Excerpts from book on the Fed online: HuffPo has posted some long excerpts from Professor Robert Auerbach's book Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank, online. Here's When 500 Economists Aren't Enough and here's Priceless: How The Federal Reserve Bought The Economics Profession. Auerbach was chief economist and an investigator for Gonzalez, the late populist chair of the former House Banking Committee, in the 1990s.

New Golden Throne award to bank lobbyist: The Center for Media and Democracy (PRWatch) has awarded its first Golden Throne Award to Ed Yingling, chief American Bankers Association lobbyist. "The award invokes fond memories of the $1.2 million bathroom renovation ordered by Merrill's CEO, John Thain, shortly before the firm lost $27 billion and collapsed into the arms of Bank of America (BofA)." CMD says:

"From his days as a cub lobbyist fighting to rid the nation of caps on interest rates, Glass-Steagall and other proven consumer protections to his recent yeoman's effort to keep bank fees unregulated and kill off the Consumer Financial Protection Agency, Edward Yingling has consistently been a true advocate for the American Bankster."

Well, another national bank has collapsed. Corus Bank will cost the taxpayer-backed FDIC insurance fund $1.7 billion or so. The OCC -- the obscure but powerful supposed regulator of national banks -- which has routinely claimed that national banks have done no wrong and done no harm to the economy (it was some other guys), says this about Corus:

The OCC acted after finding that the bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices. The OCC also found that the bank incurred losses that depleted its capital, the bank is critically undercapitalized, and there is no reasonable prospect that the bank will become adequately capitalized without Federal assistance.

U.S. PIRG tax and budget reform analyst Nicole Tichon has issued a statement supporting a U.S. District Court ruling in a lawsuit by Bloomberg News (Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)) seeking disclosure of the names of banks and other institutions that have been recipients of billions (perhaps trillions) of dollars in assistance from the Federal Reserve following the financial meltdown. While the Treasury has been required by Congress to disclose the names of TARP program recipients, the Fed is not covered by the TARP law. (Story from Washington Post.; story from Bloomberg, story from Reuters.) From Mathew Winkler, editor in chief of Bloomberg:

When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know.

The U.S. District Court’s ruling to release the names of the companies the Fed chose to rescue is just one step toward greater disclosure and transparency in how the it deals with the ongoing bailout. The Fed should be held accountable for disclosing why and how they helped these institutions.

August 26, 2009

Statement of Nicole Tichon, Tax and Budget Reform Advocate for the U.S. Public Interest Research Group on landmark ruling against the famed Fed secrecy

“The American taxpayers have every right to know which banks received the trillions of dollars in aid during the financial market meltdown from the Federal Reserve. The U.S. District Court’s ruling to release the names of the companies the Fed chose to rescue is just one step toward greater disclosure and transparency in how the it deals with the ongoing bailout. The Fed should be held accountable for disclosing why and how they helped these institutions.

“Secret problems in the financial system cost families their retirement, their homes and their jobs. U.S. PIRG, in conjunction with a diverse coalition of taxpayer, citizen and government watchdog groups continues to push for legislation to increase transparency within the Fed.

“To date, Over 280 members of the House of Representatives have expressed their support for H.R. 1207, which calls for an audit of the trillions of taxpayer-backed dollars invested in big banks. In addition, research shows that 75% of Americans support auditing the Fed.

“Accountability and transparency breed better government and boost taxpayer confidence. The Fed should do the right thing and comply with this ruling.”

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U.S. PIRG, federation of state Public Interest Research Groups, is a non-profit, non-partisan public interest advocacy organization. For more information on U.S. PIRG’s campaigns to improve Financial Security, click here.

U.S. PIRG's Tax and Budget Reform analyst Nicole Tichon has issued a statement on the President's re-nomination of Fed chair Ben Bernanke, urging Congress to ask Bernanke tough questions. Short versions of the questions Congress should ask at Bernanke's hearing:

Full release after the jump:

Washington, D.C.: Bernanke Reappointment – Opportunity to Ask Tough Questions?

Statement of the U.S. Public Interest Research Group on the reappointment of Federal Reserve Chairman Ben Bernanke

“The reappointment of Federal Reserve Chairman Ben Bernanke offers Congress a critical opportunity to question him on important financial reform issues where the Fed has been a disappointment.

“First, why does the Fed oppose President Obama's proposed Consumer Financial Protection Agency, which could reduce overall risk in the system by guaranteeing that products are safe?

“Second, over 280 members of the House of Representatives have called for greater transparency of the Fed by supporting H.R. 1207. This legislation calls for an audit of the trillions of taxpayer-backed dollars invested big banks while average taxpayers lose their homes and their retirement savings. Research shows that 75% of Americans support auditing the Federal Reserve. It is unacceptable that taxpayers still do not know which banks are receiving support from the Fed.

“Third, if the Fed is even to be considered for a greater role in financial regulation, Congress should ask whether Chairman Bernanke will support actions to reduce the power of unelected bankers over the Fed by providing for democratic election of regional Fed bank board members and presidential selection of regional bank presidents?

“Taxpayers have been the blind, involuntary investors in a system supported by bankers, for bankers. Congress should use this opportunity to ask tough and necessary questions.”

Over at his Baseline Scenario blog , MIT Professor Simon Johnson analyzes the testimony of the nation's chief bank regulator, Comptroller of the Currency John Dugan of the OCC (my previous blog), and finds it "comes from a parallel universe – one that did not just experience the biggest banking crisis in world history."

Meanwhile, over at his Huffington Post blog, consumer advocate Jamie Love of Knowledge Ecology International analyzes big PhRMA's deal with the president on health care costs and finds its promises wanting:

The so-called cost savings from big pharma of $8 billion per year for 10 years are a joke for an industry that generates more than $300 billion in US sales from products that mostly replicate but do not significantly improve therapeutic benefits over existing medicines.

Over at the Wall Street Journal (pd. subs. may be req'd), Damian Paletta and Deborah Solomon report:

Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

Only in Washington. Meanwhile, Washington Post columnist Allan Sloan reports in a column on the TARP, Few Gains, Big Losses, that:

"there are plenty of weaklings in the pool. The biggest: Citigroup, where the government has converted $45 billion of its TARP investment into regular preferred and common stock to try to strengthen the bank. The odds of us taxpayers getting back our $45 billion -- plus the 5 to 8 percent that Citi was supposed to pay on its borrowings -- are remote."

U.S.PIRG tax and budget analyst Nicole Tichon has released our latest TARP transparency and accountability report card. The Obama administration gets a first quarter 09 "C", up from the Bush Treasury's last quarter 08 "F."

Our web site is still being rebuilt after a server crash, so the full report may not be available today, but you can read more about it over at Arthur Delaney's Huffington Post interview with Nicole:

"We're coming from an abysmal state: There was no information available about the participants, no information about why they were receiving the money," said U.S. PIRG's Nicole Tichon, author of the report card, in an interview with the Huffington Post. "The fact that there's lip service being paid to taxpayer protection is a great step." The report card praises the administration for making "important progress around transparency in terms of developing online resources, fact sheets, guidelines, interactive programs and tools to help taxpayers navigate the myriad programs and hundreds of participants" in the TARP.

It didn't work for investment banks, so the government figures it'll try voluntary regulation for airplanes. Hunh? Last year, former SEC chairman Chris Cox admitted that for investment banks, "voluntary regulation doesn’t work." (NYTimes and Investment News. So why is the FAA trying it for airplanes? According to the Washington Post, relatives of victims of the 2009 Buffalo crash involving under-trained and under-paid pilots (one took the cross-country red-eye to work) have Blasted [the FAA] Over [its] Voluntary Safety Plan. This idea meets my criteria for the "dumber than dirt" blog category. Senator Byron Dorgan holds a hearing today.

The obscure but powerful Office of the Comptroller of the Currency (OCC) has long been the archetype of a captured regulator. Today, Washington Post columnist Steven Pearlstein has a scathing analysis -- The Big Banks' Best Friend in Washington -- of the role of the OCC -- which has preempted virtually all state consumer protection laws while failing to enforce any of its own -- in our nation's financial collapse. In particular, he infers that Comptroller John Dugan must go, especially after his latest action as a member of the FDIC board -- opposing an effort to get big banks to pay more to shore up the bank insurance funds. In testimony and speeches, Dugan has long blamed the failure of the financial system and economy on "anybody but national banks" so it is refreshing to see Pearlstein's rejoinder to Dugan's claims:

But what's particularly absurd about Dugan's argument is that it ignores the reason there haven't been more failures of big banks -- namely that these banks were prevented from failing by a Treasury and Federal Reserve wielding sums of money so large that they dwarf anything the FDIC might spend cleaning up after community banks. Given this history, it requires a particularly warped sense of justice to complain about how unfairly the big banks are now being treated. It also gives a pretty good indication of how thoroughly the thinking of the nation's top bank supervisor has been co-opted by the very institutions he is supposed to regulate.

