one of the members of their country club --in this case, the nation's #4 bank, Wachovia -- think Halley's Comet, think hundred year flood, think Cubbies win the World Series -- you get the idea. Also think: who got there first and shamed the OCC into action? In this case, it was a Page One New York Times story nearly one year ago by Charles Duhigg, Bilking the Elderly, With A Corporate Assist. That story reported that at last one victim had been scammed as early as 2003, and that several banks had warned Wachovia since then that its accounts were being used to fleece their customers (our previous blog after release of "Yikes! Double Yikes!" Wachovia emails). As Duhigg reported in his story Friday on the settlement:

The bank's actions were "part of a pattern of misconduct" that resulted in Wachovia’s collecting millions of dollars in fees, regulators wrote. Wachovia has agreed to pay a $10 million fine, contribute $8.9 million to consumer education programs and make restitution to victims that could top $125 million. In a statement, the bank said this "situation was unacceptable and we regret it happened."

severed relationships with Mexican foreign-exchange firms in December and January after authorities began their inquiries. Some have struck agreements with the government to improve their efforts to fight money laundering, avoiding prosecution.

In 2005, [Wachovia] introduced the Dinero Directo card to facilitate cross-border remittances. The bank pushed into the business despite well-publicized concerns from U.S. law enforcement that such firms were sometimes used to launder drug money. Wachovia declined to discuss why it pursued this business despite the warnings. Internal emails and documents filed in federal courts in Miami, Chicago and New York describe former ties between Wachovia and money-changing firms.

... Lee has continued to do business with banks and licensed mortgage brokers who fail to detect questionable actions by him and the people working for his companies. Last year, Wachovia, the fourth-largest U.S. bank, funded 196 loans totaling about $54.2 million that Lee brought to the financial institution, according to an e-mail sent to Lee by Scott Davenport, a former national account executive with Wachovia.

Davenport sent the e-mail several months after The Washington Post and other publications reported that cease-and-desist orders had been issued against Lee in Maryland and Georgia for originating loans without a license. Soon after I inquired about Wachovia's business transactions with Lee, Davenport was fired. Wachovia confirmed that Davenport was terminated but declined to comment why.

2 bad 4 us that the big bnks & OCC r BFFs (Best Friends Forever).

Back to Duhigg: His story also points out that not everyone is happy with the OCC action, which requires bilked consumers to run through a complicated, if court-approved, rat maze to obtain restitution:

Under the terms of the settlement, victims will not automatically receive compensation from Wachovia. Instead, they will have to submit claims through a complicated bureaucracy. Because many of the victims are elderly or poorly educated, it is likely many of them will stymied by these obstacles, Mr. Markey said. In previous cases, the comptroller’s office, also known as the O.C.C., has mailed checks to victims of fraud, rather than requiring them to file claims. [Release from U.S. Rep. Ed Markey-D-MA: Weak Wachovia Deal Shortchanges Elderly Fraud Victims]

The Consumer Federation of America's Bob Hunter -- the nation's leading independent insurance expert (actuary, former federal insurance czar, former Texas insurance commissioner) -- has a new report: State Automobile Insurance Regulation: A National Quality Assessment and In-Depth Review of California’s Uniquely Effective Regulatory System , 04/24/08 (109 page pdf). Here is an excerpt from the shorter news release.

[The report] found that rates have risen more slowly in the fifteen states that require insurers to receive advance approval of rate increases from the state. States with “prior approval” regulation also performed well in spurring competition and generating significant profits for insurers. The top-performing state in keeping rates down and providing comprehensive consumer protections was California.

The State Foreclosure Prevention Working Group has released its second major report. This multi-state group is comprised of bank and credit regulators and state attorney generals representing at least 37 states. Here's an article on the study by one of the nation's leading financial reporters, Jonathan Epstein of the Buffalo News. From the WV Attorney General's office release:

Major findings of the Foreclosure Working Group included:
Seven out of ten seriously delinquent borrowers are still not having alternatives to foreclosure identified by their mortgage servicers. The number of borrowers having alternatives to foreclosure identified by their servicer has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same.

One in 33 homeowners is projected to be in foreclosure primarily over the next two years, as a result of subprime loans made in 2005 and 2006.... Defaulting on the Dream: States Respond to America’s Foreclosure Crisis is the first-ever, comprehensive look at what all 50 states and the District of Columbia are doing to try to address the subprime mortgage fallout. The report finds that more often than not, states are at the forefront of developing policies and programs aimed at preventing more irresponsible loans from being made and improving residents’ ability to stay in their homes.

The Washington Post story Chemical Industry's Influence at EPA Probed by Lyndsey Layton reports in detail today on a House Energy and Commerce Committee investigation into whether the "chemical industry has stacked EPA panels" responsible for determining safe levels of toxic chemicals.

According to the story, the committee is investigating whether EPA and the main chemical manufacturer trade group (now known by the benign-sounding name, the American Chemistry Council) worked together to keep scientists with industry conflicts-of-interest on key science advisory panels, but threw off an independent state-paid scientist whose views did not comport with the industry's. Here is the April 2nd Dingell-gram, or information demand, from committee chairman John Dingell (D-MI) and Investigations subcommittee chairman Bart Stupak (D-MI) to the chemistry club. Here is an excerpt from the Post story.

The lawmakers want to know why the EPA allowed the scientists in question to remain on expert panels but removed a public health scientist, Deborah C. Rice, from a panel at the chemistry council's request. Rice chaired an EPA panel last year that reviewed safe levels for deca-BDE, a polybrominated diphenyl ether used as a fire retardant in television casings and other electronics. Deca has been found to cause cancer in mice and is a suspected human carcinogen.

In other toxic chemical news, Vicki Ekstrom over at Stateline.org has a nice story States lead feds in toy safety summarizing all the work being done by the states to protect us from toxic hazards. This week, Washington State Governor Christine Gregoire signed PIRG-backed toxic toy legislation.

We had a tough loss in the appellate courts last week, when New York State's pioneering airline passenger bill of rights was struck down under the usual weak judicial analysis: vague preemption precedents trump a state's traditional and well-established police powers to protect its citizens, even when no federal law exists. The New York Times editorial Board Blog has an entry Bad News for Airline Passengers, with 71 comments.

Meanwhile, you may be wondering why all your flights are being canceled for inspections. It's because the inspections weren't done on schedule. Why not? Well, it appears that the FAA let the airlines slack off.

So the FAA came under harsh Congressional scrutiny this week for its apparently cozy relationship with its "customer" airlines as the Congress drilled down at the question: "Why did FAA inspectors let Southwest Airlines fly un-inspected planes then found to have cracks in the skin (and still allowed to fly) and why is United all-of-a-sudden grounding flights?" Chairman James Oberstar (D-MN) of the House Committee on Infrastructure and Transportation led the hearing. From Mathew Wald's story Inspectors Say FAA Inspectors Ignored Violations in the New York Times:

"You’re looking at safety as a system, and the system itself has cracks," he said. The F.A.A. now refers to airlines as its customers, he said. "We can’t have a situation in which the customer calls the F.A.A. to complain about their service person, Mr. Boutris, to get him removed,” said Mr. Oberstar.

The FAA's reliance on airlines to voluntarily disclose safety issues "promotes a pattern of excessive leniency at the expense of effective oversight and appropriate enforcement," Inspector General Calvin L. Scovel told the House Transportation Committee yesterday.

In the latest imposition of federal preemption on a state's longstanding "police powers" to protect its citizens, a federal appellate court has overruled a district judge decision upholding New York's pioneering airline passenger rights law. The law was championed by the PIRG-backed Coalition for an Airline Passengers Bill of Rights (flyersrights.org). While the U.S. House of Representatives has enacted a more modest version of the New York law; similar legislation is trapped on the ground in the Senate. Story on the court decision by Ken Belson of the New York Times: Court Strikes Down State Law Protecting Fliers.

Senate Majority Leader Harry Reid (D-NV) filed a cloture petition preparatory to bringing the CPSC Reform Act (now numbered S. 2663) to the Senate floor next week. A procedural vote known as a cloture vote or motion to proceed (60 yeas required) is scheduled for 5:30 pm Monday.

Meanwhile, we've joined other leading consumer groups in a release rebutting a 10-point memo (more of a screed actually) attacking the bill that was issued by the office of Senator Jim DeMint (R-SC), a member of the Senate Commerce Committee. Since his committee held a number of hearings, we'd expect a better understanding of the bill's intent and scope. Conversely, the ranking Republican and co-chair of the Committee, Senator Ted Stevens (R-Alaska) is a co-sponsor of the bill.

We're supporting all strengthening amendments, and of course opposing efforts to gut or delay this important product safety reform bill. From our release today:

Consumer, Safety Groups Call Foul on False Attacks on Product Safety Reform Bill-- Groups rebut charges; bill will be considered in the Senate beginning on Monday

(Washington, DC) -- Consumer, public interest, safety, and scientific groups today condemned false charges from the office of Sen. Jim DeMint, released through the Republican Steering Committee, against a Senate bill that would overhaul the ailing Consumer Product Safety Commission, and urged Senators to approve the measure -- without weakening amendments -- when it is slated to come up for a vote next week.

As part of its campaign for a smokefree Wisconsin, Wisconsin PIRG has released a new study finding that smokefree laws and ordinances do not harm businesses. According to the report Smoke and Mirrors: Tobacco Industry Claims Unfounded:

There is no reliable, independent scientific evidence to support...claims...that jobs will be lost in the hospitality industry and bars will go out of business.

Leaders of the Senate Commerce Committee have announced a compromise on major CPSC reform legislation approved in committee last fall. The committee's lead Republican, co-chairman and Senator Ted Stevens (R-AK), has signed off on a modified version of S. 2045, the CPSC Reform Act sponsored by Senators Mark Pryor (D-AR), Chairman Daniel Inouye (D-HI) and others. There is no word yet on whether the deal guarantees that all Senators will consent to bringing the bill to the floor without pernicious delays common to the Senate under its rules, but this is a major step. Our hope is to enact final legislation that melds the best parts of the House-passed bill, HR 4040, with the Senate bill, and even improves them where they are lacking.

Also this week, I am speaking both today and Thursday at the International Consumer Product Health and Safety Organization annual conference. Other speakers include Rep. Bobby Rush (D-IL), lead sponsor of HR 4040, CPSC acting chair Nancy Nord and key hill staff. The event committee is chaired by Rachel Weintraub of the Consumer Federation of America.

Finally, our colleagues at Kids In Danger have released an important report called 2007: The Year of the Recall. Check it out:

There were 231 recalls accounting for more than 46 million items, including twelve recalls that involved one million or more units. "These products together caused at least 657 injuries and 6 deaths," stated Nancy Cowles, executive director of Kids In Danger. " And those incidents include only those already reported at the time of the recall. More needs to be done to protect children from these hazards."

In a Washington Post op-edit Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers and in testimony today before the House Financial Services Committee on the economic crisis, New York Governor Eliot Spitzer points the finger at the "obscure" federal banking regulator known as the Office of the Comptroller of the Currency (our archived page OCCWatch). From his op-ed:

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). [...] In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks.

Nothing the OCC has done has prevented the states from regulating and preventing abuses among the lenders that they license -- lenders that are the source of most of today's problems.

It is now obvious that wholesale lenders and securitizers, including many of the largest national banks and federal thrifts and their affiliates, were the driving forces behind the subprime lending boom.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

In the Atlanta Constitution, Ben Smith reports that the Ga. House overwhelmingly OKs $3 credit 'freezes' to fight identity theft. Against the wishes of the sponsor, a House floor amendment lowered the cost of freezing or temporarily lifting your freeze from the industry-approved $10 to a more reasonable $3.

It is interesting that Georgia is the home to Equifax, one of the so-called Big Three credit bureaus, yet doesn't appear to love Equifax the way Virginia, say, loves Phillip Morris.

About twelve or so years ago Georgia became one of seven states to grant consumers the right to a free credit report. Only Georgia outdid the other 6 states that acted before Congress, in 2003, finally got around to establishing a federal right to a free credit report. Under Georgia law, you get not just one, but two free credit reports each year from each credit bureau. (You can get three altogether in Georgia -- including the federal free report.) You can get both a federal and a state free report from each bureau in Colorado, Maryland, Maine, Massachusetts, New Jersey and Vermont.

Of course, on the freeze, Georgia is slow to the party. Thirty-nine states and DC have already enacted laws. But some of them cost more than $3.

Louise Story reports in the New York Times that in a letter Tuesday to Mattel chief Bob Eckert, a total of 56 federal Lawmakers Say Mattel Broke Word on Lead:

The letter was prompted by Mattel's decision not to issue a nationwide recall of a blood-pressure cuff in a toy medical kit sold under the Fisher-Price brand. The legislators said they were disturbed by the company's "lack of action." Lead was found in a plastic part of the toy, and current federal laws ban lead only in paint on toys. Lawmakers are considering a law to limit lead in all material in toys.

Meanwhile, in the U.S. Senate, negotiations continue on bringing its CPSC reform proposal to the floor. The House acted in December. If the Senate doesn't finish the job, we'll all have to move to Illinois.

Papers are reporting that the FBI Economic Crimes unit has announced a criminal inquiry into the mortgage meltdown (New York Times, F.B.I. Opens Subprime Inquiry by Vikas Bajaj and Los Angeles Times, FBI is pursuing 14 probes of lenders by Scott Reckard). Two interesting points:

Officials at the Securities and Exchange Commission are conducting more than 30 investigations into the mortgage meltdown. Erik R. Sirri, head of the SEC's market regulation division, said recently that securities firms and banks sold "too many lottery tickets" tied to home loans and failed to look closely enough at their growing risks. The FBI is looking at many of the same cases as the SEC, the agency said.

Over at the Washington Post, reporter Annys Shin has two product safety stories in Saturday's paper. In one, White House Vetting Product-Safety Candidates, she explains that the White House is still considering putting up a nominee for the vacant chair of the Consumer Product Safety Commission. Among the leading candidates is apparently Gail Charnley. The Post lede explains the problems with the candidate:

The White House is considering a scientist who has frequently testified and written on behalf of the energy, pesticide and tobacco industries to chair the nation's chief product-safety regulator.

In her other story, Fighting for Safety, Shin describes the possibility of completing a long-running furniture flammability rulemaking at CPSC.

The story explains in detail the efforts of tobacco lobbyist Peter Sparber to deflect attention from the leading cause of furniture fires that lead to thousands of deaths and millions of dollars in property damage -- careless smokers. Since the industry did not want to make "fire-safe" cigarettes (some advocates prefer the term "self-extinguishing") that go out when unattended, the tobacco industry instead through various paid and unpaid surrogates urged CPSC to force furniture makers to make non-flammable fabrics. How? Using toxic chemicals such as those in the PBDE family, of course. Unfortunately, these toxic chemicals result in myriad problems. First, they off-gas into home environments, subjecting consumers to longterm hazards that lead to developmental and other chronic problems. Second, when they do finally catch fire, and they will, they give off these toxic chemicals in acute, high-doses posing greater risk to firefighters and first responders. Toxicologist (and mountain climber) Arlene Blum has helped lead efforts to ban toxic chemicals.