To those of you trying to keep up with the credit card issue, here are some questions that may be answered this week.

We're still evaluating today's Treasury proposal (main financialstability.gov site (note: items scroll down as new ones added, but this program is at the top today)) to create a public-private partnership to purchase toxic assets of failed banks. At least two economists, Dean Baker and Paul Krugman, believe that its incentives still favor investors over taxpayers. Nevertheless, on the New York Times website, the lead story is Markets Leap More Than 6% on Details of Bank Rescue.

Instead of suing the behemoth credit bureau Experian for deceptive advertising of its overpriced $10-$15/month credit monitoring services through its nauseating TV and web ads for freecreditreport.com, the FTC has decided to go youtube to educate consumers. Yesterday the commission added its own parody to the dozens, if not hundreds, of paraodies of the obnoxious ads already on youtube. The FTC's own goofy band sings that annualcreditreport.com is the only free credit report. That's true. But a civil action against Experian for deceptive marketing would be a truer exercise of new chairman Jon Leibowitz's authority. The FTC's consumer cop mission is more important than its education mission here. And, it would help consumers more. Don't get me wrong, all consumer advocates should be making more Youtube videos (a few of mine are here and here (actually, this one is flash player, not youtube), and that's unfortunately more than most consumer advocates have made) so give the FTC some cred for that. But we need to stop freecreditreport.com, not laugh at it. Previous blog on freecreditreport.com scam.

Fifteen years ago, even the luster of both a complaint to the DOJ and Congressional testimony by the band Pearl Jam was not enough to stop the looming horizontal and vertical integration of the ticket and concert industry led by Ticketmaster, which was then only building the skeleton of its anti-consumer Death Star. But now that my Super Bowl MVP, Bruce Springsteen, has entered the fray, maybe Congress and the antitrust cops will take action to destroy the now nearly fully operational Ticketmaster Deathstar, coming around the planet Earth and readying its beams to take aim at consumer wallets. If Ticketmaster's proposed Live Nation merger goes forward, Ticketmaster will not only control ticket sales and ticket resales through "legal" ticket scalping enterprises such as its Tickets Now operation, but also control how bands book shows at venues, a service now dominated by Live Nation. The Washington Post calls Live Nation a "concert-promoting behemoth." More on the growing opposition to the anti-competitive hegemony sought by that growing evil empire from Reuters and NJ.com, whose story links to a growing rebel band of bloggers backing the E Street Band's campaign. More at the main fan blog for the Boss at Backstreets.com

More on corporate crime after the jump:

Without better oversight, the TARP bank bailout program will continue to fail, according to a new U.S. PIRG Education Fund report released today. Failing the Bailout: Lessons for Obama from Bush’s Failures on TARP is written by Tax and Budget Reform Advocate Nicole Tichon. But U.S. PIRG expects today’s expected TARP reform announcements from the Obama Administration will include major improvements in oversight and accountability that will also benefit from continued use of the new U.S. PIRG TARP report card for evaluation. Pre-announcement news reports that Obama seeks “clarity” and “consistency” and “stress” evaluations of banks before receiving aid are encouraging and support our recommendations. Full news release (here is pdf) pasted below the jump. Also here is a link to our Securing America's Financial Future Campaign page.

FOR IMMEDIATE RELEASE: Tuesday, 2/10/09
Contact: Nicole Tichon, Tax and Budget Reform Advocate
U.S. Public Interest Research Group
(202) 546 – 9707 ntichon@pirg.org

Bush fails new TARP report card, group will monitor Obama bailout plans
-- Obama seeks “clarity,” “consistency” in line with report card findings --

WASHINGTON, February 10, 2009 – Without better oversight, the TARP bank bailout program will continue to fail, according to a report from a watchdog group. But U.S. PIRG expects today’s expected TARP reform announcements from the Obama Administration will include major improvements in oversight and accountability that will also benefit from continued use of the new U.S. PIRG TARP report card for evaluation. Pre-announcement news reports that Obama seeks “clarity” and “consistency” and “stress” evaluations of banks before receiving aid are encouraging and support the group’s recommendations.

“Taxpayers deserve to know what reforms will be in place before another $350 billion is lost into a black hole of executive bonuses, lobby expenses and mergers instead of jumpstarting the economy by making loans,” said Nicole Tichon, Tax and Budget Reform Advocate for U.S. Public Interest Research Group. “If the oversight and transparency measures we propose had been in place for the first installment of the TARP, we’d at the very least know where the money went and why.”

The Troubled Asset Relief Program (TARP) was established by Congress in the fall of 2008 to inject capital into the financial system. Half of its $700 billion appropriation was distributed by the Bush Treasury Department and the remainder is to be distributed under plans expected to be announced today by the Obama administration.

Among the key findings of the U.S. PIRG Education Fund report, “Failed Bailout: Lessons for Obama from Bush’s Failures on TARP,” are the following:

• The TARP program never met its original goal to stimulate lending and it never had a plan. It “lurched” from new program to new program without effect on the economy. For example, one day Citibank qualified for money as a healthy bank; on another, as a failing bank.
• The Bush Administration never asked TARP recipient banks what they planned to do with the taxpayer money, nor did it require reporting on what they did with it, as at least three of the government’s own watchdog agencies have found.
• Bush received an overall F and a zero on 26 of 27 evaluation parameters in the U.S. PIRG TARP report card.
• Other government agencies, technology firms, consumer organizations and universities all have similar report card systems established to provide product or service reports so that their stakeholders can make informed decisions; U.S. PIRG urges the government to adopt one for the TARP.

“President Obama has a big challenge reforming this failed program so it will save banks but protect taxpayers and boost the economy,” concluded Tichon. “If his proposals follow our oversight recommendations, which we believe are supported by the American public, and early reports are that they do, his bailout will be better and his grades will be certainly be higher than Bush’s.”

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# # #

U.S. PIRG serves as the federation of state Public Interest Research Groups. PIRGs are non-partisan, no-profit public interest advocacy groups that take on powerful interests on behalf of their members. More information on U.S. PIRG and its Campaign to Save America’s Financial Future is available at uspirg.org.

In two stories today, the New York Times quotes investment bankers defending their pay and bonuses, just one day after President Obama called that pay "shameful." But I think the more interesting comments occur in a NYT story from a week ago by Floyd Norris. But first, from today: In Getting Theirs Cuts Both Ways on Wall Street by Eric Dash and Louise Story, a young banker whines:

“I feel like I got a doorman’s tip, compared to what I got in previous years,” said a 30-something investment banking associate at Citigroup’s offices in Lower Manhattan.

Back to Floyd Norris, he interviewed economic historians for the story Wall Street Paychecks May Wither. After an analysis of a study that proves Wall Street workers are currently overpaid, by a lot, and their regulators outnumbered and outgunned, he quotes Professor Thomas Philippon, a study co-author:

“Some of the financial innovations we have seen are obviously inefficient,” he said. “A good chunk of innovation has to do with tax and regulation arbitrage. That is really a waste for the society.”

Ignoring an easy opportunity to simply clarify (previous blog) that its enforcement of new lead limits in children's toys scheduled to take effect February 10 would focus on big companies, not mom-and-pop toymakers or second-hand stores, the CPSC (release) instead announced a sweeping delay in enforcement (Washington Post). The stay applies to many more requirements than the lead requirements. At its core, it benefits the big firms whose rampant, recurring violations of the old, weaker limits led to passage of the new law. While the blogosphere has been full of complaints from the small firms, the CPSC "led" by Bush holdover Nancy Nord did not act until it received a petition led by the powerful National Association of Manufacturers. Question: why hasn't the CPSC imposed civil penalties on Mattel, for example, for its recurring violations of lead limits leading to multiple recalls in 2007?

Interesting story from Chris Soghoian over at his CNET Surveillance State column: White House quietly exempts YouTube from federal Web privacy rules. The story points out that Youtube has been exempted from an otherwise government-wide ban on websites using long-term tracking cookies.