Fortunately, a coalition of firefighters and consumer groups, including the PIRGs, has solved a large part of the problem by enacting a series of fire-safe cigarette laws based on New York's pioneering effort. The PIRGs and affiliated organizations including Environment California have also been at the center of state efforts to ban toxic chemicals such as the flame retardant PBDEs. Unfortunately, some states have previously enacted flammability rules that have led to overuse of toxic chemicals by the furniture industry. States are now modifying these rules as they pass newer laws eliminating toxics, as this blog from University of California-Riverside scientists explains. And, of course, lobbyists from the American Chemistry Council (formerly known as the Chemical Manufacturers of America) and its members have been jetting around state capitols, sometimes misrepresenting their affiliation in opposition to the proposed limits.

We can only hope that any new CPSC regulation does not mandate use of toxic chemicals to stop fires, and in the process, preempt the efforts of states to ban the chemicals.

Two stories from the Chicago Tribune today: The Chicago Tribune, in a story by Maudlyne Ihejirika -- $30 mil. deal in lead-paint Thomas suit -- is reporting today that RC2, makers of the popular Thomas the Tank Engine toys that were the subject of major summer recalls, has settled a class-action over lead-laden toys.

The paper is also reporting, in a separate story by Sam Roe -- Ty takes high-lead doll out of stores -- that Ty, makers of popular Ty Baby dolls and Jammin' Jenna, has reluctantly agreed to comply with Illinois lead laws. Jenna's vinyl shoes violate Illinois law. The company had for some time claimed that Illinois was preempted, but as the story notes:

In previous interviews, Ty representatives have said the company is not violating state law because federal rules supersede it. While the state bans vinyl toys that exceed 600 parts per million of lead, federal law does not. But both the state attorney general's office and the federal Consumer Product Safety Commission have said that the Illinois ban is valid because states can adopt their own rules where no federal law exists. Ty's action Tuesday appears to have averted a possible court fight and what would have been the first test of Illinois' strict lead laws.

Over at the Consumer Law and Policy Center blog, Brian Wolfman has posted an entry with links to the press release and the two complaints in this important effort by the state. Our previous blog is here.

The Supreme Court has accepted petitions on two more product liability cases. The cases reflect a "concerted effort" by powerful interests to eliminate lawsuits under state laws for consumer harm, as Linda Greenhouse notes in her New York Times story Justices to Hear Cases on Product Liability:

"The proliferation of pre-emption cases on the court's docket in part reflects the considerable turmoil in the lower courts over the complex issues involved. It also reflects a concerted effort by the business community to push for federal pre-emption as a shield against state courts."

The new cases concern whether the federal tobacco warning label law preempts state law claims that "low-tar and nicotine" promises are deceptive and whether an FDA-approved drug company label immunizes the firm from lawsuits by victims of side-effects. This case, according to Greenhouse, concerns

"a guitar player who suffered the career-ending amputation of her right arm after being injected in a hospital with an anti-nausea drug."

Ann Brown, CPSC chair under Bill Clinton, has joined Florida PIRG's Brad Ashwell in a column Congress must address the trouble in toyland running in Florida newspapers:

And we must allow state legislatures and state attorneys general to help police the product safety marketplace. We need 51 consumer cops on the beat, not just one. Congress must listen to the American families who have stopped buying toys because they've lost confidence in their safety. The best gift Congress can give America's littlest consumers this year is to better protect them from dangerous toys.

In another move that shows its political philosophy has more to do with whatever powerful interests want, rather than long-standing conservative principles, Bush EPA administrator Stephen Johnson denied Clean Air Act waivers that would have allowed California and 16 other states to impose PIRG-backed stricter clean cars global warming standards. From the story E.P.A. Says 17 States Can't Set Emission Rules by John Broder and Felicity Barringer in the New York Times:

The E.P.A. administrator, Stephen L. Johnson, said the proposed California rules were pre-empted by federal authority and made moot by the energy bill signed into law by President Bush on Wednesday. Mr. Johnson said California had failed to make a compelling case that it needed authority to write its own standards for greenhouse gas emissions from cars and trucks to help curb global warming.

Thanks to vigilance by state legislators, state enforcers and the FTC, store-issued gift cards have even fewer fees than before and are an even better deal than high-priced fee laden bank and mall issued cards, according to a story Gift Cards Coming With Fewer Strings by Nancy Trejos of the Washington Post. The story goes on to also point out:

Many retailers have responded to consumer complaints that gift cards are too laden with fees and expiration dates, experts said. In its fifth annual gift card survey, Montgomery County's Office of Consumer Protection found that 18 of the 22 retail cards examined had no fees and no expiration dates and could be replaced if lost or stolen or had scratch-off PINs for security.

My colleague Phineas Baxandall, our tax and budget expert, and I are speaking this weekend at the national Center for Policy Alternatives Summit on the States conference (agenda). State legislators and other organizations concerned with better public policies will be attending.

Elected officials in Indiana and Chicago recently sold off public roads to private toll-road companies. Tempted by short-term cash, these governments relinquished public control over the management and planning of transportation networks and failed to receive fair value for these assets.

We are co-amici, with AARP and other leading groups, in an important case before the Supreme Court today, Riegel vs. Medtronic. The case against the medical device manufacturer is being argued by Allison Zieve of Public Citizen Litigation Group. Over at the Consumer Law and Policy blog, her colleague Brian Wolfman has posted an entry linking to key resources on the case, including this previous post.

Over the weekend the Baltimore Sun ran a toy safety column Give product safety agency more clout jointly signed by by Maryland Attorney General Doug Gansler and Maryland PIRG's David Kosmos. Also, the Vermont Times Argus has Wireless phone monopoly a bad deal by U.S. Senator Bernie Sanders as a followup to efforts by him, Vermont PIRG and Vermont's Lake Champlain Chamber of Commerce opposing efforts by the mega-monopoly Verizon to gobble up (one Thanksgiving pun is not too many) a wireless competitor.

In his column Timely Mortgage Fix on House-passed mortgage legislation, the Washington Post columnist Steven Pearlstein praises Barney Frank (D-MA):

for standing up to consumer and housing advocates who opposed federal preemption of state laws and regulations, which in some instances are more stringent than in the House legislation.

from a policy standpoint, it is more than a tad hypocritical for liberals, who for years have fought against "states' rights" on abortion and civil rights, to become their champion when it comes to consumer regulation.

Public interest organizations support the strongest possible laws protecting consumer wallets, health, safety and welfare. In our federal system, the best way to achieve those goals is to support the right of the states to enact laws that protect consumers better, but to always establish a federal floor of protections. The problem is that industry always seeks to have federal law become a ceiling, giving no rights to states, even rights to make things better.

So, certainly federal civil rights laws were needed when states failed to protect all their citizens or even had laws that treated some of them worse based on their skin color or sex. Those laws didn't make things better.

But there is a strong record of state innovation helping to make things better for everyone. After 40 states passed do-not-call list privacy laws, the FTC acted too (but stronger state privacy laws stand). After years of national inaction on global warming, states, led by California and the northeastern states, have taken the lead and Congress may follow. The states were doing the same thing on predatory lending laws, and want to continue to do so.

Increasingly, whether it is privacy protections, environmental laws or financial rules, companies claim that the national marketplace demands uniform national protections. Their claim, rarely demonstrated as a fact, is that it costs too much to have many laws.

Is there an economic cost to requiring colossal corporations to develop risk and other mechanisms to comply with non-uniform provincial or local laws? Perhaps a small one. But they are big enough to take the weight and still make money. They prefer, however, in their own form of rent-seeking, the certainty of only dealing with one Congress in thrall to special interests and one set of federal regulators captured by them. That's the true benefit they self-servingly seek, not the reduced administrative costs they complain publicly about. They'd rather deal with people in Washington because they control the political process in Washington.

Any true and legitimate business cost to them is far outweighed by the public policy benefit of having 50 active laboratories of democracy rather than that one federal system controlled largely by special interest money and revolving doors.

The only way Congress ever acts to protect the public's welfare is when there is a catastrophe (remember, even Enron wasn't big enough, it also took WorldCom) or when the states show the way. Let's let the states keep showing the way, as they have on this mortgage crisis. Kudos to the House for passing some improved protections, but the price is too high. More on federal preemption issues.

Here is our coalition news release opposing the mortgage bill passed by the House last week. Also, here is a news story from Financial Services Committee ranking member Spencer Bachus's (R-AL) home state. Finally, over at Consumer Law and Policy Blog, Deepak Gupta has commented several times on the bill.

A New York PIRG report "survey of 275 airline, travel-agency, hotel and car-rental Web sites found that many of them ask for an excessive amount of personal information in the process of making a sale." according to the story Warning issued on identity theft by Dan Osburn in the Ithaca Journal. Also check out NYPIRG's website cyberstreetsmart.org.

Meanwhile, in the green mountains across the Hudson, VPIRG and Vermont Senator Bernie Sanders {I-VT) are challenging plans by the mega-behemoth Verizon to purchase Unicel, a smaller wireless provider. This week, in response to a petition from VPIRG, the FCC granted a 90 day extension of the comment period on the sale. From the story FCC extends sale of Unicel by Neal Goswami in the Bennington Banner:

Verizon announced in July that it wanted to acquire Unicel, owned by Rural Cellular Corp., a smaller company that serves mainly rural areas in Vermont and 14 other states in a $2.7 billion deal.

Burns said VPIRG is seeking conditions that would require Verizon Wireless to provide universal coverage of the state, allow Unicel customers to exchange their phones for comparable Verizon handsets, and commit to national pricing standards and reasonable roaming rates for the state. Sanders, who has also been pushing for those conditions, said the two companies are the only cell phone carriers with significant resources in Vermont. If Verizon is allowed to take over Unicel's customers it will create a "de facto monopoly" in the state that could have a negative impact on the state's economy, he said. "Vermonters must take a very close look at what a Verizon Wireless monopoly would mean in terms of progress towards universal service at reasonable prices," Sanders said Wednesday.

Reporter Annys Shin of the Washington Post has a nice piece today -- Taking Lead Safety Into Its Own Hands --on the efforts of the Center for Environmental Health to use the tools provided by pioneering California toxics laws in its successful litigation and other advocacy against lead in lunchboxes and other children's products.

In the absence of government action, the environmental health group, along with a growing number of citizens and public officials, has sought to fill what it sees as a void left by federal regulators.

In recent months, for example, the Food and Drug Administration warned against young children using over-the-counter cough and cold medicine -- only after Baltimore's health commissioner, Joshua M. Sharfstein, circulated a petition. New York's attorney general, Andrew M. Cuomo, uncovered scandals in the student loan industry, charging that "the U.S. Department of Education has been asleep at the switch." Lisa Lipin, a Skokie, Ill., woman whose son was strangled by a yo-yo waterball, got Illinois to ban the toy after the CPSC determined it posed a "low risk" of strangulation.

These efforts all show that Washington only acts to preserve consumer health, safety and welfare when the states, or the people, lead it to do so. Why do you think that the U.S. Chamber of Commerce, American Bankers Association and the National Association of Manufacturers have a massive phalanx of lobbyists and lawyers constantly lined up in Washington hearing rooms and courtrooms asking Congress and the courts to preempt state authority to enact stronger laws, to eliminate consumer rights to obtain compensation when harmed by their products and to take state Attorneys General off the corporate crime beat? It's pretty obvious that the benefits of a true public policy marketplace of ideas, with 51 innovative laboratories of democracy, not one; and 51 aggressive cops on the consumer beat, not one ineffective sleeping policeman; and the right of consumers and consumer groups to seek remedies and justice -- outweigh by far any of the so-called costs of a "patchwork" of rules. More at our state laboratories pages.

Yesterday California sued EPA (AP via Washington Post, New York Times) to seek a Clean Air Act waiver so it could enforce its clean cars law to lower global warming emissions. Twelve states moved immediately to intervene in support. Here's a local AP story quoting Arizona PIRG's Diane Brown. Connecticut Attorney General Dick Blumenthal cites U.S. PIRG data in his release. And, by the way, we have a new home for U.S. PIRG's environmental work, Environment America. So here's a news release from the Environment America site applauding California's filing.

Two weeks ago California governor Arnold Schwarzenegger signed legislation to make California the first state in the country to ban the use of phthalates in children's products. The legislation was a big victory for Environment California, the new home of CALPIRG's environmental work:

"When a child puts a phthalate-laden teether in her mouth, it’s like sucking on a toxic lollypop," said Rachel Gibson, Staff Attorney for Environment California. Phthalates have been shown to interfere with the natural functioning of the hormone system. These toxic chemicals have been linked to reproductive problems, early onset of puberty, liver and thyroid damage, and testicular cancer.

From today's New York Times lead editorial Listen to the States:

For years, most of the important initiatives to deal with global warming have been undertaken at the state and local level, while Washington has largely dithered. This is still true. The hope, as always, is that pressure from below will jolt Washington from its slumber.

U.S. PIRG is working to ensure that states can continue to solve local problems and do what it takes to protect the health and well-being of their residents--especially when the federal government has failed to do so. Every industry lobby, however, to a man and woman, continues to demand federal preemption of state law as the price for accepting even modest watered-down federal regulations. This race to the bottom must be stopped; the price is too high. Congress rarely acts to protect consumer health and safety, even modestly, unless prodded by the states. We should never take that potential prod away.

Here's a release -- Gov. Schwarzenegger vetoes the College Textbook Affordability Act -- from CALPIRG's Nicole Allen condemning the veto of a bill that would have lowered the price of textbooks by California Governor Arnold Schwarzenegger (his veto message). From CALPIRG:

It has been clearly documented many times over that the textbook market is a broken market. The person who orders the book (faculty) is not the same person who buys the book (students). Therefore, the cost of a textbook is not the primary factor during the purchasing process. Publishers, cynically aware of the immense market power this gives them, respond by withholding the price of textbooks. As has now been clearly documented by a rigorous study released by CALPIRG, 77% of faculty report that publishers rarely or never report the price of a book during sales interactions.

A story by Aaron Lucchetti -- A New Mortgage 'Cop' -- in today's Wall Street Journal (pd. subs. req'd) profiles Marc Dann, Ohio's attorney general elected in 2006 on a campaign against predatory mortgage lending.

Mr. Dann says he wants to "punish" not only out-and-out criminal fraudsters, but also deep-pocketed parties that benefited from the problem and helped enable it.

More and more, we not only face fights over whether state consumer laws should be preempted when Congress passes a federal law, no matter how weak, but also over whether state attorneys general should maintain their long-standing right to be co-enforcers of federal consumer and environmental laws.

At a markup (voting session) of the House Financial Services Committee last year, one member claimed that "uneven" enforcement by a "rogue" state attorney general could even jeopardize a system of business-friendly uniform national laws. Not-so-thoughtful but politically connected and cash-rich "think tanks" such as the Competitive Enterprise Institute even have campaign pages ( here's one and here's one more) attacking state attorneys general. It even held a pseudo-academic conference in 2005.

The business lobby has an organized strategy:

These are bad trends worth watching, and worth organizing to stop. Here's more information.