While the White House might not be tracking visitors, the Google owned video sharing site is free to use persistent cookies to track the browsing behavior of millions of visitors to Obama's home in cyberspace. No other company has been singled out and rewarded with such a waiver.

Today's Washington Post has a page one above-the-fold story by Binyamin Appelbaum titled By Switching Their Charters, Banks Skirt Supervision. The story explains that regulated banks and S&Ls can routinely switch their charters from state to federal or federal to state, or from bank to S&L and back, so that they can take advantage of the coziest relationship with the regulator least likely to care about enforcing the law. This forum shopping precipitates a race-to-the-regulatory-bottom where no regulator steps up. The problem is exacerbated by the unbelievable fact that the state and federal bank regulatory apparatus is funded by fee assessments paid directly to regulators, with little if any legislative oversight of budgets or activities even allowed. Federal regulators seeking larger fiefdoms on the Potomac, such as the Office of Thrift Supervision and the Office of the Comptroller of the Currency, loosen their rules so more banks will join their country clubs and they'll have bigger budgets. The story's angle is that banks are switching to state charters to avoid federal oversight. I would argue strongly that while some of these probably smaller institutions may have escaped likely light enforcement actions by the weak hand of OCC or OTS, that neither OCC or OTS are aggressive regulators by any definition. Neither ever punishes a big bank or provides a "message" action that warns other institutions to walk the straight and narrow. Instead, both fit the classic "captured regulator" model and their lack of actions have contributed to the run-up of this crisis. Eliminating state regulators in their favor is not the answer.

Any financial reform in the wake of the Wall Street bailout needs to both limit charter-switching and decouple regulatory fee assessments from empire-building by adding expansive Congressional oversight of regulators. We have numerous federal programs funded by user fees. That's not the problem.

The problem is that I can think of no such user fee program that is so corrupt and leads to such poor policy outcomes as the banking system. More can and must be done. For example, just a few years ago, the Congress reauthorized the FDA's Prescription Drug User Fee Act to limit Big Pharma's historic influence and abuse of that program. For years, flaws in that program had allowed big drug companies to essentially control FDA's oversight of their drug introductions and kept FDA from adequately conducting post-market reviews of safety. FDA became a unit of Big Pharma, with too many of its resources allocated to rubber-stamping new drug introductions and too few inspectors policing the marketplace. If Congress can rein in the drug boys, they can rein in the bankers and their so-called regulators.

The GAO has released a withering report describing how America's most powerful corporations, including many federal contractors and numerous banks on the TARP taxpayer dole, hide income in tax haven countries. While this appears to most disinterested observers to be a stellar way to avoid paying their fair share of taxes, the report International Taxation: Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions lists a variety of reasons for the practice and does not draw conclusions. Nevertheless, one of its Congressional requesters, Senator Byron Dorgan (D-ND), stated in the Washington Post:

"This is kind of like economic patriotism," Dorgan said. "Americans were told you have to pony up some money to help these companies. And it's rather infuriating for them to find out now that those companies, when they were profitable, didn't want to pay taxes and found clever ways to hide their money overseas."

It is all legal, but it could come to an end, given the dire condition of the U.S. economy and President-elect Barack Obama's campaign pledge to close this popular business tax loophole. The Treasury estimates that it loses $100 billion a year in tax revenue as a result of companies shipping their income off shore, and congressional leaders are vowing to introduce legislation forcing big companies to pay full freight.

“This report shows that some of our country’s largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And, some of those companies have even received emergency economic funds from the government,” said Senator Dorgan. “I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that.”

On behalf of President-elect Obama, economics advisor Larry Summers has sent Congressional leaders a letter urging better TARP oversight as a condition of the new administration's support for releasing the second half of the $700 billion Wall Street bailout. One of the wackier findings of the reports from the Congressional TARP oversight panel chaired by Professor Elizabeth Warren is that the Bush Treasury Department doesn't have and never had a plan for tracking bank use of the billions of dollars of taxpayer money it's been giving out in big chunks. Findings of the January 9th report:

The report highlights four key areas that demand special attention:

1. Bank Accountability—the Panel still does not know what banks are doing with the taxpayer money they have received.
2. Transparency—confidence in markets can only be restored when information is transparent and reliable, but we still have no clear mechanism to ensure transparent and accurate asset valuation and no confidence that the dangers posed by toxic assets have been addressed.
3. Foreclosures—Treasury has yet to take any steps to use TARP funds or develop plans to “maximize assistance to homeowners,” as required by law.
4. Overall Strategy—Treasury's shifting explanations for its purposes and the tools used have exacerbated the Panel's concern that Treasury does not have a coherent overall strategy and goals for use of the TARP funds.

UPDATE: THE CPSC RELEASE: Excerpt:

Sellers of used children’s products, such as thrift stores and consignment stores, are not required to certify that those products meet the new lead limits, phthalates standard or new toy standards. The new safety law does not require resellers to test children’s products in inventory for compliance with the lead limit before they are sold.

ORIGINAL POST: The CPSC is expected to issue a release today in response to a growing number of complaints from small toymakers and second-hand and consignment stores that it has failed to explain how to comply with new limits on lead in toys and children's products that take effect on 10 February. Yesterday, U.S. PIRG and other leading groups sent a letter to the CPSC demanding clarification. Austin American-Statesman story today. NBC17 (Durham, NC) with video. Los Angeles Times story. Our previous blog. While some elements of the toy industry campaign appear responsible and seeking clarification, some opponents of the important new law are using hysteria to rev up the issue, referring to 10 February as "National Bankruptcy Day" and the need to stop the new "supercharged" CPSC's "toy police." Excerpt from our consumer letter:

The vacuum of implementation information, as well as the proliferation of misinformation regarding actual testing requirements and the cost of testing is leading to confusion and fear. The public counts on the CPSC to protect them from dangerous products. Now CPSC must take the initiative to allay their fears by providing prompt, common-sense, and explicit interpretations regarding exemptions to CPSIA stipulations, guidance as to the realistic cost of testing, and education regarding compliance with the CPSIA for retailers, including thrift and consignment stores.

The Bush Administration has become notorious for issuing rules and releases late on Fridays, hoping to miss the news cycles. The CPSC may have reached a new nadir when it issued several proposals for comment late Wednesday, December 24th, or Christmas Eve.

The proposals address various testing requirements and possible exceptions to the 2008 Consumer Product Safety Improvement Act's limits on lead in toys and children's products. (One more on lead was added today.) With the filing of a multi-association petition to the CPSC seeking lead rule delays and exceptions, along with the appearance on the scene of a grassroots effort by "small" toy companies, attacking the new act's tough limits on toxic lead seems to be at the center of industry's strategy to gut the new law's protections. Washington Post last week. CQ story today.

U.S. PIRG's senior tax and budget analyst Phineas Baxandall, Ph.D., has issued a release harshly critical of the Bush administration's latest midnight regulation: New Federal Rule Requires Public Toll Roads to Mimic Profit Motives of Private Companies. Excerpt:

Last week a little-noticed action was published in the Federal Register that will make it difficult over time for states to keep their toll roads public or to operate them differently from private toll roads.[...] “This is a truly radical rule that sets a dangerous precedent,” said Baxandall.

For Immediate Release December 24, 2008
Contact: Phineas Baxandall, Ph.D. phineas[AT]pirg.org

New Federal Rule Requires Public Toll Roads to Mimic Profit Motives of Private Companies

Triggered by Government Reorganization, Ruling Sets Precedent Criticized by Congress

Last week a little-noticed action was published in the Federal Register that will make it difficult over time for states to keep their toll roads public or to operate them differently from private toll roads. The final rule, issued by the Federal Highway Administration (FHWA) on December 19th applies to state reorganization or transfer of authority for operating public toll roads to require a market valuation process that would determine what private entities would bid for operating the road under a private concession agreement. The state would moreover be required to charge that market-determined value to the public entity, regardless of whether this is best for the public.

“This is a truly radical rule that sets a dangerous precedent,” said Phineas Baxandall, a Senior Analyst for the U.S. Public Interest Research Group. “Although the rule allows agencies to determine the criteria, it nonetheless dictates that public interest considerations must take a back seat and public entities must operate to maximize market value.”

Previously, public entities could transfer operations to another public entity while giving precedence to public interest concerns. States have transferred operations without raising tolls to levels that a private investor would charge to cover their upfront payments for a toll concession. Under the new rule public-interest-based transfers would need to be justified under market-based valuation.

The House Transportation and Infrastructure Committee chair, James Oberstar and Chairman of the House Subcommittee on Highways and Transit, Peter DeFazio had issued a strongly worded letter in protest of the proposal. They questioned the judgment of the Federal Highway Administration in declaring that its rule did not constitute a regulatory action. The letter closes by saying, “this proposed rule would mark a significant departure from existing federal policy and should be considered through the upcoming reauthorization of the nation’s surface transportation programs, not through a hastily written rule in the final days of this administration.”

According to Baxandall, “If extended to other areas of government, the logic of this action dictates that no public entity can reorganize without mimicking the pricing and financing of private shareholders that would operate to maximize profit. Since private entities currently operate some water works, schools, prisons, security services and even town administrations, none of these public functions could be reorganized without comparing private bids and mandating that public entities charge what a private company would extract based on what the market will bear.”
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The U.S. House letter can be viewed here. A U.S. PIRG report on private toll roads can be found here.

As part of their new credit card rules approved last week making certain unfair practices illegal, the regulators had also intended to finalize an additional -- quite weak -- rule regulating the lucrative "bounce protection" programs that banks have used to collect billions in overdraft fees. While the regulators did at the same time as they approved the credit card rules, withdraw their mediocre overdraft rule, what they ended up doing is weak also. We joined other leading groups in a news release explaining the problems with what the Fed ending up doing-- proposing two alternatives instead. The Fed's new proposal is based on two supposed alternatives. The first, an opt-out, is unacceptable; the second, an opt-in, is marginally acceptable, although the remainder of the new rule proposal simply fails to address all of the other inherent problems with overdraft loan programs. The Fed should have simply immediately required that no consumer could be enrolled automatically in one of these programs without an affirmative opt-in (e.g., without a comment period), and then proposed rules only to address the other problems with these bounce protection programs. Instead, the Fed proposed an opt-in to address some of the problems, but inanely asked for comment as to how it compared with an opt-out (duh) and ignored the myriad other problems with bounce protection in its proposal. How bad are overdraft programs? One study by our colleagues at the Center for Responsible Lending found that "the typical overdraft loan triggered by a debit card, incurring a $34 fee, is only $17." Excerpts from our joint news release explaining that:

For instance, the proposed rule does not require that consumers be provided with federal truth-in-lending disclosures about the APR of overdraft loans. A recent FDIC study noted that charging a $27 overdraft fee for a $20 debit card transaction would be the equivalent of a 3,520% APR if the overdraft is repaid in two weeks.

While the Fed proposed to prohibit most overdrafts caused solely by debit card “holds”—when a hold by a merchant exceeds the actual amount charged—it did not address check holds, when banks intentionally delay the availability of deposits, or banks’ ability to manipulate the order in which transactions are cleared in order to maximize overdrafts.

The CBS Early Show did a story (watch video and read story) on the CPSC's decision to delay a Congressional ban on toxic phthalates in toys yesterday featuring U.S. PIRG Public Health Advocate Liz Hitchcock. Previous blog has details on lawsuit by allies Public Citizen and NRDC seeking to enforce the law.

The non-partisan Congressional Government Accountability Office (GAO) has released Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency. From GAO's summary:

Treasury has yet to address a number of critical issues, including determining how it will ensure that CPP is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments. Moreover, further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control.

"The GAO's discouraging report makes clear that the Treasury Department's implementation of the TARP is insufficiently transparent and is not accountable to American taxpayers," House Speaker Nancy Pelosi (D-Calif.) said, referring to the acronym for the bailout program, officially known as the Troubled Asset Relief Program.

A massive new FDIC study confirms that most (77%) large banks are offering "automated" (you don't sign up, it's a "feature") overdraft or bounce protection programs and accruing billions of dollars in revenue. The programs have been heavily criticized by nearly every major consumer and civil rights group, including PIRG. In the 110th Congress, remedial overdraft fee legislation offered by Rep. Carolyn Maloney (D-NY) languished in committee due to fierce opposition from the banks.

Here are a few selections from the executive summary, confirming what we already know (that these these programs are unfair, tricky, and make lots of money for the banks at the expense of younger, less-well-off consumers):

Aggregate data from over 1,000 banks:

You get the idea. There's a lot more in the study and its accompanying exhibits.

Anny Shin reports in today's Washington Post that the CPSC says that Some Toys With Banned Plastics Will Stay on Market. We don't think so. The story is based on a letter opinion to industry lawyers from Consumer Product Safety Commission general counsel Cheryl Falvey who says essentially that because consumer product safety standards have previously been interpreted to apply only to products manufactured after a ban date, that it's ok to keep selling inventory stocks of toys laden with toxic phthalates after the February 2009 ban on toxic phthalate chemicals kicks in. Funny thing is that Falvey's letter ignores and does not even discuss the bold-face underlined words in Section 108 of the new statute that says:

Beginning on the date that is 180 days after the date of enactment of this Act, it shall be unlawful for any person to manufacture for sale, offer for sale, distribute in commerce, or import into the United States any children's toy or child care article that contains concentrations of more than 0.1 percent of di-(2-ethylhexyl) phthalate (DEHP), dibutyl phthalate (DBP), or benzyl butyl phthalate (BBP).

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have named their 3 picks for a 5 member Congressional Oversight Panel required by the Wall Street bailout law enacted this fall. We have worked often with Harvard Law Professor Elizabeth Warren on consumer bankruptcy and credit card issues and also with AFL-CIO General Counsel Damon Silvers on investor protection and shareholder rights issues. Richard H. Neiman, Superintendent of Banks in New York, has given outstanding testimony and advice to the Congress on mortgage reform, regulatory restructuring and the need to preserve stronger state consumer laws. We also anticipate that next year the Congress will give serious consideration to Professor Warren's PIRG-backed proposal to establish a Consumer Credit Safety Commission. It would be modeled after the CPSC, with authority to recall or ban dangerous financial products, just as CPSC can recall or ban dangerous toys.

In his story U.S. Shifts Focus in Credit Bailout to the Consumer on Treasury Secretary Paulson's announcement that the government was shifting its bailout strategy to promote credit card and other consumer lending, Edmund Andrews of the New York Times points out that (1) "Fed officials appeared to be taken aback" [at the public announcement], (2) "taxpayers would be indirectly liable for the entire volume of lending" and (3) [the] "arrangement would bear a similarity to exactly the highly leveraged, and eventually disastrous, special-investment vehicles that banks like Citigroup created in countless numbers to hold, among other things, securities backed by subprime mortgages."

Paulson's spin is that the new program will directly help consumers. His old plan was supposed to help consumers, too, but that plan to buy bad assets only helped institutions, because they took the taxpayer money and ran. They didn't follow through and lend with the new money as they were supposed to. The money in the new plan is still going to banks but supposedly can only be used to help promote, leverage and securitize new lending. We'll see how Plan B goes, if it is actually implemented, since it appears that the Fed may not yet be fully on board. Meanwhile, Paulson still has no plans to help consumers, such as those in foreclosure, directly.

House Financial Services Committee Chairman Barney Frank (D-MA) continues his legitimate skepticism at Treasury Secretary Henry Paulson's bailout strategy (Paulson release today), which pointedly does not involve helping the homeowners who are losing their homes through foreclosure: A good summary of Barney's view comes from a quote from the Australian Radio show AM:

BARNEY FRANK: As long as you have the foreclosure cascade, as long as you have mortgage-based securities decreasing in value so rapidly, you do not get out of the problem we are in.

The Center for American Progress Action Fund and the New Democracy Project have released a joint book with recommendations for the new administration. The book Change for America has several sections available online here. Among these is the chapter CPSC: Safety First written by Pamela Gilbert, who was executive director of the agency under President Bill Clinton; Pamela is a longtime public interest attorney who has also worked both at U.S. PIRG and Public Citizen. From her report summary:

The Consumer Product Safety Commission over the past eight years was run by political appointees who let the agency languish, promulgating few new regulations, announcing few new programs, and rolling back existing rules.

The most important thing that the new president must do to restore confidence in the safety of consumer products is to appoint a chair of the CPSC who has a proven commitment to consumer safety—not industry preferences. He or she should quickly address the shortage of experienced staff and low staff morale, follow through on congressionally mandated improvements to the agency’s authorities and testing laboratory, and establish new partnerships to enable it to do more with its limited resources. CPSC must also address new challenges, including the meteoric rise in imports of unsafe consumer products and any hazards associated with new technologies, such as nanotechnology.