We testified (my testimony) yesterday at a hearing on CPSC/China/toy recall issues before Senator Mark Pryor's (D-AR) subcommittee of the Commerce Committee in favor of his bill: the CPSC Reform Act of 2007, S. 2045 (we also suggested improvements) to reauthorize and modernize the Consumer Product Safety Commission.

Obviously, the National Association of Manufacturers opposed the bill, especially its provisions to increase civil penalties, let state Attorneys General police the product safety beat, and eliminate unnecessary secrecy in CPSC activities. But, astonishingly, acting CPSC chair Nancy Nord largely agreed with NAM, especially when she said that eliminating secrecy would be "counter-productive." She essentially said that their relationship with corporate wrongdoers would be jeopardized. Former CPSC Chair, Ann Brown, in Annys Shin's Washington Post story Head of CPSC Opposes Measure on the hearing, said, and we agree:

"She thinks it's the industry product safety commission," said Ann Brown, CPSC chairman under President Bill Clinton. The current law "stands in the way of consumers getting prompt information, and it should be amended and changed."

States' rights a conservative, Republican party ideal? No, not really. In her story U.S. Trying to Block Calif. on Emissions over at today's Washington Post, Juliet Eilperin reports that Bush administration Transportation Secretary Mary Peters has been involved in a

concerted, behind-the-scenes lobbying campaign to try to generate opposition to California's request to regulate greenhouse gas emissions from cars and trucks, according to documents obtained by the House Committee on Oversight and Government Reform.

"If Secretary Peters has concerns about whether California's application meets the legal standards set forth in the Clean Air Act, she should submit comments to EPA making her case," wrote Waxman, chairman of the oversight panel, which negotiated for three months to have the documents released. "Instead of taking this action, however, she apparently sought and received White House approval to use taxpayer funds to mount a lobbying campaign designed to inject political considerations into the decision."

There's a big story and a couple of fine editorials in the Sunday New York Times regarding the response of the toy, food, tobacco and many other industries to a variety of pressures, including but not at all limited to the massive public outcry over dangerous products being imported from China. Of course, a second goal of industry is to convince Congress that the price of federal regulation, no matter how insignificant its provisions, must be to permanently preempt or limit the authority of state legislators and state enforcement agencies including those pesky state Attorneys General to protect consumer, worker and environmental health, safety and financial well-being. Their goals even extend to eliminating the right of injured consumers to seek compensation in state courts. The front page story by Eric Lipton and Gardiner Harris is called In Turnaround, Industries Seek U.S. Regulation:

For toys and cars, antifreeze and fireworks, popcorn and produce and cigarettes and light bulbs, among other products, industry groups or major manufacturers are calling for federal health, safety and environmental mandates. Some of those industries are abandoning years of efforts to block such measures, often in alliance with the Bush administration, which pledged to ease what it views as costly, unnecessary rules.

Of course, in the story, I point out that lawmakers need to be careful: "I am worried about industry lobbyists bearing gifts...Their ultimate goal is regulation that protects them, not the public." Similarly, Georgetown law professor David Vladeck says, restating a point made in his recent Senate testimony, that industry seeks preemption as a condition of enhanced federal regulation: "This is Christmas. This is their wish list."

The Times also has two related editorials Sunday, the first is called The Need for Regulation: For All of the Nation's Imports and the second is The Need for Regulation: And Especially Our Children's Toys. And Monday's Wall Street Journal has a similar story by Jane Zhang: Food Makers Get Appetite for Regulation (pd. subs. req'd.) Our previous blogs on preemption and on industry's motives.

U.S. District Court Judge William Sessions ruled yesterday that Vermont's law designed to limit greenhouse gas global warming pollution from cars and trucks was not preempted. (Washington Post, Vermont Times Argus including VPIRG statement, New York Times). Vermont is one of about a dozen states that have adopted standards first approved in California, although the states must now wait for EPA waivers to finalize the rules. Environment Maryland's clean cars page explains the issues.

Also yesterday, the U.S. Senate Judiciary Committee, chaired by Vermont Senator Pat Leahy, held an important hearing on whether Bush administration agencies are engaged in a cooordinated campaign to usurp state authority. Key testimony was provided by Professor David Vladeck of Georgetown University Law Center. In addition to his testimony, he released a new report The Truth about Torts: Using Agency Preemption to Undercut Consumer Health and Safety jointly authored with other colleagues participating in the Center for Progressive Reform, a national network of scholars. Previous blog.

Tomorrow, the Senate Judiciary Committee, chaired by Pat Leahy (D-VT), will hold a hearing on Regulatory Preemption: Are Federal Agencies Usurping Congressional and State Authority? Expect Georgetown Law Professor David Vladeck, in particular, to defend stronger state laws. This hearing will focus not on express preemption by Congress but on the recent trend of federal agencies asserting that compliance with their modest rules grants corporate wrongdoers immunity from state common law claims, including for injury or death. It's a dangerous trend -- especially when the agencies claim it without Congressional authority -- as we have noted.

Syndicated columnist Cindy Skrzycki has an opener for the hearing in the Washington Post. Her story is unfortunately titled and tilted toward the notion that Trial Lawyers on the Offensive in Fight Against Preemptive Rules. This isn't a fight about trial lawyers. It's about the fundamental police power reserved to the several states to protect consumer and worker health and safety. Here's our PIRG page on state preemption.

We've joined AARP and other leading groups in an amicus brief (or friend of the court brief) in Riegel v. Medtronic, a case to be heard this fall by the Supreme Court. We are opposing this attempt by a medical device manufacturer (Medtronic) to claim immunity from product liability lawsuits brought by victims. Medtronic argues that since the device had received premarket approval from the Food and Drug Administration (FDA), state law claims (such as product liability claims) are preempted. More information here from Public Citizen, which is representing Mr. Riegel.

When is the enemy of your enemy not your friend? When the two supposed antagonists -- Ma Bell and Big Cable -- are actually boon companions and fellow monopolists seeking to share a duopoly market with no consumer protections and at the consumer's and citizen's expense, of course. In this column, Bruce Speight of Wisconsin PIRG and Joel Kelsey of Consumers Union explain in the Green Bay Press-Gazette that, in enacting statewide cable franchise and broadband expansion legislation, the legislature should make sure that Consumers, not AT&T, should get favored status :

The dual goals of increased competition in the cable market and the expansion of broadband Internet service in Wisconsin are laudable. In today's connected world access to robust networks means much more than just the opportunity to watch cable television -- it means increased access to news, art, entertainment, and diverse marketplaces. Unfortunately, the so-called "cable competition" bill that is currently before the state Legislature is missing its opportunity to develop the video service marketplace in a way that truly benefits Wisconsinites.

Update 5 Aug 07): Big victory last night! Despite fierce and misleading opposition from utilities led by the notorious Southern Company, the Udall (D-NM) amendment to require that 15% of electricity be derived from renewables passed last night 220-190 (roll call, Public Interest Vote = AYE) in the U.S. House. The Energy bill then passed 221-189 (roll call, Public Interest Vote = AYE)

Original post: It's time to renew American energy. If the House of Representatives gets past procedural squabbles and considers the energy bill today, in a rare Saturday session, the key vote will be on establishing minimum federal renewable energy goals. As U.S. PIRG's Anna Aurilio points out in the Associated Press today: "This is the top priority for the environmental community. It would be a real clean energy breakthrough."

Meanwhile, the many opponents of clean energy, led by the utilities, the U.S. Chamber of Commerce, and the National Association of Manufacturers, have blanketed Capitol Hill papers with print ads and mobilized hordes of lobbyists, all making the ludicrous claim that the federal renewable energy standards we support are unnecessary and that we should leave this up to the states. Recently, these guys have been fighting a rear-guard action against enactment of renewable energy standards by dozens of states. When they're outside the beltway, their mantras are: "patchwork quilt" and "balkanization." Here in DC, they're claiming that the states would be blocked from further action by the federal bill (wrong) and their mantra is that federal action is wrong because it would be "one-size-fits-all." Can't have it both ways and besides, you're wrong in both places, industry guys. For more on U.S. PIRG's clean energy future campaign, go here.

I recently upgraded from an old (really old) Acura to a newer (almost new) Civic. I called my insurance company to report the change. I then received an absurd letter stating that I would be receiving a "good," but not the "best," insurance rate. Why? Because my credit score was very good, but not the "best." Reason stated: because I had "too few" credit cards, even though they are paid as agreed and in good standing.

A big problem here: My auto insurance rate should be based on factors including "too many miles driven" or "too many moving violations or fender benders," not a credit score, especially one based on flimsy data such as "too few" credit cards.

But it's worse if you're non-white.

As syndicated Washington Post financial columnist Michelle Singletary points out in her Color of Money column Your Car and Your Credit today:

Consumer advocates say using credit scores to set insurance rates unfairly hurts African Americans and Hispanics because those groups tend to have lower credit scores and thus end up paying more for their auto insurance. They also complain that errors in credit files can result in lower scores and therefore higher insurance premiums.

A new California law extends lemon law protection to military personnel based in California, even if their car was purchased in a different state. The bill was pushed by long-time lemon rights and car safety champion Rosemary Shahan and her group Citizens for Auto Reliability and Safety (CARS). The legislature enacted the law after the debacle faced by Lt. Nathan Kindig when Chrysler refused to grant him rights under the lemon law for his 2004 Dodge Dakota lemon truck.

In 1982, when I was with Connecticut PIRG, we helped pass the nation's first new car lemon law. At the time, we were only a few weeks ahead of passage of California's law, where Rosemary Shahan was leading the way.

Lemon laws have now been enacted in every state. They solved the myriad legal problems consumers faced when they bought a car from a dealer that didn't work. Lemon laws generally define a lemon (a new car that has the same major unfixable defect 3-4 times during warranty, or is in the shop 30 days during warranty, for example) so consumers no longer have to prove their particular car is a lemon in court (previously, they did). Lemon laws also give consumers an explicit legal right to sue a manufacturer, something that they didn't have, which also crippled many lawsuits. Lemon laws also streamlined the legal process. A few states have enacted similar laws for used cars.

The new California law is the latest example of laws designed to meet the special needs of our underpaid military personnel, who are often targets of unfair predatory practices. The law simply provides the same protections to in-state military personnel that other residents enjoy. Recently, the Congress has recognized that in some cases, military personnel need even greater rights. In 2003, stronger rights for military personnel to prevent identity theft (active duty military fraud alerts) were established. In 2006 rights against predatory lending (although rules on this are not yet final and aren't as good as we would like) were enacted.

Speaking (last post) of unfair arbitration imposed by corporations seeking to prevent consumers from fighting their unfair practices, Montgomery County, Maryland officials have issued a news release warning citizens about adverse arbitration changes being imposed on customers by the cable guys at Comcast. The Washington Post's Daniel De Vise reports today in Md. Officials Oppose New Legal Policy At Comcast that:

Lawyers for both Montgomery and Howard counties reviewed the arbitration notice from Comcast and concluded that it restricts customers to resolving disputes through arbitration rather than the courts.

Update 7/27-- hearing indefinitely postponed. (Update a few hours later-- Reorganized and expanded--I added a section on consumer/civil rights critique of the FTC report, and an excerpt from a new CEJ/NCLC report). Today, MASSPIRG's Deirdre Cummings and Center for Insurance Research's Stephen D'Amato have a Boston Globe op-ed column What's driving the new auto insurance plan? Also, on Friday, the House Financial Services Committee holds a hearing on Credit-Based Insurance Scores: Are They Fair? The hearing is intended to review a controversial new study of credit scoring by the FTC. In a release this week, consumer and civil rights groups led by Birny Birnbaum, an economist and head of the Center for Economic Justice, issued a harsh rejoinder to the FTC study:

Representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for
Economic Justice said the FTC study is fatally flawed because the insurance industry controlled the data used in the analysis. Instead of requiring the submission of comprehensive policy data by a large number of insurers, the FTC used data handpicked by the insurance industry.

For a counter-analysis to the FTC, see the June 2007 report by Chi Chi Wu of the National Consumer Law Center and Birnbaum of CEJ: Credit Scoring and Insurance: Costing Consumers Billions and Perpetuating the Economic Racial Divide Excerpt:

Study after study has documented the fact that credit scores disfavor minority consumers. Since 1994, at least 5 studies of traditional credit scores (for credit granting purposes) have shown that African Americans and Latinos have lower scores as a group. At least two studies by state insurance bureaus have found that African Americans and Latinos are overrepresented among consumers with low credit scores and under-represented among those with high credit scores. Furthermore, minority consumers are more likely to lack the credit history necessary to even generate a credit score.

Anti-discrimination laws present limited avenues to challenge the racial disparities created by credit scoring. There are some viable theories to challenge insurance scoring in home insurance, but fewer challenges available in auto insurance.

Finally, we argue that racial disparities in credit scoring are a product of historical economic discrimination against minorities. Government policies that economically boosted whites while leaving minorities behind are responsible for the racial wealth gap. Credit scores act as both a numerical reflection of that gap as well as a force widening the gap. We echo the call of many advocates to ban the use of insurance scoring in order to stop the perpetuation of economic discrimination. If states do continue to permit their use, insurers must be required to develop scoring systems that do not have a disparate impact on minority populations.

From the Boston Globe column by Cummings and D'Amato on the terrible new insurance deregulation proposal in Massachusetts:

When Insurance Commissioner Nonnie Burnes released her decision last week to change the way auto insurance is sold in Massachusetts, insurance companies popped the proverbial corks after reading the fine print. Burnes, recently appointed by Governor Patrick, also released a cover letter with the decision. The letter is so diametrically opposite in tone and content to the decision that it is hard to imagine the same person wrote them. [...] Consumer groups have consistently opposed this industry-sponsored proposal because it permits insurers to reject drivers by using the same unfair criteria -- credit scores, income, education, home ownership -- that the cover letter attacked.

Insurers should not be able to use credit scores derived from credit reports to deny consumers insurance or to place consumers in higher-risk (higher-cost) product pools. Insurance companies claim that there is a correlation between a consumer's score and the chance that he or she will file a future insurance claim. But they have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their claim. In addition, any correlation is insufficient to justify the use of insurance credit scoring. Some studies demonstrate that credit scoring may simply be a double counting of other risk factors, such as policyholders' geographical locations, that already are taken into consideration when setting insurance rates. Scores also may be a proxy for rating factors that insurers are prohibited from using, such as race. This model law prohibits insurers from using information regarding a consumer's creditworthiness, credit standing, or credit capacity for the purpose of determining rates for insurance or eligibility for coverage.

The Massachusetts Insurance Commissioner has decided to deregulate insurance rates at the request of powerful insurance companies seeking to use random factors including credit scores to set insurance rates. From a release from MASSPIRG and the Center for Insurance Research:

Based on industry estimates, eventually more than a million drivers are expected to be rejected annually under the proposed plan. Rejected drivers will be randomly assigned to another insurer. As a result, they will lose the freedom to choose their insurer, will be subject to discriminatory underwriting practices, and will often face higher insurance costs.

The Progressive States Network has released Taking The Lead: An Interim Report on State Legislative Successes in Enacting Progressive Policy.