As Alan White points out over at the Consumer Law and Policy blog, yesterday's announcement of modest mortgage help from Fannie and Freddie won't help many people stay out of foreclosure at all. Worse, as the New York Times story White House Scales Back a Mortgage Relief Plan by Edmund Andrews describes, the tiny plan is nothing like the one that FDIC Chair Sheila Bair believes is needed and is prepared to roll out. Unfortunately, the bankers over at Treasury seem to want to help other bankers, not homeowners.

Shortly after Fannie Mae and Freddie Mac announced their new plan, Ms. Bair declared that it was inadequate and pointedly said that the government had spent hundreds of billions of dollars to bail out financial institutions like American International Group, the giant insurer. The plan “falls short of what is needed to achieve wide-scale modifications of distressed mortgages,” Ms. Bair said...

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.

A peer-reviewed subcommittee report prepared for tomorrow's FDA Science Board meeting rips the agency's recent draft assessment (7mB pdf) finding that the toxic chemical Bisphenol-A (BPA) was generally safe. From the subcommittee report:

Coupling together the available qualitative and quantitative information (including application of uncertainty factors) provides a sufficient scientific basis to conclude that the Margins of Safety defined by FDA as “adequate” are, in fact, inadequate.

lacks an adequate characterization of uncertainties

does not articulate reasonable and appropriate scientific support

has important limitations.

Although the Food and Drug Administration will not reveal who prepared its draft, the agency's own documents show that the work was done primarily by those with the most to gain by downplaying concerns about the safety of the chemical. That includes Stephen Hentges, executive director of the American Chemistry Council's group on bisphenol A, who commissioned a review of all studies of the neurotoxicity of bisphenol A and submitted it to the FDA. The FDA then used that report as the foundation for its evaluation of the chemical on neural and behavioral development. The American Chemistry Council is a trade group representing chemical manufacturers.

If you read the subcommittee report, you can detect a high level of scientific outrage that the FDA in effect stacked the deck by excluding numerous peer-reviewed studies without cause, even though the assessment committee deemed them adequate.

Consistent and credible criteria for study inclusion, recommended by the Subcommittee, would be to use those studies that are judged as “adequate” by CERHR in the FDA hazard, dose-response and safety assessment of BPA. In addition, several studies of effects of BPA on adult humans and animal species that were published after the draft assessment was finished should be considered for inclusion in the final assessment.

More in BPA Ruling Flawed, Panel Says by Annys Shin in the Washington Post).

We have yet another Strategic Plan to combat identity theft. Government likes issuing strategy papers. Unfortunately the tactics proposed are inadequate to protect ordinary Americans from hassles created by the sloppy data practices of the public and private sector. Identity theft is booming partly because it is a simple skill that can be taught to thieves still in short pants who are not destined to become rocket scientists. Until we improve consumer rights to compensation from the companies that lose our data to their simple schemes, the firms will continue to be negligent about protecting it better.

And while the government may be trumpeting the increased penalties recently enacted for committing "aggravated identity theft," I would note that recent news stories suggest that these penalties are being used more to threaten individual undocumented low-wage immigrants than to hold identity theft kingpins to account.

As I repeatedly told government officials in meetings and conference calls over the last 18 months of the development of the report, its failure to recommend adequate restrictions on private sector uses of Social Security Numbers means it won't work well. Further, despite the stunning record of over 40 state governments in enactment of security freeze and data breach identity theft protections since passage of the federal Fair and Accurate Transactions Act (FACTA) of 2003 (which allowed stronger state identity theft laws), the report refers to the usual pejorative "patchwork" of state laws and calls for uniform national standards to preempt stronger, or newer state security breach notification efforts. Even worse, nearly every such federal proposal I have seen would not only establish uniform national breach law standards, it would also broadly preempt other state privacy efforts. Proposing yet again to preeempt the states, and taking 50 important tools out of the democracy toolbox, shows that the conservative principle of federalism doesn't matter to this President.

For more on the government's position against stronger state law health and safety protections, see this brief commentary Safety Last by law professor David Vladeck in The Nation.

Over at Credit Slips blog, Professor Adam Levitin has several posts (this one and this one, too, e.g.) analyzing the way that the partial taxpayer nationalization of banks really works:

The important thing to notice about the Treasury's "equity" injection into major financial institutions is that it is equity in name only. The preferred stock the Treasury is taking is at a prescribed dividend (5% for 5 years, 9% thereafter) and has no voting rights. Economically, it is a subordinated loan without a term.

How come the "what, me worry?!" attitude was so pervasive? As we know by now, no market participant -- mortgage brokers, banks, securitizers, hedge funds, and so on down the line -- had an incentive to consider the risk on their books. They could always pass it on to somebody else. In economics, this is known as the "theory of the greater fool", to whom the risk can be passed on. This is the problem that needs to be rectified through proper regulation.

While this is no longer accurate, since it is more than an hour old, the attached 102 page version of the Democratic discussion draft of Wall Street rescue/bailout legislation will give you details on progress from the original 3 page Paulson proposal. Also, here are what I am told are the Senate Republican substitute principles (1 page).

Yesterday, Wall Street bailout talks collapsed (Washington Post story, New York Times story) as dissident House Republicans rejected the President's proposal that was being negotiated by Congressional leaders and the President and plan architect Treasury Secretary Hank Paulson at the White House. While the House Republicans have philosophical opposition to market intervention, a number of House Democrats led by John Conyers (D-MI) and Zoe Lofgren (D-CA) and a broad U.S. PIRG-backed coalition also continue to oppose the plan, for different reasons. The proposal, even as modified by Congressional leaders, still does nothing for Main Street. It still lacks our lead demand -- giving consumers in dire straits modest loan modification rights to avoid foreclosure. As the New York Times asks in its lead editorial: What About the Rest of Us?

Mr. Paulson has long opposed what is probably the best way to help Americans stay in their homes: allowing a bankruptcy court to reduce the size of bankrupt borrowers’ mortgages. Unfortunately, but predictably, drafts of the bailout plan circulated late Thursday do not mention that relief. It is simply outrageous that every type of secured debt — except the mortgage on a primary home — can be reworked in bankruptcy court. The law was designed to protect lenders, who have obviously and disastrously abused that protection. There would be no favors dispensed in bankruptcy proceedings. Lenders would have to accept less of a payback and borrowers would have to submit to the oversight of the bankruptcy court for years.

I've received what appears to be a discussion draft of the proposed legislation to establish the $700 billion bailout authority. I cannot find this on the Treasury website but it looks accurate based on press reports. It certainly needs work over the next few days (it is supposed to pass into law by Friday) to meet the oversight principles I expect that the Congress will demand, and the public interest principles to protect homeowners, depositors and taxpayers that consumer and community groups are calling for, as I outlined in my previous blog entry. Below is the language. Sorry I don't have pdf-making software here on my home laptop.

Broad grant of authority to Secretary

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
Sec. 9. Termination of Authority
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

UPDATE: The NYTimes is reporting that the State of New York will allow AIG to borrow $20 billion from its own state-regulated subsidiaries.

ORIGINAL POST: Floyd Norris at the New York Times is "live-blogging" Wall Street crisis updates today. At 10:55AM he has some interesting analysis about the still-looming likely failure of insurance giant AIG:

It was a couple of years ago that we learned AIG had sold, and bought, so-called finite insurance to manipulate financial statements.[...] Lesson: If you find out management is willing to cut corners in the financial statements, you should flee.

Sunday was no Sunday at the beach for Wall Street self-proclaimed masters of the universe. We'll have to see what that ultimately means for small investors. Venerable investment bank Lehman Brothers announced it will file bankruptcy; Merrill Lynch likely dodged that bullet by finally agreeing to be acquired by Bank of America; and meanwhile, insurance colossus AIG and S&L giant Washington Mutual teetered. Following round the clock meetings all weekend, surviving bankers agreed to backstop themselves with a multi-billion dollar emergency borrowing facility while regulators who refused any more full Bear Stearns style bailouts for non-depository institutions that also thought they too were too-big-to-fail did agree to flexibility (New York Times story) in capital requirements and emergency loan standards. The operative words were the F-words fear, faltering, failure:

Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism?