At the federal level, even the new Congressional leadership has been stymied in delivering that change in the face of partisan gridlock and filibusters, but state governments have seen sweeping reforms. On issues ranging from health care to clean energy to electoral reform to assisting working families, state leaders have stepped up and delivered often precedent-setting reforms. Even on issues like the minimum wage where we have seen some federal action, many states are still delivering higher wage standards and bolder leadership. And on other national issues, states in 2007 took leadership in demanding fairer trade deals and an end of the escalation in Iraq. The bottom line is that states are driving progressive change in the nation.

In today's New York Times, Steve Labaton's story Supreme Court to Weigh Limits on Cases Involving Medical Devices highlights the growing efforts of Bush Administration agencies to overstep Congressional authority. They assert in rules that compliance with their weak, industry-endorsed rule-makings somehow immunizes industry wrongdoers from victim lawsuits brought under state consumer protection laws (previous blog). Meanwhile, the latest of a series of stories -- Chinese Tires Are Ordered Recalled -- about the abject failure of China to regulate any of its dangerous products that U.S. regulators haven't stopped from being dumped into the U.S. marketplace points out the need to put more consumer cops on the beat. Neither the market nor federal laws have ever provided adequate health and safety protections; more state consumer cops and strong state consumer laws provide a critical line of defense.

Looks like NJ governor Jon Corzine doesn't have consensus on his plan to privatize the NJ Turnpike. New Jersey PIRG's Abigail Caplovitz Field gets the last word in New Jersey Decides Its Toll Road Plan Still Needs Time in today's New York Times:

"Just saying that it's a public company doesn't mean it's in the public interest," Ms. Field said. "Are the contracts still going to be public? How do we know the state is going to get the best price? Will the state end up having to spend tax dollars to service the debt? There's so many facets of the deal that have to be scrutinized."

The House Financial Services Committee will hold a hearing Wednesday on Improving Federal Consumer Protection in Financial Services. Witnesses will include federal and state regulators. We hope Chairman Frank will also hold a hearing with consumer advocates and academics on this important matter, which he has spent a great deal of time on and we commend him for that. We think that the most important part of his hearing announcement is that it will consider "the future role of state agencies in protecting financial consumers."

Our view is that state agencies must have their enforcement authority over national banks restored and we will certainly work with the chairman to accomplish this.

Solely giving greater consumer protection authority to federal bank regulators, for example, won't work. Without strong state enforcement, consumers will not be protected in the financial marketplace.

Of course, Congress could also consider giving authority over banks to the FTC, not to the bank regulators. Recently, the FTC actually worked with local Maryland regulators at the Montgomery County, Maryland, Division of Consumer Affairs to hold KMart accountable for unfair practices related to gift cards. While we are not completely happy with that settlement, we liked the working together with state enforcers part a lot. Meanwhile, the federal bank regulator known as the OCC was assisting Bank of America's successful efforts in federal appellate court to preempt a New Hampshire state gift card law. (Decision and a law professor blog entry discussing the case, SPGGC vs. Ayotte.)

Of course, the odds of Congress giving authority over national banks to the FTC aren't good at all and the odds of it restoring authority to states would depend largely on it holding a continuing series of oversight hearings to expose the weak efforts of federal regulators to police the marketplace.

Giving more authority to federal regulators won't help consumers much, if at all, since federal regulators also lack the will to help consumers. Giving back authority to state regulators would help consumers by putting more cops on the corporate crime beat.

Instead of working with state regulators to make the marketplace work better, too many federal bank regulators would rather burn down their houses and kill their dogs, or at the very least, preempt them out of business, as the OCC continues to demonstrate with its latest New Hampshire effort on behalf of a bank, rather than on behalf of aggrieved consumers.

Yesterday, the U.S. EPA held the first of two public hearings on whether to give states the green light to reduce global warming pollution from cars and SUVs by adopting California standards that are stricter than federal law and, according to the states and numerous court decisions, allowable under federal law. (Washington Post). Eleven states and California are planning to implement rules based on California's 2004 global warming statute. According to a new U.S. PIRG report The Clean Cars Program: How States are Driving Cuts in Global Warming Pollution:

Tailpipe standards already in place in 12 states would reduce global warming emissions by nearly 400 million metric tons by 2020 -- a reduction equivalent to taking 74 million of today's cars off the road for an entire year.

Yesterday, I was privileged to speak on a panel called "Investor Protection Through Effective Enforcement and Regulation" at the spring Public Policy Conference of the North American Securities Administrators Association. NASAA is comprised of U.S. state and Canadian provincial securities law enforcers. It plays a critical role in policing the markets. Keynotes were U.S. Senator Robert Casey (D-PA) and former SEC Commissioner Harvey Goldschmid, who is now back at Columbia Law School. MORE.

Recently, despite dramatically improved market confidence and performance due to the results of the Sarbanes-Oxley Corporate Reform Law enacted to clean up the mess left by Enron, Worldcom and other fiascos, the U.S. Chamber of Commerce and various Wall Street interests have released three pseudo-academic reports purporting that America is falling behind in global finance. Their reason? America's too-tough investor protection laws and that burdensome Sarbanes-Oxley Act, especially its Section 404, which simply requires corporate CEOs to certify that the books aren't cooked. As I pointed out to the NASAA officials, recent letters to Congress from U.S. PIRG, the Consumer Federation of America and others have explained the fallacies in the reports' analyses.

On a positive note, House Financial Services Committee chairman Barney Frank (D-MA) recently condemned one report recommendation supposedly under active SEC consideration: requiring defrauded shareholders to submit their fraud claims to arbitration rather than have their day in court. Professor Goldschmid called that idea "nutty" in his excellent remarks. As for the purported global finance crisis, my fellow panelist Damon Silvers of the AFL-CIO suggested that the reports by the Chamber and others were seeking "protectionism," not for steelworkers or textile workers, but for Wall Street bankers making $50 million/year.

Two posts back, we explain that putting Michael Baroody in charge of the Consumer Product Safety Commission (CPSC) would be "putting the fox in charge of the henhouse." I'm not sure that metaphor works to describe the powerful, if obscure, Office of the Comptroller of the Currency (OCC) (our historical OCCWatch pages). You see, this office acts more like a sheep, at the request of its regulated national banks, but the result is the same. The only time it bares its fangs is in court, where it aggressively defends its power against state or local legislatures or pesky state attorneys general or district attorneys fighting predatory lending or unfair practices on behalf of their citizens.

Two distinguished and expert commentators have delivered withering critiques of the OCC recently, predicting things will only get worse for consumers expecting a fair marketplace. In an op-ed column Who's Watching Your Money? in today's New York Times, Manhattan District Attorney Robert M. Morgenthau scolds the agency (which is largely funded by banks, not taxpayers) for timidity, but predicts it will grow in power following a disappointing recent Supreme Court decision, Wachovia v. Watters (our recent post with links), tying the hands of state regulators.

Banks now have an added incentive to opt out of state systems and put themselves under the protection of the comptroller. I say "protection" because the comptroller has shown itself to be a timid regulator, even in the face of flagrant wrongdoing. After all, you can't bite the hand that feeds you.

Since January 1, 1995, the OCC has not issued a public enforcement order against any of the eight largest national banks for violating consumer lending laws. In contrast to this absence of public enforcement action by the OCC against major national banks, state officials and other federal agencies have issued numerous enforcement orders against leading national banks or their affiliates -- including Bank of America, Bank One, Citigroup, Fleet, JP Morgan Chase, and US Bancorp -- for a wide variety of abusive practices over the past decade, such as predatory lending, privacy violations, telemarketing scams, biased investment analysis, manipulative initial public offerings, and allowing hedge funds to engage in late trading and market timing in bank-sponsored mutual funds.

During 2004-05, the OCC's assessment revenues rose by 15%, primarily due to the transfer of $1 trillion of banking assets into the OCC's jurisdiction by virtue of the charter conversions of JP Morgan Chase, HSBC and Bank of Montreal. Thus, the OCC has a powerful financial interest in pleasing its largest regulated constituents, and the OCC therefore faces a clear conflict of interest whenever it considers the possibility of taking an enforcement action against a major national bank.

Justice Ruth Bader Ginsburg has written a majority opinion for the Supreme Court in the closely-watched predatory lending enforcement case Wachovia v. Watters. It holds against the rights of states to enforce their consumer laws against operating subsidiaries of nationally-chartered banks. We were amicus on the other side (previous blog). But as Deepak Gupta points out at the Consumer Law and Policy Blog, the court largely avoided the broader issue of the "interaction between preemption and the power of federal administrative agencies--a dicey and dangerous can of worms." The good news: The court didn't expand agency power. Chief Justice Roberts joined the dissent (begins on page 22 of Justices Stevens and Scalia. Over at the SCOTUS blog find links to news clips.

MASSPIRG's Eric Bourassa has called on Secretary of State William Galvin, who has been an investor champion, to become a privacy champion, too. So far, Galvin has resisted MASSPIRG's calls to remove Social Security Numbers, the basic operating toolkit of identity thieves, from public records and filings on his website. Here's today's AP story Mass. needs law banning private data on state Web sites, some say and here is one from yesterday: Privacy advocates blast Galvin. As privacy expert Robert Ellis Smith points out in today's story, states, including Vermont, have begun passing laws to redact or remove SSNs from older records, and prohibit their disclosure on newer records:

"Social Security numbers are inappropriate on Web sites, period," said Robert Ellis Smith, who publishes the online newsletter Privacy Journal, based in Providence, R.I. "State and county officials rush to put information online. Only now, after the fact, have they started to have these redaction laws."

On Monday, the Supreme Court issued a landmark ruling in Massachusetts v. EPA ordering the U.S. EPA to reconsider its decision not to regulate carbon dioxide emissions from cars. U.S. PIRG and a coalition of states, local officials and environmental groups had petitioned the court to act. Over at the Cleancarcampaign.org find out more about why we believe this case will also have an important impact on the efforts by California and nine other leading states to stop global warming. From U.S. PIRG's statement.

Nine states have adopted California's standards to reduce fleet-wide global warming emissions from new vehicles by 25 percent in model year 2009, rising to 30 percent in model year 2016. "The Bush administration should immediately give California and other states the green light to put their clean cars programs into effect. Any delay is completely unjustified given today's ruling," said U.S. PIRG's Emily Figdor.

Also Monday, the court ruled 9-0 in favor of Environmental Defense, NCPIRG and the North Carolina Sierra Club in a case requiring utilities to clean up old power plants (statement yesterday from Environmental Defense, our previous blog). Meanwhile, over at the Department of Homeland Security, Secretary Michael Chertoff issued sweepingly preemptive chemical plant security rules sought by the chemical companies, after a weekend of spin doctoring and a news story (Associated Press) in which his press flack claimed that the new DHS rules would not preempt the states ("Those officials who have expressed concern about pre-emption will be satisfied with what they see in the final regs," said flack Russ Knocke). Chertoff borrowed his supposed "anti"-preemption language from the bank regulator known as the OCC. From the rule explanation:

the regulation is not to be conflicted by, interfered with, hindered by or frustrated by State measures, under long-standing legal principles.

It's bad enough when a tawdry payday lender uses your un-cashed check as collateral on a triple-digit predatory small loan. Many people may not be aware that in some states, car title pawn companies are allowed to use a copy of your car keys as well as your actual car title as collateral for a similar small loan of a few hundred dollars. Can't pay back your $200 loan? They take your car, no matter what it's worth. Here's Iowa Attorney General Tom Miller's statement on Iowa's new ban on car title pawn. Meanwhile, Blue Oregon critiques a car title ad running on Oregon TV.

David Pettit, PIRG in Michigan (PIRGIM) consumer advocate and Phineas Baxandall, Ph.D., federation of state PIRGs' senior analyst for tax and budget policy, have a column Write a simpler, fairer state business tax in today's Detroit Free Press. Among its recommendations:

Level the playing field. Michigan can best prosper and have confidence in its tax system when businesses compete based on their efficiency and innovation, rather than the ingenuity of their lobbyists and tax lawyers. Taxes should be broad-based enough that businesses that pay them are not "suckers" who subsidize competitors.

We're excited that PennPIRG director Beth McConnell is one of the 8 official pre-selected panelists speaking this Friday February 23rd at an FCC hearing on media ownership and consolidation in Harrisburg, PA. After the panels conclude, any member from the public is also encouraged to speak from the floor. All 5 commissioners are expected to attend. More details on event. Here's where: Sunoco Theatre at the Whitaker Center for the Performing Arts (maps and directions) at 222 Market Street, Harrisburg, PA). Schedule:

9:00 a.m. Welcome/Opening Remarks

9:30 a.m. Panel Discussion (Subject to change)
1. W. Cody Anderson, President & CEO of ACG Associates
2. Bill Baldwin, Executive Vice President of Hall Communications and General Manager of WROZ-FM and WLPA-AM, Lancaster, PA, and WSJW-FM, York, PA
3. Jim Haigh, Mid-Atlantic Community Papers Association
4. Charles Layton, American Journalism Review staff writer
5. Lauri Lebo, York Daily Record reporter and owner of WWII 720 AM
6. H. Joseph Lewin, President of Harrisburg Television, Inc. and General Manager of WHTM-TV, Harrisburg, PA
7. Beth McConnell, Director of PennPIRG
8. Paul Quinn, President and General Manager, WGAL(TV), Lancaster, PA

10:30 a.m. Public Comment
12:30 p.m. Break
1:00 p.m. Public Comment
2:30 p.m. Adjournment

Among many important points it makes, today's lead New York Times editorial -- Chemical Insecurity -- calling for passage of federal chemical plant security measures, makes a very important point we often make: federal laws should be a floor, not a ceiling:

Supporters of pre-emption always claim that they just want a uniform standard. But in situations like this one -- where the federal law is absurdly weak -- it is obvious that the real agenda is to block serious safety measures at every level of government.

National uniformity, conditioned on weak federal rules, not only takes new and visionary state ideas out of the equation, it also allows industry to continue business as usual under what are largely their own chosen rules.

One important test of the new Congressional leadership, on chemical security, identity theft and privacy, food safety, predatory lending, global warming and other key issues, is whether it will reject the bad public policy of national uniformity as the price we "must" pay for federal laws. Let's see whether the new Congress understands that if it passes federal laws that are good enough, it doesn't need to preempt stronger state actions. After all, the states are rational actors: if the new federal law is good enough, they'll move on to solve the myriad other problems they face. We'll have uniformity anyway.

But what if the new federal law isn't good enough? That's when we'll need the several states to act as laboratories, laboratories of democracy. Acceding to the tired, shrill industry demands for national uniformity to "prevent balkanization and patchwork quilts" is an unnecessary policy price that hurts our union more in the long run. More from PIRG on preemption. More from PIRG on chemical security and safer alternatives to toxic chemicals.

Reporter Bruce Mohl has a profile of Massachusetts state senator Michael Morrissey in today's Boston Globe. Morrissey discusses his proposal -- modeled after new and used car lemon laws-- to allow consumers to cancel cell phone contracts without paying punitive early termination fee penalties (ETFs):

The bill requires wireless companies to publicly disclose their coverage gaps and allows consumers with poor service (five or more dropped calls in a month) to terminate contracts without paying hefty financial penalties. Industry executives say the termination provision is the first of its kind in the nation. "The industry says no state's ever done this. Well, so what?" Morrissey said.

Good news. Washington State's Department of Financial Institutions has fined two predatory payday lenders a total of $1.2 million for state law violations. From the Seattle Times:

The Department of Financial Institutions accused the owners of Zippy Cash and Advance Til Payday with exceeding the state's $700 maximum loan limit for outstanding short-term, high-interest loans to a single person. The companies, which together operate 33 lending stores in Washington, skirted the law by allowing customers to obtain thousands of dollars in loans from different branches, often on the same day, according to the state's charging papers.

The Department of Homeland Security has proposed weak chemical industry-friendly rules (FR Notice) to ostensibly protect some high-risk facilities from attack. The proposed rules preempt, or over-ride, stronger state protections. Incredibly, the Department claims its authority to make preemption determinations derives not from the Congress, not from the Supreme Court, not even from some inscription on the walls of its headquarters. No, the DHS claims its authority derives from the U.S. Solicitor General's amicus brief, merely a litigation position, on behalf of federal bank regulators in a case now pending before the Supreme Court:

Note that the Department has the authority to make preemption determinations as it administers the chemical security program under Section 550. See Brief of the United States as Amicus Curiae at 26, Watters v. Wachovia Bank, N.A., 2006 WL 3203255, 126 S.Ct. 2900 (2006) (No. 05-1342) (filed Nov. 3, 2006)(``When an agency concludes, in an exercise of delegated policymaking authority, that displacement of state law is warranted in furtherance of a federal statute that it is entrusted to administer, the agency is acting within the core of its expertise.'')

Yesterday, the Supreme Court heard a bank law case (Wachovia v. Watters (previous blog with links to materials including our brief) that could have implications for all state consumer and environment enforcement. The good news is that a variety of news stories (and you can read the court's transcript) indicate that Chief Justice Roberts, Justice Scalia and other justices have the same trouble as we do understanding just what law exactly gave the federal bank regulator known as the OCC the supposed power to do whatever it wants to do to weaken strong state consumer protections while enforcing none of its own, and to somehow claim that any entity affiliated with a national bank is under its thumb. Here's an excerpt from the Washington Post story Federal Oversight of Banks Risks Abuse, States Argue by Tomoeh Murakami Tse on yesterday's oral argument: MORE:

In oral arguments, E. John Blanchard, who represented Michigan and whose case is supported by the 49 other states, argued that "preemption" of local authority by the OCC would prevent states from protecting their residents. "Michigan and the states want to be able to help their citizens with abusive and predatory lending complaints," he said.

Questioning Wachovia Bank attorney Robert Long, Chief Justice John Roberts suggested the bank wanted to have its cake "and eat it too," by pre-empting Michigan laws against predatory lending, while being shielded from any liability the subsidiary might incur. Mr. Long didn't dispute the liability protections of structuring the business that way, but said "managerial reasons" made the state subsidiary-national bank parent model a "useful tool of banking."

On Wednesday the Supreme Court hears oral argument in an important case that could clarify when federal agencies are appropriately exercising authority granted by Congress, and when they are over-reaching. The case is especially important concerning issues of preemption of stronger state consumer and environmental laws. The case, Wachovia v. Watters, is a challenge to lower court decisions upholding preemptive rules of the national bank regulator known as the Office of the Comptroller of the Currency (OCC) (our site OCCWatch). As Kirstin Downey points out in her story, Case Tests Federal Supremacy Over Banks, in today's Washington Post:

The Supreme Court took the unusual step of agreeing to hear the case, although the lower courts had agreed to grant control to the OCC. The high court seldom hears cases in which lower-court judges have been unanimous in their rulings. Now both sides wonder what the justices' decision to take the case may mean: Will they approve the preemption practice or overturn it?

California Attorney General Bill Lockyer has settled a lawsuit with the nation's largest rent-to-own company, Rent-A-Center, which will pay California consumers $7 million to resolve allegations of a variety of practices that deceived California consumers in violation of California law: EXCERPT:

The settlement resolves a lawsuit, filed simultaneously with the settlement, that alleged RAC failed to disclose the true cost of its rent-to-own program to California consumers. Additionally, RAC engaged in deceptive advertising in marketing and selling memberships in its "Preferred Customer Club (Club)," according to the complaint.

The settlement requires RAC to make full or partial refunds to thousands of California consumers who bought Club memberships, or who rented or purchased electronic merchandise, appliances, or computer systems from RAC on or after November 1, 2004. Lockyer's office estimated the restitution will total more than $7 million. RAC also will pay $750,000 in civil penalties....

...Lockyer's complaint alleged RAC, in violation of state law, engaged in unfair competition and illegally misrepresented the cash price of certain merchandise.

The complaint also alleged RAC misrepresented the benefits and terms of its Club membership in numerous ways. The misrepresentations included: falsely claiming to provide an extended warranty, insurance, or service contract for rental merchandise; and telling consumers they would receive up to $500 in grocery discounts, without adequately disclosing that to obtain the maximum discounts consumers had to pay RAC more than $100 in additional fees.

Over 19,000 Pennsylvanians got infections while at Pennsylvania hospitals in 2005 due to inadequate sanitary practices and lax infection control procedures, according to a first-of-its kind report mandated by PENNPIRG-backed legislation (fact sheet). The Pennsylvania Health Care Cost Containment Council (PHC4) report (PENNPIRG-Consumers Union news release) estimates that 2,400 patients lost their lives in Pennsylvania in 2005 after contracting infections at the hospital. ABC News story featuring PIRG's Beth McConnell. WTAE-4 (Pittsburgh) story featuring PIRG's Paul Brown.

Oregon voters yesterday voted overwhelmingly (Oregon PIRG release) to expand a successful bulk purchasing program to lower the costs of prescription drugs, but unfortunately overwhelmingly defeated an important proposal to ban the use of credit scores in insurance-decision-making. In California, we lost statewide ballot measures to raise tobacco taxes and tax oil companies drilling for oil on California land and use the funds for clean energy development. CALPIRG will continue to push the oil measure in the legislature, since 45% of voters went for it. We won two CALPIRG-backed Sacramento County questions opposing corporate welfare for the Sacramento Kings NBA team. Previous blog with details.

Yesterday the Supreme Court heard oral argument in a power plant pollution appeal brought by Environmental Defense, North Carolina PIRG and the North Carolina Sierra Club. Here's our brief in Environmental Defense et al v. Duke Energy Corp et al. Here's a few news reports (Lexington (KY) Herald-Leader and Portland (ME) Press-Herald, explaining some of the complex issues.

Also, yesterday, U.S. PIRG joined the American Legacy Foundation, Campaign For Tobacco-Free Kids, Public Citizen, Consumer Federation of America and other public interest groups in a petition urging the Court to review a decision of the Illinois Supreme Court that overturned a lower-court verdict awarding billions of dollars in damages to Illinois smokers in a so-called "lights" cigarette case. The implications of this case extend beyond tobacco control and, unless overturned, it could weaken the right of state enforcers to bring unfair and deceptive claims against any wrongdoer. [Note: In September, a U.S. judge certified a national class action in another "lights" case (previous blog).]

Public Citizen has filed an IRS complaint alleging that the "U.S. Chamber of Commerce and its affiliated Institute for Legal Reform (ILR) failed to report millions in taxable spending from 2000 to 2004 intended to influence state attorneys general, state supreme court and federal races around the country." My previous blog on the Chamber's "No More Eliot Spitzers campaign."

Election Day is about elections, but it is also about citizens bringing important issues to the ballot, in states where initiative and referendum is allowed (see the Initiative and Referendum Institute and the Ballot Initiative Strategy Center for info).

In 2004, for example, COPIRG and Environmental Colorado helped run a successful citizen campaign to enact Amendment 37, to dramatically boost the use of renewable energy by electric utilities.

Next week, Oregon State PIRG (OSPIRG) and CALPIRG are each backing several important consumer ballot questions. In Oregon, along with Consumers Union (publisher of Consumer Reports), OSPIRG is urging a Yes on Measure 42, to ban the use of credit scoring for insurance decision-making. The insurance industry has not been able to prove an actuarial relationship between your credit report and whether you'll be a good driver or homeowner, nor has it been able to discount independent studies that show that people of color score lower than whites, suggesting that they may be using credit scoring as a proxy for otherwise illegal rating factors. Finally, of course, it hasn't been able to explain the number of mistakes in credit reports.

OSPIRG (previous blog) is also backing Measure 44 to expand Oregon's successful prescription drug buying pool to leverage lower prices for the one million Oregonians lacking drug coverage.

OSPIRG also urges Yes on Measures 46 and 47: With no current limits on campaign contributions, this pair of measures would enact comprehensive campaign finance reform in Oregon. Measure 46 amends the constitution to allow campaign contribution limits. Measure 47 enacts low contribution limits, bans direct contributions from corporations and labor unions, and adds disclosure requirements.

CALPIRG is supporting three statewide propositions (citizen votes go by different names in different states).

Another electric utility merger based more on the unenlightened self-interest of investment bankers and utility kingpins ("I want to be the next Ken Lay or Jeff Skilling and have my own Enron cash machine and raise rates when I want") than on sound public policy principles has been derailed, this time in Maryland.

While consumers in Maryland are not out of the woods yet, since they still face the temporarily-delayed effects of rate deregulation, the cancellation of the planned FPL (Florida Power and Light) takeover of the Maryland utility Constellation is a major victory for consumers. See the Baltimore Sun as well as the Washington Post and Washington Times. MORE:

From the Post:

Johanna Neumann, a policy advocate at Maryland Public Interest Research Group, said "the blocked merger is a victory for BGE [Baltimore Gas and Electric] ratepayers." She said the merger "would have created an energy giant large and powerful enough to dictate electric rates" and that "the risk of skyrocketing electric bills far exceeded Constellation's paltry pass-on of savings." The collapse of the FPL-Constellation deal highlights the difficulty of merging two utilities, despite the 2005 repeal of the Depression-era Public Utilities Holding Company Act (PUHCA) that many experts had predicted would lead to a major consolidation of the industry. Last month, Exelon Corp. dropped its $17.8 billion bid for Public Service Enterprise Group Inc. after failing to come to an accord with New Jersey regulators.

Here's more from NJPIRG on Exelon. Here's more on the just-launched PIRG New Energy Future campaign, which outlines a longterm, sustainable, clean energy program based on what's good for the public interest and the environment. Here's our 2004 report Toward A Consumer-Oriented Electric System: Assuring Affordability, Reliability, Accountability and Balance After a Decade of Restructuring.

Wal-Mart's recent limited action lowering the price of some prescription drugs in some stores in some markets to as little as $4 was a good first step for uninsured consumers. Wal-Mart's expansion of the program and its emulation by Target was also a positive but, again, limited step. These big stores use their bulk buying power to get good prices, which they can choose to pass along. Of course, it's also a good deal for Wal-Mart and Target-- it generates traffic into their stores.

But what if the drug you need isn't one of the 20% or so of the drugs Wal-Mart offers that's available at this low price?

Wouldn't it be better if any uninsured consumer could take advantage of a prescription drug buying plan that delivers huge discounts on a full range of generics and name-brand drugs, saving as much as 60 percent, and could purchase the drugs at any store or pharmacy? It could happen in Oregon, on Election Day. MORE.

It's the goal of Oregon's ballot Measure 44, which would expand to all of Oregon's 1 million uninsured the benefits of a successful state prescription drug buying pool program now available only to state agencies and low-income uninsured seniors. Here's a column by Laura Etherton of Oregon PIRG (OSPIRG) in in today's Oregonian newspaper. Excerpt:

The Oregon Prescription Drug Program started small, available only to some state agencies and low-income uninsured seniors. Now it makes both economic and health care sense to expand the program to everyone who lacks drug coverage. Thanks to the work of state Sen. Bill Morrisette and AARP, voters will have the opportunity to make that expansion a reality this November by approving Measure 44.

The measure will expand this proven program to the 1 million Oregonians lacking drug coverage. That will boost the program's buying power and deliver needed price relief. Because the program already pays for itself through the savings it negotiates, Measure 44 won't cost taxpayers a thing.

A broad coalition -- including Oregonians for Health Security, the Oregon Business Association, Service Employees International Union, the Oregon Medical Association, the Oregon Nurses Association, OSPIRG and others -- urges Oregonians to vote yes on Measure 44.

The ID Theft Task Force's most important recommendation is one that consumer and privacy groups have been calling for for years -- better protect the Social Security Number:

The Office of Personnel Management (OPM) should accelerate its review of the use of SSNs, and take steps to eliminate, restrict or conceal their use, including assignment of employee identification numbers where practicable....OMB should require all federal agencies to review their use of SSNs to determine where such use can be eliminated, restricted or concealed in agency business processes, systems and paper and electronic forms.

The red flag guidelines are supposed to require financial instiutions and credit bureaus to implement policies and programs that would spot "patterns, practices, and specific forms of activity that should raise a "red flag" signaling a possible risk of identity theft." The rules also require specific additional steps to take when address changes are made "followed closely by a request for an additional or replacement card." The problem, as we point out in our comments (drafted primarily by the Privacy Rights Clearinghouse), is this:

overall, the proposal incorporates far too much discretion that allows financial institutions and creditors to reject even the most obvious signs of identity theft. An effective Program should not allow companies to choose not only which red flags to incorporate but also which accounts are subject to the red flags. To do so creates the prospect that companies will adopt perfunctory Programs that amount to no more than the status quo. For the final rules and guidelines, the Agencies should act to eliminate the many layers of discretion incorporated into the proposal.

Indeed, it is the identity thief's ability to provide enough information to the credit card issuer for the issuer to access the victim's credit report ... that facilitates this form of theft. Allowing creditors to verify identity by obtaining the victim's credit report ... would be to permit a practice that enables identity theft and that fails to ensure that a credit card applicant is really who the person claims to be.

Indeed, the identity verification standard should, if anything, be higher for credit card issuers. In general, at least a minimum threshold of identity verification, tailored to types of financial institutions and the specific nature of identity threat, should be included in the Red Flag guidelines. Such verification should include requiring the use of documentary identification for individuals and contacting the consumer when there are address discrepancies.

A fraud alert or active duty alert is the number one red flag for both the banking and the FTC list. The proposal not only allows discretion about whether to include a fraud alert as a red flag, but incorporates leeway in deciding what actions to be taken -- assuming a fraud alert is even included as a red flag. A fraud alert should always trigger a notice requirement.

I'd been meaning for some time to do a piece on the massive PR campaign that the cell phone companies have rolled out in DC metro stations and Capitol Hill newspapers to try to convince either Congress, the courts or the FCC to preempt strong state consumer protections against unfair practices of cell phone companies. Well, Annys Shin, the Washington Post reporter who has taken over the paper's consumer blog The Checkout has beaten me to it. We're opposing two industry petitions before the FCC to weaken the rules, we're amicus in a key lawsuit (Cellco v. Hatch)and we oppose the Senator Ted Stevens (R-AK) telecommunications bill. all of which would preempt state wireless protections. Excerpt from our 8 September letter, with Consumers Union, to the Senate: MORE:

Section 1006 of the ATOR Act inexplicably preempts existing state authority to regulate the terms and conditions of wireless services―authority that Congress explicitly provided to the states under Section 332 of the Communications Act. The preemption provision was included in the pending legislation with virtually no prior committee consideration of the ramifications of eliminating consumer protections at the state level. The provision is particularly unwarranted given the substantial growth in the wireless industry under the current system of dual federal and state regulation provided by Section 332. Subscribership has grown from 13 million in 1993 to some 200 million today, demonstrating that the dual system has supported dramatic growth in the industry.