Annys Shin of the Washington Post is reporting in a story Tighter Lead Rule for Kids' Items that the CPSC will announce today Monday a legal opinion that confirms that the new Consumer Product Safety Improvement Act requires that all children's products containing lead in amounts greater than 600 ppm must be off the shelves by February, and will require that product previously manufactured and in inventory be destroyed. The bad news is that at a recent public meeting, the CPSC all but told industry lawyers and lobbyists that -- (paraphrase) "except for toys with toxic lead (and probably also toxic phthalates) where that pesky Congress has boxed us in, not to worry as we intend to go out of our way and interpret all other effective dates for all new product standards as loosely as possible, so you can keep on selling dangerous products you've already made." I noted this pro-industry slant in my blog after that meeting, as did Annys Shin in her blog. Page 11 of this CPSC slideshow from that meeting explains the rationale for lead and phthalates; previous pages explain why other dangerous products may be treated with less deference to safety.

One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks.

We must avoid simply merging regulators and hoping for synergies. We need a system that focuses on the prevention of crimes and crises...

He makes the interesting proposal of walls between classes of customers. We are not sure that will be enough of a solution to address the meltdown that has been created by numerous factors ranging from the too-big-to-fail doctrine that placed deposit insurance and taxpayers at risk and the interconnections that created flashpoints and accelerants instead of fire breaks, but it could be a part of a solution. Excerpt:

Seventy-five years later, instead of trying to limit what products innovative financial firms can offer, it would be more prudent to limit the markets to which they can sell their wares. In other words, the customers, not the companies, should be divided. This could be accomplished by extending the current system of government classification of “qualified investors,” used to limit who can invest in things like hedge funds. By demonstrating expert knowledge or the ability to absorb loss (because of high net worth), qualified investors could be given a pass into the caveat emptor world of modern Wall Street. Those without the inclination, the sophistication or the deep pockets to qualify would be limited to the more closely regulated menu of stocks, bonds and mutual funds.

In an exclusive, the Chicago Tribune's Patricia Callahan, one of the nation's leading CPSC watchdog reporters, finds that Feds, Graco withheld bassinet warning:

The U.S. Consumer Product Safety Commission botched the recall of the Simplicity bassinets, telling some American families that they should not put their babies to sleep in the bassinets while allowing others to continue placing their infants in a potentially deadly product.

Federal safety regulators and Graco Children's Products knew two weeks ago that bassinets sold under the Graco name had the same dangerous design that caused two babies' deaths but did not alert the public as part of a larger recall, the Tribune has found.

"Oh, my God," said Cara Smith, Illinois Atty. Gen. Lisa Madigan's deputy chief of staff, who has been investigating the bassinets. "What possible reason would you not get that information out? Utter disregard for the safety of babies. They sat on that information while people continued to use these bassinets believing they were safe."

The CPSC has a new gateway webpage for all things - rulemakings, comment deadlines, notices and more -- related to the implementation of the landmark Consumer Product Safety Improvement Act (CPSIA). Since the new law has some very tight regulatory timelines, the page also allows you to sign up for either an old-school email list or a more modern Web 2.0 RSS feed to learn about updates to the page.

As expected (my previous blog explaining our opposition) the FCC on Saturday issued an order granting AT&T and other telco companies their forbearance requests to provide significantly less information about consumer complaints, infrastructure buildouts and other matters of public concern to the commission. In his statement, Commissioner Michael Copps explains some of what he and Commissioner Adelstein (his statement) were able to salvage for consumer protection:

Rather than having certain ARMIS data that is currently submitted to the FCC disappear into the abyss via forbearance, we reached a compromise with regard to the ARMIS reporting requirements which can keep us from plunging off a cliff. First, the Commission grants covered carriers forbearance from certain ARMIS reporting requirements. Second, forbearance is conditioned on carriers continuing to collect and publicly make available their data on service quality and customer satisfaction for two years. They also must continue to collect infrastructure and operating data for the next two years. Third, we launch a Further Notice of Proposed Rulemaking to, hopefully, accomplish what we have avoided all these years—a reasoned, rational and relevant approach to ensuring that the data necessary for consumers and for state and federal regulators will be available going-forward.[...] For these reasons, I approve in part, concur in part, and dissent in part – a messy vote for a truly messy item.

As expected (my previous blog), Treasury Secretary Paulson (remarks, fact sheets, etc) and the little-known Fannie/Freddie overseer, the Federal Housing Finance Agency director Joe Lockhart (statement), held a Sunday morning news conference to announce the takeover of the quasi-public Fannie Mae and Freddie Mac. Fed chairman Bernanke's statement. Joint bank regulator news release. New York Times website story. Washington Post website story. Floyd Norris in the NY Times. Blog by Dean Baker, an economist and co-director of the public interest think tank Center for Economic and Policy Research: "Yes, this was predictable." More from Baker:

From Dean Baker:

As I said back in September of 2002: "If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions."

The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency. At a news conference on Sunday morning, the Treasury secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives.

Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit. But such credits have no value until the companies generate a profit -- something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year.

As early as today (Washington Post) the FCC may act on a petition from AT&T asking that FCC weaken its requirements for telecommunications companies to provide it with important data on consumer complaints and other matters, including levels of infrastructure investments. The company makes the absurd claim that consumers can analyze JD Power and other outside rankings instead of analyzing FCC complaints. Last month, we joined Free Press and Consumers Union in a filing opposing the proposal. We said:

The Commission should deny AT&T’s petition on both substantive and procedural grounds. We believe the ARMIS reports continue to serve the public interest by openly providing valuable information to the Commission, consumers, public interest groups and state authorities seeking to protect their citizens.

I just left some of my consumer colleagues at the second half of an all day CPSC seminar on the implementation of the landmark CPSC Improvement Act. The event is being held in an auditorium at the Commerce Department downtown. The building is named for Herbert Hoover but seemed older than that. In addition to the scant ten of us, the other 400 plus seats were full of industry lobbyists. Most of the questioners from the industry seemed to be asking the CPSC to interpret the law in a way that would allow them to keep selling existing but soon-to-be non-compliant inventory. In addition, one CPSC official seemed to directly suggest that for certain products that would become banned hazardous substances six months after August 14 (when the President signed the bill) it would be best to leave the room and book some containers on ships for export as soon as possible.

My analysis is that the CPSC's regulatory culture has always leaned toward interpreting the law prospectively -- that is, in favor of reading newer, more stringent laws to only apply to future products -- but that in some of the important provisions of the CPSC Improvement Act it is clear that the Congress did not intend them to continue to do that. Nevertheless, I got the sense by the tone of many of the agency comments -- and I hope I am wrong -- that they appear ready to bend over backwards wherever possible to find a tortured statutory interpretation that is favorable to continued sale of existing but-soon-to-be-non-compliant inventory.

The executive branch watchdog group known as OMBWatch has a summary of the new CPSC Reform Act available. We expect that the president will sign the bill this week when he returns from the Olympics. The OMBWatch story links to its earlier analysis Product Safety Regulator Hobbled by Decades of Negligence, a useful summary of the agency's history by the numbers.

We've posted a short video (at top right of page) of me explaining why we need to improve toy and product safety by finishing Congressional action on the CPSC Reform Act, now mired in conference committee where industry lobbyists take potshots daily at its most important provisions. It was taped a few months ago. Previous CPSC blog.

Fed Richmond Bank President Jeffrey Lacker and Fed Philly Bank President Charles I. Plosser both gave speeches yesterday (Washington Post and Bloomberg via New York Times) criticizing the bailout of the investment bank Bear Stearns by the New York Fed. The Post story lists a number of other insider critics of the action, which could lead to greater risk-taking. When financial companies can count on the fact that they are seen as too-big-to-fail, they take bigger risks. It's also called moral hazard. Our previous Bear blog.

As long as we're on the topic of the Fed, Professor Robert Auerbach of the LBJ School at the University of Texas has a new book out-- Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank. Auerbach served as chief economist under Chairman Gonzalez (and other chairs) of the old House Banking Committee. The book is getting good reviews. I look forward to reading it, as among the events it chronicles are the first five years, 1989-94, that I spent in Washington, while Henry B. -- a consumer and community champion -- supervised the savings-and-loan cleanup. Excerpt from the book:

The Fed could not silence or intimidate Gonzalez. Greenspan and his staff of lobbyists made the rounds in Congress without making any sales that mattered to Gonzalez. The congressman saw to it that the Banking Committee would maintain an arm's-length relationship with Greenspan and institute actual checks and balances. Gonzalez wanted action taken on issues that were important to the country. The heat generated by the Fed and its sympathizers never caused Gonzalez to stop an investigation.