Unfortunately, widespread unfair, misleading and deceptive business practices that adversely affect consumers have accompanied that growth. The wireless industry leads the Better Business Bureau’s list of most complained-about industries, surpassing even car dealers in customer dissatisfaction. Wireless complaints to the FCC have more than doubled since 2002, exceeding the rate of wireless subscriber growth over this time. Despite this rise, FCC has never taken enforcement action against a wireless provider in response to consumer complaints in recent years.

[Update, Nov 2006, corrected internal links.] Along with a dozen groups and 17 law professors, we've joined a Supreme Court amicus (friend of the court) brief prepared by the Center for Responsible Lending in a very important case, Wachovia v. Watters, which the Court will hear in the October term. Wachovia Mortgage is a non-bank, state-licensed operating subsidiary of the national bank Wachovia; Linda Watters is Michigan's chief financial regulator. The issue: whether the lower courts have erred in deferring to the opinions of the Treasury's Office of the Comptroller of the Currency (OCC) in its rules broadly preempting state consumer and anti-predatory lending laws and their enforcement over nationally-chartered banks. In this case, in particular, the question is raised whether the OCC can extend its claimed authority not only to a national bank, but also to its non-bank, state-licensed, separately incorporated operating subsidiaries merely owned by the national bank. MORE:

While this case is critically important as a matter of state predatory lending enforcement, the decision will likely also address the issue of agency deference more broadly. Many observers believe the lower courts have so routinely, and so wrongly, interpreted the law in granting agencies what is called Chevron deference, that an increasing number of agencies are now asserting powers broader than Congress gave them, especially in their assertions that federal law trumps stronger state laws, confident that the courts will rubber-stamp their assertions. This not only erodes Congressional authority, it diminishes the longstanding right of the several states to protect their citizens from unfair financial schemes, unsafe products or unhealthy environmental practices.

Ideally, the Supreme Court's ruling will narrow the circumstances as to when a federal court should defer to an agency's expertise, and ideally rein in the far-flung ideas of a number of agencies as to their purported powers.

Wachovia v. Watters concerns 2001 and 2004 preemption determinations by the OCC. In 2001, OCC ruled that state-licensed, separately incorporated, non-bank operating subsidiaries of national banks, such as Wachovia Mortgage, were exclusively under its purview. Then, in 2004, in response to passage by several states of strong anti-predatory lending laws, it issued two even broader preemption rules. One rule broadly preempted state consumer laws as they applied to national banks (and their subsidiaries), even when no federal law protected consumers; the other, known as the visitorial rule, said that even when a national bank (or its subsidiary) must still comply with a state law (a few are left that OCC says banks must comply with), that state enforcers, such as Michigan's Watters, cannot enforce the state law, only OCC can.

We argue in our joint brief that this is wrong on policy and wrong on the law:

Section 7.4006 [the 2001 change as modified by the effect of the 2004 rules] would also prevent the fifty states from utilizing their extensive experience and resources to enforce those laws that do apply -- leaving all enforcement in the hands of a single federal agency that has shown little interest in ensuring fairness to consumers. No deference is due to an interpretation by a self-interested agency that would undermine consumers' interests and state sovereignty in such a significant way. Deference to the OCC in this case is also inappropriate because the preemption determination involves pure issues of law properly resolved by the judiciary. The OCC's rules are premised on a number of legal errors, including its failure to follow decisions of this Court that it purported to distill.

The second question--whether displacement of state law is required--entails a judgment about the degree of tension between federal and state law, and whether this tension requires displacing state law with a regime of exclusive federal regulation. In answering this question, agencies should not be given the strong deference associated with Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The question is constitutional in nature, grounded in the Supremacy Clause; it is governed by judicially-created doctrine as to which agencies can claim no particular insight; it has systemic implications for the balance of authority between the federal government and the States, as to which agencies can claim no disinterested expertise; and it involves policing the boundaries of agency authority, a function that Congress has generally assigned to courts rather than to agencies themselves.

On behalf of a variety of associations of state and local officials, including governors, legislatures and financial regulators, one of the nation's preeminent authorities on banking law, Professor Arthur Wilmarth of George Washington University Law School, has also filed an important brief:

The Sixth Circuit Court of Appeals erred when it refused to apply a presumption against preemption of Michigan's laws governing state-chartered, non-bank mortgage lenders. The court also erred in holding that the OCC's preemptive regulations were entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). ... Given the States' historic role in protecting their citizens from abusive financial practices, the OCC could not lawfully adopt rules preempting the States' authority to regulate operating subsidiaries without a clear and manifest delegation of authority from Congress. See Gregory v. Ashcroft, 501 U.S. at 461, 464. Congress has never expressed an intention to delegate such power to the OCC, and the OCC's rules are therefore invalid.

So, when an agency believes that the courts will routinely grant it deference, it pushes the line even further in its proposed rules, confident that the courts would later defer. It may claim powers Congress never gave it; it may preempt when it does not have the authority; it may do these things to grow its own own self-esteem or to please its regulated entities. The OCC is certainly the poster child for this view, with its 2001 and 2004 power grabs (our special site OCCWatch), but recently a number of other agencies -- with aid and advice from industry lawyers -- have sought to limit state authority and state legal rights (previous blogs on NHTSA here and the CPSC here). So while this case may not have the star power of a recent Supreme Court case involving Anna Nicole Smith, it is a lot more important.

Probably half the work we do in Washington isn't pitching new policy ideas; it's preventing Congress or unelected Washington regulators from scuttling the longstanding right of the states to come up with their own new policy ideas to protect consumer pocketbooks, health and safety. We need many laboratories of public policy, not just one. Our e-newsletter Preemption Alert keeps an eye out.

When Washington issues leak out into popular culture, it's a sign that the problem is serious. I noted recently that I knew that predatory payday lenders were really in trouble when the military drama The Unit included a plot line attacking them. Last December, the hit show Boston Legal did a story on how the OCC had aided and abetted loan-sharking by credit card companies. Here's an excerpt from the script:

Jerry Espenson: Used to be. Used to have usury laws but the States wanted the credit card business, so poof! Gone! Bingo! Ever inquire about a car loan?
Melissa Hughes: Actually, yes. Once.
Melissa Hughes: Bingo!
Melissa Hughes: But I didn't buy the car.
Jerry Espenson: Doesn't matter. It's called 'Universal Default'. Credit bureaus share your
information. All of it. Your credit card company just heard about your asking for a car loan.
Bingo! They raise your rates. Why? Because they can.
Melissa Hughes: Under her breath to Alan. Why doesn't he move his hands?
Jerry Espenson: The OCC is supposed to police. They don't. Bought off by the credit card lobbyists.
He walks out.
Melissa Hughes: Is he coming back?
Alan Shore: I have no idea.

I've often said owning a credit card company is a license to steal. You can change the rules at any time for any reason, including no reason. One of their most unfair tactics is so-called universal default, where a customer in perfect standing has his or her interest raised to a penalty interest rate of 25-30% APR or more (including on past balances) due to one instance of an alleged failure to pay a different creditor on time, or due to a decline in the customer's credit score. Yesterday New York Governor George Pataki vetoed a PIRG-backed bill which would have banned universal default. We are disappointed in his failure to protect New York consumers from an unfair, deceptive and punitive practice that is based more on a credit card company desire to ratchet up profits than on any sort of risk-based pricing. See truthaboutcredit.org for more information on credit card companies.

In California 78 percent of corporations paid no more than the $800 minimum franchise tax in 2001. Worse, over half of profitable corporations paid no more than $800 minimum, including 46 corporations with over $1 billion in 2001 receipts. That's one reason that CALPIRG today released Sunshine for California: Shining Light On Corporate Tax Secrecy For Healthier State Budgets, Investments and Markets and is urging Governor Schwarzenegger to get his pen uncapped and announce that he will sign a bill, AB 675 (Klehs), which would require large corporations to provide more detailed information to the Franchise Tax Board about the differences between reported book and tax income as soon as it arrives on his desk. It should finish legislative steps soon.

I'm just back from speaking at the annual convention of the National Association of State Legislatures (NCSL) at Opryland outside Nashville, Tennessee. It's not over yet; and the state PIRGs and our affiliated state environmental groups still have a large delegation there. And if you are still there, today Thursday at 3:30 PM Nashville time, at the Opry Mills Regal Theatre with co-sponsorship from Paramount Classics Pictures, the state PIRGs are screening An Inconvenient Truth, Al Gore's award-winning global warming warning first seen at Sundance this year. MORE:

I spoke on a panel on Credit Reports and Credit Scores (my outline) on a variety of issues, but primarily in opposition to the use of credit scores for insurance purposes. We recommend a ban in our PIRG/Consumers Union model state credit and identity theft law because your credit score is based on your error-ridden credit report, your credit score has no actuarial relationship to your ability to drive a car or your propensity (if any!) to burn or down or trash your house and, worst, insurance companies may be using credit scoring as a proxy for race, an otherwise illegal rating factor.

I also attended a fine workshop featuring two of the nation's academic experts on and opponents of state preemption. Law Professor Tom McGarity of the University of Texas is also President of the Center for Progressive Reform. I'm looking forward to his book on the preemption threat, due out next year. Professor Carl Stenberg of the University of North Carolina is co-author of Beyond Preemption: Intergovernmental Partnerships to Enhance the New Economy from the National Academy of Public Administration.

The pliant federal bank regulator archaically known as the Comptroller of the Currency (OCC) has advised national banks that issue gift cards to at least have better disclosure rules regarding any unfair and anti-consumer practices associated with the cards. "It's a ripoff-- says so here!" MORE:

According to a recent study by the Consumer Affairs Department of Montgomery County, MD, bank gift cards are a worse choice for consumers than store-issued cars. They often impose fees that cause your gift to erode and expiration dates that erase it. Meanwhile, many states -- tired of gift card ripoffs, (Consumers Union fact sheet) have chosen to strictly regulate and ban unfair gift card practices, instead of saying they are OK as long as they are disclosed. Increasingly, national banks are partnering with businesses to issue their cards in efforts by the businesses to avoid strong state laws and hide behind OCC preemption. The OCC does try to make it clear that the relationship between the bank and the business must not be an artifice. States have been litigating the issue, especially with the multi-state mall owner, Simon Property Group. A recent federal court decision (AP story) has held that New Hampshire law is preempted because Simon mall gift cards are now apparently actually issued by a national bank; in a similar recent Connecticut case with Simon, Connecticut law prevailed. More news as we get it. Consumers-- the OCC suggests you can easily identify and avoid a second-rate bank-issued card because:

the gift card and the related disclosures, the cardholder agreement, and other documentation will specifically identify the bank as the issuer of the card (and) carries the logo of a payment card network such as VISA, MasterCard, or American Express.

Here's an article States Act To Freeze Identity Thieves Out In The Cold detailing the history of the security freeze that I wrote this spring for the newsletter of the National Association of Consumer Advocates. Thanks to the folks at NACA for all their work protecting consumers. Ignore the numbers of states that have passed laws (get up to date info here) listed in the article as I wrote it in March and it was printed in June, but the rest of the story is accurate. Also, over at the National Law Journal, Marcia Coyle has a nice article Into the Breach about states leading the way to protect consumers from security breaches and identity theft.

This week's Anchorage Press has a very nice cover story profile by Casey Grove -- Pushing for Change -- on Alaska PIRG's director Steve Cleary, shown here riding his bike to work.

While lawyers and politicians are often viewed as the successful ones, the ones who have made something of their lives, success can also be measured in terms of idealism and commitment. Sometimes the rebels don't tune the world out completely, living on the fringes and complaining about what could or should be changed. Sometimes they find a way to join the system without compromising their ideals, instead putting them to work.

[The consumers got their money back but] the real payoff for Meili was that vulnerable people who were taken advantage of got some justice. And for Meili and students at the Consumer Law Litigation Clinic he runs at UW-Madison's law school, justice for consumers is the top priority. "I have an interest in seeing justice done in the marketplace, and I see a lot of instances where it's not being done," said Meili...

If the HIT Act passes, both privacy and strong state consumer protections take a hit. We support efforts by consumer champion Ed Markey (D-MA) today as the U.S. House takes up proposed health technology legislation -- HR 4157, the Health Information Technology Promotion Act --that would preempt strong state privacy laws and replace them with...no privacy protections to speak of. Unfortunately, House leadership, through its puppet Rules Committee, rejected allowing Markey to even have a floor vote on his amendment, which would have preserved strong state privacy laws and enacted strong federal privacy rules. So vote no on HIT. It is getting too routine down at the Congress-- pass an industry-approved weak bill and tell the states to go away.

For years the state PIRGs have worked to (1) lessen our dependence on dangerous chemicals (limiting worker and then consumer exposure and lessening the number of and severity of eventual cleanup messes--think "Superfund"), (2) to give communities and first responders more information (a community right-to-know) about chemicals in their midst and (3) to strengthen chemical security (against terrorism) and safety (against accidents) laws. And for years, the Chemical Manufacturers Association -- darn, I forgot, some time ago they became the safer, cleaner and friendlier American Chemistry Council -- has worked against us. Today's New York Times has an editorial condemning ACC's support for a weak, preemptive federal chemical security proposal that stops state protection in its tracks. Here's some info from the latest PIRG Preemption Alert and here's the PIRG Campaign To End Chemical Accidents. From the New York Times: MORE:

A bill has been slowly working its way through the Senate and the House, but the chemical industry is committed to making it so weak that it could actually make plants less safe...the industry is fighting for its right to use whatever chemicals it deems best, or most profitable, no matter how much risk that poses to people who live, work and attend school nearby.

A second critical amendment would make clear that states have the right to regulate chemical plant safety more strictly than the federal government. The chemical industry wants the federal bill to expressly pre-empt, or invalidate, state safety rules. It says it wants a single national standard to avoid "confusion." But what the industry really wants is a weak national standard that prevents states from taking a more serious approach to the terrorist threat.

Over at the Cleveland Plain Dealer, consumer columnist Sheryl Harris has yet another excellent column on the fight over the right of states to enact stronger laws to protect consumer pocketbooks, health and safety. This column touches on preemption threats in a variety of areas:

Meet the monster in the closet. It's called pre-emption. It may sound like a snooze, but when this issue's lurking, it's not safe to close your eyes.

Word is that the full House may vote next week on the horrible LaTourette-R-OH-Hooley-D-OR data "privacy" bill, HR 3997. Here's a news release from PIRG and Consumers Union. The industry-approved bill is so bad that to gain support they've apparently removed its most offensive provision-- the one that limited security freeze rights to previous identity theft victims while it preempted all 20 stronger state laws granting these rights to everyone. The bill is still grossly unacceptable: its too-high breach notice trigger will not result in many breach notices, its state preemption is still all-encompassing and the bill will largely take state cops off the privacy beat they've policed so well. It also includes a little-noticed provision that immunizes credit bureaus from the so-called credit repair doctor laws, giving them carte blanche to deceive consumers about their over-priced credit monitoring services. We think House leadership wants to send a "We Protect Your Privacy" message, so they'll likely also try to move the Veterans Affairs Committee bill bill responding to the horrendous VA breach. The House, instead, should take up the much better HR 4127, passed unanimously by the Energy and Commerce Committee. Details in this previous blog.

Check out Dan Solove's blog entry Data Security Laws, the States, and Federalism over at his excellent law professor co-op blog ConcurringOpinions.com:

I never used to be a fan of federalism but in following information privacy law, I've found that the states are by far more responsive to problems, more flexible and experimental in solutions, and more able to get things accomplished. Substantively, the states have also established a better balance between privacy and business interests than Congress.

Here's our consumer group letter opposing a House bill, HR 2567, granting immunity from liability to antifreeze makers who add a bittering agent so kids and pets won't drink their product. The bill overhwelmingly passed the House Energy and Commerce committee anyway. It's got a long way to go before it becomes law. Previous blog.

We testified yesterday before the DC City Council in support of several proposals to enact a strong security freeze and breach notice law. Under two proposed security freeze laws, one from Councilmember Patterson and one from Councilmember Cropp, DC residents would gain the right to a free security freeze (free to place and free to lift) to protect themselves from identity theft. The DC Attorney General's Office and Consumers Union also supported strong privacy protections. A variety of insurance industry and credit bureau witnesses sought special interest exceptions from the proposals.

We released a new survey on prescription drug costs today. Paying The Price, written by PIRG national consumer advocate Paul Brown, finds that consumers without health insurance pay too much for prescription drugs. The report compared the drug prices paid by 46 million uninsured Americans with those paid by the federal government, which negotiates low prices with the drug industry in its bulk purchasing for veterans, members of Congress and others, as well as with the prices that the uninsured Americans would pay in Canada, where drug prices are regulated.

It is important to note that we oppose HR 3997, the Financial Data Protection Act, as passed by the Financial Services Committee. Under House procedures, the bill was then referred to the Energy and Commerce committee, which substituted HR 4127 (the DATA Act) for HR 3997. In this version of HR 3997, we oppose the italicized section, which is the original Financial Services passed bill (pages 2-68). The remainder of the bill in boldface roman (pages 68-108) is the Energy and Commerce DATA bill, which is much better, but we cannot offer unqualifed support due to its (much narrower than HR 3997) state law preemption. See the letter for details.

Here's our letter with other leading consumer groups to the Senate Commerce Committee strongly opposing the Stevens (R-AK) telecom deregulation bill unless substantial changes are made to promote competition, protect communities and reinstate net neutrality. Net neutrality should be considered Tuesday during continuation of the markup vote begun last week. MORE:

From our letter:

The Act provides for sweeping deregulation of cable services regardless of whether meaningful competition emerges resulting in increased prices and degraded service for many consumers; gives new market entrants a license to redline; inexplicably preempts state consumer protection laws for terms and conditions of wireless telephone services where consumer abuse is rampant and growing; and fails to provide meaningful network neutrality rules to prevent anticompetitive discrimination that squelches competition and innovation. If enacted, the legislation makes consumers far worse off than they are under current law. It provides too few guarantees of new competition to justify the significant sacrifices in consumer protections at the federal, state and local level.

The triple-digit predatory payday lender Advance America is attempting to circumvent a tough new Pennsylvania usury law that had forced it to exit the state. According to a Pittsburgh Post-Gazette story by Patty Sabatini that's been picked up nationally by the AP, the company is hiding its punitive interest and finance charges inside a "participation fee." MORE:

From the Post-Gazette:

The new product, called the "Choice" line of credit, allows customers to borrow up to $500 for a monthly "participation fee" of $150. At the end of the month, the customer also owes finance charges equal to an annual percentage rate of 5.98 percent plus a minimum $20 principal payment.

"Pennsylvania law clearly prevents companies from charging that much to make small loans, whatever they decide to call the charges," said Jim Swoyer, a Public Interest Advocate. "This is just another cynical attempt to circumvent the Pennsylvania small loan and usury caps which prevent companies like Advance America from fleecing vulnerable consumers."

One of her own state's major newspapers, The Oregonian, has editorialized against U.S. Rep. Darlene Hooley (D-OR)'s bill, HR 3997, which guts strong state identity theft protections and replaces them with industry-approved weak federal rules.

In 18 states -- mostly large ones encompassing about half of all Americans -- consumers who learn of a security breach can put a freeze on their credit to thwart identity thieves. Hooley's bill, which gives consumers no such rights, would pre-empt such state laws. It would also override a strong law passed first by California, followed by other states, that requires companies to notify consumers any time their unencrypted electronic data has been breached. Hooley's law is weaker, requiring notification only when the data loss has put the consumer at risk, and the company or government agency that lost the data gets to decide if that's the case.

In addition to offering identity theft tips in the wake of recent security breaches, Brian Krebs of the Washington Post warns that we should be prepared for Congress to take away our strong state-passed identity theft rights. My previous blog.

Consumers Union has updated its list of states with security freezes. 18 states now give all consumers the right to a security freeze; 5 others give the right to id theft victims. We'll update our list soon.

Friday morning (tomorrow) at 10:30 AM in the Rayburn House Office Building, Room 2218, I'll be joining colleagues from Consumers Union, EPIC and Privacy Times to brief House staff on identity theft and the differences between HR 3997 (the worst data bill ever) and other identity theft reforms. The even is sponsored by Reps. John Dingell (D-MI) and Jan Schakowsky (D-IL), both sponsors of HR 4127, the better Energy and Commerce alternative.

I'll be appearing on CNBC's Street Signs with Erin Burnett at about 2:30 PM Eastern to talk about why Congress should not eviscerate strong identity theft rights and replace them with weak industry-approved legislation like HR 3997, which I've called the worst data bill ever. I'll be debating industry lobbyist Steve Bartlett of the Financial Services Roundtable. House leaders and industry want to jam this awful bill to roll back identity theft protections to the House floor as early as next week, claiming its a response to the recent VA data breach, even though it's a bill that is not now, and will never be, ready for prime time. See today's USA Today story Bill would limit consumers' credit rights for more information. A bad VA data breach should not result in a bad law.

Here's an Rocky Mountain News opinion-editorial (op-ed) by Rex Wilmouth, a Navy veteran of the first Gulf War and director of Colorado PIRG. The op-ed explains that as of July 1, Colorado citizens will have access to a security freeze to protect their credit reports from identity thieves. That's of course only true if Congress doesn't take that right away, as this Bergen Record (NJ) editorial Watch Your Wallet explains:

New Jersey has one of the toughest identity-theft laws in the nation, but the House of Representatives could soon undo two of its most powerful protections. What are we missing here? Why make things easier for identity thieves and harder for the poor, endangered consumer? Any federal identity-theft bill should emulate, not eliminate, the kind of strict provisions that New Jersey and other states have already adopted.

The Special Investigations Division of the House Government Reform Committee's Minority Staff has issued an important report (PDF) summarizing 57 recent Congressional votes preempting, or overriding, or taking away, the right of states to protect consumer pocketbooks, health and safety. MORE:

From the report:

The reach of the preemptive legislation is broad and its intrusiveness is deep. Literally hundreds of state laws have been or would be overridden. The House and Senate have passed legislation that would preempt states from regulating sources of air pollution, setting health insurance standards, and protecting consumers from contaminated food. Areas of traditional state prerogatives, such as local land use decisions and the issuance of drivers’ licenses, have been federalized, and states have been blocked from protecting their citizens from emerging threats, such as unsolicited “spam” email. Last year, Congress passed — and the President flew through the night to sign — legislation to override the judgment of a state court in an individual family’s private end-of-life decision.

Here's a reason to sign our Stop Identity Theft Petition. Leslie Walker has a nice piece in the Washington Post detailing how identity thieves use a Miss Lonelyhearts variant to lure lonely women into stealing confidential data about patients, employees or customers at work. Identity theft isn't rocket science. If a data disk containing the records of 26 million veterans and active-duty military doesn't fall out of the sky and hit you in the head, you can use a little social engineering like this to harvest the keys to consumer financial identities. Then, you go yourself, or you send your Lonelyhearts (what drug smugglers call mules) in to simply take advantage of the myriad instant credit offers at stores and cell phone companies, where the companies do a bad job of verifying applicant identities, and the credit bureaus don't care, and you're off and running as an identity thief. It's why consumers need the security freeze.

On Thursday the House Judiciary Committee passed PIRG-backed legislation to preserve net neutrality and keep the Internet free. This critical vote shows that like a dead fish, the phone company propaganda against keeping the Internet free is starting to lose its freshness. The bipartisan (Sensenbrenner-R-WI; Conyers-D-MI) "Internet Freedom and Nondiscrimination Act of 2006" (H.R. 5417) is now ready for floor action, but so is the PIRG-opposed but phone company-backed COPE Act, which fails to preserve net neutrality.

Well, so-called U.S. Senate Health Week lurched to a close with no bills passed when the well-intentioned but poison-pill-laden, preemptive and fatally-flawed Enzi (R-WY) bill (S. 1955) to stimulate small business health plans failed to get the 60 votes needed to end debate. Thanks to Senators Lincoln Chafee (R-RI) and Jim Jeffords (I-VT) for joining all Democrats except Mary Landrieu (D-LA) and Ben Nelson (D-NE) in voting NO on HR 1955. Majority Leader Frist (R-TN) himself virtually guaranteed this result when he brought the bill to the floor but then used one of the Senate's complicated procedural tricks known as filling the amendment tree to prevent any amendments from being considered, so any criticism from him is disingenous. Senator Harry Reid (D-NV), the minority leader, was widely quoted saying: "This is healthcare week. We haven't had healthcare minute." Earlier in the week, bills to limit the rights of medical malpractice victims were also defeated. Our previous blog with our S. 1955 opposition letter.

Cigarette fires cause cause some 1,000 deaths, 3,000 injuries and millions of dollars in property damage each year, according to NYPIRG. That's why the states are busy enacting legislation to require tobacco companies to make cigarettes that go out when neglected, rather than continue to burn, according to a USA Today front page story:

Tobacco companies have fought such mandates for decades, but their success appears to be waning: Since New York put the nation's first fire-safe cigarette requirement into effect in 2004, California and Vermont have passed similar laws. A fire-safe cigarette bill that passed in Illinois awaits the governor's signature, and a bill in New Hampshire is poised for a final vote this week.

Last week was the laudable national Cover the Uninsured Week, endorsed by a wide variety of organizations seeking to address the conundrum that the richest nation in the world, one that pays by far the most for health care, still has 46 million without health insurance.

Not to be outdone, this week, the U.S. Senate rolls out the falsely-named and self-proclaimed Senate Health Week, where all the bills with leadership support would make it harder for victims of medical malpractice or lack of health insurance to do better. All these bills would establish mediocre federal schemes and preempt stronger state protections. MORE:

Tonight, the Senate will vote on whether to go forward on S. 22-Ensign-R-NV and S. 23 -Santorum-R-PA. These guaranteed-to-fail-on-the-floor bills are part of a Majority leader Bill Frist (R-TN) campaign to make consumer lawyers look evil. The bills would cap pain-and-suffering awards available to victims of drug company, hospital and/or medical malpractice. S. 22 limits everyone's protection; S. 23 singles out pregnant women and their babies for less protection against malpractice. Our coalition letter. As it has previously, the Senate will reject these bills.

Tomorrow, after tonight's failed votes on S. 22 and S. 23, the Senate will turn to S. 1955, the Enzi proposal on expanding small business access to health care. That's a good idea, but the bill is the wrong approach. It will raise costs of health care, eliminate necessary specialized coverage for many Americans, and ultimately result in a race to the bottom where everyone ends up with sub-standard care. A better idea is Senator Durbin's proposal, which is expected to be offered as an amendment to Enzi.

Here's our consumer group letter urging the U.S. Senate Banking Committee to reject any extremely anti-consumer amendments to the so-called regulatory relief package expected to be approved in committee today. We remain disappointed that the Congress thinks it is OK to enact massive grab-bag bills sought by the banks and credit unions, without including any pro-consumer provisions. Like Neo stops these bullets from the multiple Mr. Smiths, we hope we can stop all of the worst possible amendments outlined in our letter, especially the proposal by the predatory rent to own boys to override strong consumer laws in the states that protect their consumers best. It will be hardest to stop an expansion of a tawdry relationship that allows debt collectors to send official-sounding letters to consumers who bounce checks for as little as $15 that threaten them with criminal charges. The catch? The threatening letters from the debt collectors are on District Attorney letterhead.

The regulatory relief bill is derived from an original 187-item pick list known as The Matrix. Whatever passes the Senate will be conferenced with the extremely anti-consumer HR 3505, which has already passed the House (previous blog). Free your mind, Congress. Pass pro-consumer bills, not knee-jerk industry relief bills.

The PIRGs released a major new report today, Turning Medicine Into Snake Oil, on how drug company advertising for Vioxx, Paxil and other drugs often contains false, deceptive and dangerous messaging to doctors and consumers. NJPIRG Law and Policy Center consumer advocate Abigail Caplovitz analyzed the last five years of FDA enforcement letters sent to drug companies to find that:

Prescription drug marketers are inundating doctors, and to a lesser extent, the public, with marketing that misrepresents risks, promotes unproven uses, and makes unsubstantiated claims...From 2001-2005, 85 companies received 170 notices from the FDA explaining that the marketing for 150 different drugs was false and/or misleading.

Among the report's key findings:

Drug marketers make unsupported or misleading claims.
-Thirty-eight percent of messages to doctors and consumers made unsupported or misleading claims.
-Thirty-five percent misrepresented risks or side effects of taking the drugs.
-Twenty-two percent promoted unproven drug uses.

FDA policies to stop deceptive advertising are ineffective.
-About one-third of the drug marketers receiving FDA enforcement letters received more than one letter declaring their ads false or misleading.
-Many drug marketers received more than one letter addressing the same problem.

Deceptive marketing aimed at doctors.
-Physicians were inundated with 38 different types of dangerous and misleading marketing tactics.

"Doctors are targeted because they're the ones who write the prescriptions," said U.S. PIRG Consumer Advocate Paul Brown. "Drug companies know who they have to influence, if they want to jack up sales and profits."

Deceptive marketing aimed at consumers.
-Print ads, TV ads and website ads make up almost 80 percent of deceptive marketing aimed at consumers. These direct-to-consumer ads potentially mislead millions of people, far more than the marketing aimed solely at doctors.

Deceptive marketing includes clinical trials.
-Drug companies suppress unfavorable clinical trials.
-They use public relations firms to write favorable research reports and then list a doctor's name on the report as the "author."
-The FDA highlighted at least 82 times false or misleading advertising cited clinical trials.

"If we can't rely on clinical trial reports, the very foundation of pharmaceutical medicine is destroyed," Caplovitz said. "Medicine, not marketing must drive clinical trial designs."