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).

In her Washington Post story Scrutiny of Phone Fees May Broaden to TV, Internet, Cecilia Kang reports on Saturday that the 12 June FCC hearing on unfair cell phone early termination penalty fees

may be expanded to include a discussion on similar fees for ending cable and Internet services ahead of schedule, the chairman of the Federal Communications Commission said in an interview yesterday.

A new report, Still Not Safe, from Consumers Union, publishers of Consumer Reports, finds that product recalls are on track to break the record set last year. Here is the news release:

According to the analysis, CPSC has initiated 121 recalls of unsafe products for the first four months of 2008, a total of nearly ten million products. At the current rate, the CPSC will issue more than 800 recalls in their 2008 fiscal year, a 70 percent increase over last year.

Apparently for a few weeks now, the Washington Post's consumer blog called The Checkout has been back up, now with reporters Annys Shin, Nancy Trejos and Ylan Q. Mui posting stories, including this one by Nancy Trejos on the bank regulators' and FTC's mediocre job with the new risk-based pricing notices proposed rule. Took 'em five years, could have done better, a lot better. This was supposed to be a corrective rule addressing a flaw created by a 1996 mistake by Congress when it failed to comprehend the impact of risk-based pricing and took away some consumer rights -- the risk-based pricing notice passed in 2003 had massive potential to correct that wrong but now could end up to be a colossal waste of paper and a missed opportunity to balance the scales between consumers and lenders while teaching consumers about credit.

Over at the Consumer Law and Policy blog, Jeff Sovern blogs on Adam Levitin's response to the ABA Study on Regulation of Credit Cards . For lawyers, in the room, that's the Bankers, not Bar, Association. ABA lobbyists have been running around the hill holding up this study like garlic and silver bullets.

Also, at CL&P, Sovern blogs on the new report What Californians Understand About Privacy Offline by Chris Hoofnagle and Jennifer King.

Today's USA Today has a point-counterpoint on the proposed new credit card regulations. USA Today says: Our view on consumer protection: Feds take overdue first step to curb credit card abuses but urges caution, as the Fed often fails to follow through.

Not surprisingly, Ed Yingling of the American Bankers Association says: "Don't turn back the clock on the credit card market and reverse the advances that have led to lower costs and greater choices for cardholders."

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.

By a narrow 51-49 margin at the buzzer, the results are in at The Economist magazine online debate on risk and government regulation: By intervening to regulate business and financial risks, government has made things worse. This previous post links to my featured participant entry as a kind of sixth man off the bench to the "Con" presenter, Paul Moore of the University of Ulster. Of course, we don't support all regulation, as I made clear in my post.

You don't see this very often. In a New York Times story by Edmund Andrews and Steve LaBaton In Washington, a Split Over Regulation of Wall Street about Congressional efforts to reorganize financial regulation, a prominent Washington lawyer and a former top regulator at the OCC (our site OCCWatch), OTS and predecessor agencies admits that the regulatory system creates a race to the bottom. I doubt that any current OCC official would ever say that. Excerpt:

Except for the Federal Reserve, all of the federal bank agencies receive funding from fees paid by member institutions, and some specialists have long argued that the agencies competed with each other to woo institutions with lighter regulation. "There was no federal coordinated oversight, and as a result there was a competition to reach the bottom, both in federal and state organizations," said Brian C. McCormally, a former enforcement chief at the Office of the Comptroller of the Currency.

The weekend papers are full of stories about the New York Fed's extraordinary bailout being extended to the maverick Wall Street investment bank Bear, Stearns. One story -- Run on Big Wall St. Bank Spurs Rescue Backed by U.S. -- in today's New York Times by Landon Thomas, points out that:

Traditionally regulators have helped commercial banks in financial panics, but not investment banks, which do not hold customer deposits. But the 1999 repeal of the Glass-Steagall Act, the Depression-era law that separated investment banks and commercial banks, led to consolidation within the financial industry that has made such distinctions harder to make. "I don’t remember a Fed action aimed at a noncommercial bank; this is the kind of thing you see in this post-regulatory environment," said Charles Geisst, a Wall Street historian at Manhattan College.

The reason for the bailout, from the regulator point-of-view is simple: everything is now connected to everything else.

Regulators thought that the interconnected economy would absorb and diffuse risks. Instead, these interconnections and use of exotic financial instruments no one understands -- coupled with the moral hazard created by the repeal of Glass-Steagall, which allows would-be lords of the universe on Wall Street (their term, not mine) to play with taxpayer-insured deposits at commercial banks -- has force-multiplied local or individual financial problems into world-wide financial crises. No more firewalls or fire breaks-- we now have connections that act as flash-points or accelerants. That so-called moral hazard is amplified when big banks take even bigger risks when they know that they are too big to fail.

But, as Morgenson concludes, not to worry, there's always you and me:

Regulators must do whatever they can to keep the markets open and operating, and much of that relies upon the confidence of investors. But by offering to backstop firms like Bear, who were the very architects of their own — and the market’s — current problems, overseers like the Fed undermine a little bit more of that confidence.[...] That will leave the taxpayer, alas. As usual.

Sorry, I can't comment on every interesting story on this bailout. One more to check out is by Edmund Andrews in the New York Times. He points out in Fed Chief Shifts Path, Inventing Policy in Crisis that while Fed Chair Ben Bernanke once relied on "consistent principles," he now "is inventing policy on the fly."

John Wilke of the Wall Street Journal is reporting on the website (pd. subs. req'd) that FTC Chairman (her official title) Deborah Platt Majoras will resign within a month:

Under Ms. Majoras, the agency stepped up federal enforcement of data-security laws, forcing corporate boards to safeguard consumer data and imposing penalties for breaches. It has also worked to curtail identity theft, and pressed advertisers to curb junk-food pitches to children.

The FTC generally sided with the Justice Department and brought few major antitrust cases. And it had a mixed record in court, most recently losing its effort to stop a merger between Whole Foods Market Inc. and Wild Oats.

In a split with the Bush administration, though, the FTC under Ms. Majoras sued several big drug makers for alleged efforts to delay competition from cheaper generics.

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.

Over at the New York Times, Charles Duhigg reports that Papers Show Wachovia Knew of Thefts. The papers were released in a lawsuit concerning a long-running telemarketing fraud scheme targeting the elderly. It's a followup to his 2007 expose Bilking the Elderly, With a Corporate Assist. In today's story, he reports that internal papers show that while some Wachovia Bank executives were saying "Yikes, Double Yikes," -- others were counting profits from the fees that the fraudsters had to pay the bank after charges were reversed following consumer complaints:

"YIKES!!!!" wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. "DOUBLE YIKES!!!!" she added. "There is more, but nothing more that I want to put into a note." However, Wachovia continued processing fraudulent transactions for that account and others, partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months, according to investigators.

The story goes on to point out that Wachovia looked the other way while internal fraud investigators, credit unions and even other banks sent it warnings about fraudulent accounts. Meanwhile, I ask: Where was Wachovia's chief regulator, the little-seen regulator known as the OCC (our site OCCWatch) that spends more time preempting state regulators than supervising big banks? It hasn't issued a public civil penalty of note in many years. While Duhigg reports that Wachovia announced some changes last summer, any unreported, private regulatory sanction that may have been imposed by the OCC to inspire such unfettered altruism is simply not enough to reassure this consumer advocate, or the Congress, that enough has been done to deter shabby bank practices that lead to crime against consumers. Public sanctions, including civil penalties, would reassure us that vulnerable populations have the full force of the federal government protecting them from unsavory practices that deplete their life savings.

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.

Former Bush economic adviser Greg Mankiw, now back at Harvard but also advising candidate Mitt Romney, has a column How to Avoid Recession? Let the Fed Work in today's New York Times. Mankiw reiterates all the old money-supply arguments and says in regard to the possible "painful" economic downturn we face that "Sometimes, bed rest and wait-and-see are the best we can do."

The problem, of course, is that Mankiw sticks to his Economics 201 discussion of the Fed's central bank role and fails to admit that Alan Greenspan and later, Ben Bernanke, may have mis-played the dot-com and mortgage bubbles. Worse, Mankiw doesn't even discuss that the Fed has other roles than monetary policy that it failed to fulfill. While we can argue about monetary policy choices, there is certainly no argument that the Fed has never performed its consumer protection role adequately. The Fed has long had discretionary authority to rein in unfair lending practices. Since the Fed is loathe even to implement Congressionally-mandated consumer protection rules, you can see the problem in relying on its discretionary authority.