The report recommends that Congress:
-Pass The Food and Drug Administration Safety Act, Senate Bill 930, which requires the FDA to review prescription drug advertising materials before consumers see them.
-Require that clinical trials used to support advertising claims be approved by the FDA.
-Authorize the FDA to levy stiff fines against drug marketers who use deceptive tactics.

"The FDA's current enforcement isn't even a slap on the wrist," Brown said. "A slap on the wrist would be an improvement."

The report recommends that individual states:
-Pass laws to make it easier for consumer to sue drug marketers for deceptive advertising.
-Create a comprehensive, searchable database of clinical trials, which would make it harder for drug marketers to suppress or misrepresent data.

"States can protect consumers now from the dangers of deceptive drug marketing," Caplovitz said. "There's no need to wait for Congress or the FDA."

The report includes six case studies of deceptive marketing: Vioxx, OxyContin, Paxil, Accutane, Neurotin and Tindamax. The report's numbers are derived from FDA letters to drug marketers.

Lynn Sweet of the Chicago Sun-Times has a followup Lame Ethics Bill At Least Exposes Pet Charities to her previous story on the links between U.S. Rep. Bobby Rush (D-IL) and the Baby Bell telephone company SBC/(now AT&T). The PIRG-opposed Joe Barton (R-TX)-Rush bill known as the COPE Act allowing the phone companies to compete with cable contains inadequate protections against price-gouging some consumers and redlining others, will not guarantee adequate PEG and other services to local communities and, most importantly, will allow the cable and phone monopolists to erect tollbooths on the Internet. It could be on the House floor as early as Thursday. See the PIRG-backed coalition site Savetheinternet.com for more info.

While Congress largely ignores the Vioxx and other drug safety scandals skipping across the front pages and endangering Americans' health, the states are quietly moving forward to protect citizens from unsafe drugs. Here's a blog comment by CALPIRG consumer advocate Emily Clayton on passage by a state Senate committee of S. 1683, the Pharmaceutical Drug Right-to-Know Act by state Senator Jack Scott, (and here's a CALPIRG press release on committee passage. The bill would require drug companies to release the results of all their health studies for every drug sold in California. U.S. PIRG's pages supporting S. 930, a proposal by Senators Chuck Grassley (R-IL) and Chris Dodd (D-CT) to improve FDA's drug safety. It's mired in typical Congressional gridlock exacerbated by massive drug company campaign contributions and obfuscation and confusion from their phalanx of lobbyists. California's excellent proposal is a perfect example of why states should not be preempted from protecting consumer pocketbooks and their health and safety. If the states don't lead, who will?

The April issue of PIRG's new newsletter, Preemption Alert, is available. Excerpts from the highlights: Protecting America's Food Supply: On March 2, over the objections of 39 Attorneys General, the House passed the National Uniformity for Food Act, which preempts at least 200 state food safety laws. Securing Chemical Plants: In a March 21 speech to the American Chemistry Council, Homeland Security Secretary Michael Chertoff signaled his support for weak federal safety standards for chemical plants and federal preemption of stronger state standards. Protecting Americans' Privacy: On March 30, the Senate Commerce Committee marked up a weak bill to protect consumers from those who seek to fraudulently access their phone records. This bill broadly preempts stronger state privacy laws or regulations as well as any laws imposing liability on companies for failing to protect consumer privacy. Providing Quality and Affordable Health Care: On March 15, the Senate Health, Education, Labor and Pensions Committee passed a bill allowing insurance companies or HMOs to circumvent state patient rights laws.

[8 Jan 07-Corrected bad urls]Yesterday, Wisconsin Governor Jim Doyle vetoed legislation that would have exempted the predatory rent-to-own industry from that state's tough consumer laws (Wisconsin State Journal news story). From Governor Doyle's veto statement:)

"The Wisconsin Consumer Act has for decades provided strong protections for Wisconsin consumers, and is considered one of the best consumer protection laws in the country. As Attorney General, I successfully fought in the courts to assure that the Wisconsin Consumer Act applied to rent-to-own transactions. And while SB 268 includes some significant improvements over past legislative efforts, I am not satisfied that it provides adequate protection to consumers."

The misinformation and outright misrepresentations that have been circulated by the groups that opposed the legislation are, if left unaddressed, cancerous to the operation of a fair legislative process. Christopher Korst, Rent-A-Center General Counsel

The New Jersey Supreme Court on March 15, 2006 ruled that the rent to own contract of Rent-a-Center, as used in New Jersey in the case of Hilda Perez, was a Retail Installment Sales contract, and ruled that the maximum legal interest rate was the 30% limit of New Jersey's Criminal Usury Law. Therefore the 80% interest charged to Hilda Perez was illegal.

The predatory rent-to-own boys want the right to promise consumers the American dream of ownership of televisions, refrigerators and even car wheelsets, but don't want to disclose the cost of financing their products. They claim renting-to-own isn't buying a product over time. That's wrong. Even though 45 states or so have rolled over and agreed to allow them to deceive consumers, we're pleased that Wisconsin and New Jersey and a few others are still protecting their residents better. Here's our previous blog and a link to our archive on rent to own. We're watching their efforts to move a federal bill, S 603 (Landrieu-D-LA) or HR 996 (Jones-R-NC) to preempt the right of states to protect their residents better.

Here's a consumer letter (PIRG, Consumers Union, Consumer Federation of America) opposing S 2389, a bill marked up today in Senate Commerce that purports to protect consumer phone records from pretext calling and other privacy invasions. From the letter:

We remain deeply concerned that the bill neither requires carriers to implement meaningful safeguards to protect their customers’ private information nor addresses the problem of widespread sharing of CPNI data by carriers. Given the absence of stronger federal protections for consumers and the broad state preemption preventing states from adopting effective privacy measures, we are unable to support the bill in its current form.

Here's our letter opposing HR 4127, the DATA bill, on preemption grounds. The DATA bill is the House Energy and Commerce Committee version of data security and breach notification legislation. On policy grounds, it is vastly superior to the worst bill ever, HR 3997, as passed by the Financial Services Committee. We commend the Energy and Commerce managers, Chairman Barton (R-TX) and Reps. Stearns (R-FL) and Dingell (D-MI) and Schakowsky (D-IL) for improving the subcommittee draft immensely. More:

On policy grounds, the full committee substitute is much improved from subcommittee. On policy grounds, we say:

In particular, the bill includes a very strong standard (but still weaker than many state standards) for determining whether notices of breaches will be required. We believe that the bill’s breach trigger will both deter breaches in the first place and require notices in many more circumstances than the weak “risk-based” triggers in most other Congressional proposals (see, for example, HR 3997 as approved by the Financial Services Committee). In addition, the bill imposes Fair Information Practice-based privacy duties on the class of virtually unregulated data brokers like Choicepoint. It also restricts the sordid practice of pretexting, literally not telling the truth, to obtain confidential consumer information.

Nevertheless, we cannot support rolling back the right of states to protect their citizens better. Here's why:

We believe that industry’s claims about the compliance cost of “50 different laws” are unsubstantiated. Indeed, if Congress passes a good enough law, the states will move onto other issues. But if Congress fails to do the job, then the states have demonstrated an ability to respond quickly to new problems. In addition, industry’s allegations about compliance costs are without foundation; a firm can comply nationally simply by ensuring that its practices meet the standards of the one strongest state law. (It should not be impossible to comply with both federal and state law. We do not, nor do other privacy or consumer groups, oppose any provision that would provide that a state law may not be inconsistent with the federal law, provided that it also says that a state law providing greater consumer protection is not inconsistent.) We are extremely troubled that on a wide range of issues from air pollution to food safety to predatory lending to product safety to privacy, the Congress and the administration generally accept industry demands to eliminate fifty laboratories of public policy as a condition of passing what often ends up to be a modest federal law.

Declan McCullagh of CNET News has posted a nice interview with me, with a picture, called Newsmaker: The politics of data security. It's a good summary of why PIRG believes no federal breach notice legislation, especially legislation that preempts stronger state laws, is necessary.

The Colorado House and Senate have passed a tough indoor air quality law that will essentially ban smoking in all places, except casinos. Here's COPIRG's release. Excerpt:

The bill took a long and bumpy road to get to this point. As originally introduced in the House, it would have required almost every enclosed work place and public place to be smoke-free, including restaurants, bars and casinos. The House exempted casinos and small employers that do not allow the public to enter before sending the bill to the Senate. The Senate then dramatically weakened the bill, adding exemptions for bars, private clubs, bingo and dog tracks. It took a conference committee composed of three members from each house to put the bill back into the form passed by the House of Representatives.

Today the House Financial Services Committee voted out HR 3997, a bill that threatens to destroy all the good work that the states have done to prevent identity theft, without preventing any itself. Here's a joint release from U.S. PIRG and Consumers Union, publisher of Consumer Reports. The bill establishes weak duties to protect confidential consumer DNA yet grants broad discretion to ignore telling us when banks or other companies lose it. The bill gives identity theft victims only, but not everyone, a clunky consumer-unfriendly right to place a security freeze on their credit report. It then preempts the 8 states that give every consumer the right to a security freeze. Among these is New Jersey's freeze, which is the most streamlined and consumer-friendly. The bill preempts all stronger state protections in a broad array of identity theft areas. Even though it amends the Fair Credit Reporting Act, a law that allows state attorneys general shared enforcement authority, HR 3997 expressly prohibits state Attorneys General from enforcing its provisions. During the debate, numerous supporters of the bill came up with an incredible new argument: "allowing state Attorneys General to enforce federal laws would upset the federal uniformity we seek." Fortunately, this bill is not yet law. For more information, see the previous 4 posts.

Here's the latest 10-group letter opposing HR 3997, easily the worst data breach bill ever. The House Financial Services Committee is scheduled to begin, but perhaps not finish, voting on the bill beginning today. Among the "highlights" of the bill, it would:
-- establish a trigger for data breach notification that experts believe would result in no notices to consumers, because the standard is too high. We only know about the 100 breaches that have occurred since Choicepoint because of the strong California trigger.
-- Establish a weak, but preemptive security freeze that only applies to victims. You've already been shot, so they give you but no one else a bulletproof vest.
-- Establish a process to begin to undercut the privacy protections of the federal Gramm Leach Bliley Act while simultaneously permanently preempting all state activities on financial privacy.
-- Fail to even lightly regulate the activities of data brokers like ChoicePoint, the unregulated company that sold 163,000 dossiers to identity thieves (other than to subject them to the same weak data security rules that shoe stores would be subject to under HR 3997).
-- Expressly disallow state Attorneys General from protecting their citizens from privacy invasions.
-- Fail to assist non-English speaking individuals who have difficulty gaining access to their credit report. The inability of Latinos and other immigrants to access their credit report in languages they can understand means that they will be unable to file complaints and fraud alerts, and monitor their credit report for identity theft purposes.

The latest draft of HR 3997 (See blog entry just below) includes a new section that preempts stronger state freeze laws and implements a weak "victims with police reports" only federal freeze. This makes a bad bill worse.

Security freezes give consumers real control over access to their credit report that no other identity theft prevention action provides them with. Your best defense is going to be a security freeze. A freeze prevents access to your credit report to new creditors. This closes a loophole that identity thieves have exploited, since most businesses will not issue new credit or loans to people without first reviewing their credit reports.

Why shouldn't all consumers have the right to a free or low-cost consumer-friendly (easy-to-use) freeze?? Don't we need "instant privacy" to counter the risk that "instant credit" poses? And don't we need real protection-- protection that the Fair Credit Reporting Act says the credit bureaus should provide us anyway?

Giving the right to a security freeze only to ID theft victims is locking the door after the horse has already left the barn. All consumers should have the right to sleep at night without worrying about identity theft, by placing a freeze on their accounts. It's the only proven way to stop identity theft before it starts.

This important right should not merely be provided after you've already become a victim. What good is that? In fact, granting the right to a freeze only to victims runs counter to industry's basic lobbying claim that existing fraud alert rights are already adequate protection to victims against repeat occurrences. (By the way, they're not: (1) fraud alerts are only available to some consumers and (2) don't absolutely stop credit granting. Presence of a fraud alert merely subjects the creditor to potential liability if it doesn't do certain things.)

On Wednesday, the House Financial Services Committee is scheduled to vote on HR 3997. The so-called Financial Data Protection Act is easily the most problematic, preemptive, loop-hole-ridden and industry friendly proposal that has a chance to move in the Congress. Here's a letter in opposition from PIRG and Consumer Union. Excerpt:

The bill would put in place a weak federal system and overturn many stronger state laws. We believe consumers today would be worse off under this bill than if nothing passed...Had H.R. 3997 been in place, we doubt we would have heard about any of the data breaches that came to light in 2005, which affected tens of millions of Americans.

{Update-corrected internal URL, Nov 2006] Professor Arthur Wilmarth of George Washington University School of Law, one of the nation's leading scholars on banking law and the relationship between state and national bank regulation, has a new scholarly article OCC v. Spitzer: An Erroneous Application of Chevron That Should Be Reversed in BNA's Banking Report. If Professor Wilmarth's view, which we share, is upheld on appeal, one of the chief building blocks behind the Office of the Comptroller of the Currency's massive power grab in 2004, when it issued wide-ranging rules eliminating state consumer protection enforcement authority over national banks and even their state-licensed operating subsidiaries, will begin to crumble. Professor Wilmarth argues that the reasoning of the District Court will wrongly allow the OCC "to expand its jurisdiction, and to alter the balance of federal-state authority, without any clear expression of supporting congressional intent." His article also discusses three similar wrongly-decided OCC cases. He has graciously granted permission for us to post the piece on our website. More:

In OCC v, Spitzer, the Office of the Comptroller of the Currency, an obscure but powerful federal bank regulator, as we note on a special website, OCCWatch, that tracks its activities, successfully challenged New York Attorney General Eliot Spitzer's authority to even investigate possible discriminatory practices by national banks. OCC, as it often does, acted in concert with a group of large financial institutions. In this case, OCC had the back of its patrons at the Clearinghouse, which had filed a parallel case.

The article's title reference to Chevron refers to an important Supreme Court standard from the 1984 case Chevron v. Natural Resources Defense Council describing when a court should rely on, and show deference to, an administrative agency's interpretation of the law. In the article, Professor Wilmarth raises significant Constitutional questions about the ruling. He argues that agencies aren't supposed to get deference for their purely political decisions, nor on matters of preemption, nor, more broadly, should they get deference when Congress has not clearly granted them authority:

The reasoning of the District Court--and of three other federal courts that recently upheld another OCC preemptive rule--suggests that the OCC can rely on Chevron deference as a sufficient basis to expand its jurisdiction, and to alter the balance of federal-state authority, without any clear expression of supporting congressional intent. The Supreme Court's recent decision in Gonzales v. Oregon, which rejected a similar, open-ended claim for deference by the United States Attorney General, makes clear that all four decisions are based on an erroneous understanding of Chevron.

the OCC's regulation should be rejected for the same reason that the Supreme Court struck down the United States Attorney General's interpretive rule in Gonzales v. Oregon--namely, that the regulation conflicts with the "ordinary meaning" and "commonsense" application of the governing statute.