As the Center for Responsible Lending pointed out last week when the Fed finally reacted to the crisis by proposing new rules under 1994 high-cost loan legislation:

An unregulated market has led to irresponsible lending practices where lenders often don't even assess ability to repay. The resulting high rate of foreclosures due to this abusive lending may well bring this country into recession--yet the FRB has chosen to issue rules that leave out many loans or will be unenforceable.

By averting its eyes to both the dot-com and housing bubbles, the Fed lulled even professional investors into believing that commonplace risks could be eliminated through "new era" designs.

The FTC has voted 4-1 not to block the Google-DoubleClick merger on competition grounds, denying a petition from U.S. PIRG, the Center for Digital Democracy and EPIC. Concurrently, the FTC staff have issued a call for comments on a proposed set of "possible self-regulatory principles" on behavioral advertising. In our view, this merger's tremendous transformative impact on online markets and the well-evidenced privacy harms that the Google-DoubleClick combination create should have resulted, at a minimum, in conditions if not denial. We're also disappointed that the full FTC didn't understand, as dissenting Commissioner Pamela Jones Harbour did, that this merger has numerous anti-competitive network effects. We'll read the proposed privacy rules more closely before we comment further. Here is an excerpt from our Center for Digital Democracy colleague Jeff Chester's statement:

By permitting Google to combine
the personal details, gleaned from our searches online and YouTube downloads, with the vast repository of information collected by DoubleClick, the FTC has sanctioned the creation of a new digital data colossus. The FTC is supposed to protect the privacy of Americans in the digital age. The excuse offered by the majority of the commission --that consumer privacy can't be addressed by current antitrust law--reveals a lack of leadership and determination to protect U.S. consumers. It's clear that this merger--and the ones that follow--will be about companies creating the twenty-first-century's equivalent of railroad, steel, and oil monopolies in the past. The FTC was created to protect Americans from the dangers of such monopolies, something the agency failed to do today.

In my testimony Wednesday before a House Financial Services subcommittee. I had some harsh criticism for the Federal Reserve Board, which has failed on numerous occasions to use existing authority to protect consumers. Incredibly, on Wednesday, the Fed even opposed a measured, incremental proposal by subcommittee chair Carolyn Maloney to require the federal bank regulators to implement a shared hotline to help consumers. Even the notoriously anti-consumer OCC supported the bill, with what former Fed chairman Alan Greenspan might have even called "exuberance." But it is always tough to beat Financial Services Committee chairman Barney Frank, who had this to say to the Washington Post about the Fed's latest voluntary mortgage reform proposal:

"If I was going to list the top 87 entities in Washington in order of the history of their efforts on consumer protection, the Fed would not make it," Rep. Barney Frank (D-Mass.) said.

We testified today in support of legislation by Rep. Carolyn Maloney (link to hearing record) that would require the federal bank regulators to create a shared complaint hotline (HR 4332, the Financial Consumer Hotline Act of 2007). We proposed a number of amendments to force the regulators to do a better job handling consumer complaints.

As we say on U.S. PIRG's Right to know pages in the caption under this photo:

Without the Toxic Release Inventory Regulations, industrial facilities in or near our communities like this refinery could put toxic waste into our environment and even drinking water without informing the public.

Twelve states, including New York, New Jersey and Connecticut, sued the Environmental Protection Agency yesterday for weakening regulations that for two decades have required businesses and industries to report the toxic chemicals they use, store and release.

Community groups across the country have used the program to track the amounts of hazardous chemicals in local neighborhoods. Under the program, companies must provide information about the types of toxic chemicals stored at plants and factories in each state, as well as the quantities discharged from each plant.

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.

With all except small non-controversial amendments refused until full committee by the committee's bi-partisan leadership, the House version of CPSC reform, HR 4040, was approved today in subcommittee and is expected to go to full committee two weeks from today. The manager's substitute that was approved should be posted here at the Energy and Commerce committee soon. We are still reading the bill carefully. Positively, many of the changes from HR 4040 as introduced were pro-consumer. Lead limits were improved and clarified. Also, the definition of children's product was changed throughout the bill so products for children up to 12 years old would come under the bill's protections. Previously, the bill had some protections for children up to 12, but most were only for children up to 6 years old. But, remember, we are still reading the bill carefully. Full committee chairman John Dingell re-affirmed at the meeting that Speaker Pelosi wants the bill approved by the House before the December holiday recess.

Today's New York Times editorial Chemical Industry 1, Public Safety 0 rightly questions new anti-terrorist chemical plant safety regulations, especially in light of Greenpeace research into the industry's "undue influence" over the rulemaking. Research by longtime Greenpeace toxics advocate Rick Hind is deservedly cited:

It is troubling that these industry-friendly rules were developed in part by Department of Homeland Security employees who previously worked for the chemical industry -- and who may one day work for it again. Rick Hind, the legislative director of the Greenpeace Toxics Campaign, contends that such employees have had an "undue influence." The department says it draws on former chemical industry workers simply because of their "relevant prior experience."

Today, we are signed onto testimony of the Consumer Federation of America's Rachel Weintraub before the House Energy and Commerce Committee at its hearing on product safety reform. (Note-- the committee has even posted a front page link to The Year of the Recall, a new Consumers Union report.) Meanwhile, after years of administration attacks (not mere benign neglect) on protecting Americans from product safety hazards, expect the Michael Leavitt-chaired White House import safety working group to back some sort of modest reforms today (New York Times and AP via Washington Post). We expect it will overly rely on self-regulation and the sort of tortured risk analysis favored by the administration over the more sensible precautionary principle, although press reports indicate positively that it will recommend strengthened recall authority at FDA and CPSC. Don't know just what it will say about the hazards to the public of CPSC officials flying around on the industry's planes or the industry's dime. From the Washington Post story today CPSC's Ethics-Review Process For Travel Criticized by Experts by reporter Elizabeth Williamson:

The $3,730 tab for Faulk and Nord's trip was to be paid by the Toy Industry Foundation, whose mission, according to the ethics memo, is to help at-risk children "by meeting a vital, yet frequently overlooked, developmental need often missing in their lives -- play."

The key ethics review memo states at the top that it came from Faulk, whom it describes as the "Designated Agency Ethics Official." But it was signed by someone the CPSC yesterday called "an alternate ethics officer" because Faulk was the traveler.

The National Consumer Law Center has a new report Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers. The report provides an excellent overview of the entire credit card industry, the history of its rapid growth under deregulation and preemption and how its staggering profits have been fueled by abusive practices affecting all consumers. It then focuses on the fee-harvester cards, which "represent an extreme version of the abuses by the card industry." It describes how the companies use sophisticated algorithms and access to credit report data to target vulnerable consumers, not for true credit solicitations, but for fee-harvesting. I could use the metaphor of a parasitic alien, jumping on the backs of consumers and sucking out their money, fee by fee, but the report does better.

In the 1975 movie "Jaws," a marine biologist played by Richard Dreyfuss makes this observation about the great white shark: "What we are dealing with is a perfect engine, an eating machine. It's really a miracle of evolution."

One of the fee-harvester cards featured in the NCLC report comes with a credit limit of $250. However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee -- an instant debt of $178 and buying power of only $72. Fee-harvesting is extremely lucrative for the industry. In 2006, Atlanta-based CompuCredit -- one company featured in the NCLC report -- collected $400 million in fees from a portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt.

The report points out that "fee-harvester cards have very little purchasing power" for the consumers who "use" the cards: "much of the unpaid balances represent fees rather than payments for purchases to third-party merchants." The report describes in detail how credit card banks, large and small, obscure (CorTrust) and well-known (Capital One and HSBC) have developed the fee-harvesting business model to target sub-prime consumers with low credit scores. The report provides a detailed explanation of the techniques used by fee-harvester cards to deplete millions of dollars annually from consumer wallets -- from down-selling and abusive debt collection to the slice-and-dice, used by the massive "What's In Your Wallet?" lender Capital One:

Slice and dice: Rather than increasing the credit available on an existing card with a low limit, a bank will sometimes issue an additional card that also has a low limit. That increases the odds that a cardholder will incur penalty fees or rates by exceeding the limits or missing payment deadlines on one of multiple cards. A 2006 report in Business Week magazine identified five consumers who ended up mired in debt after they were issued multiple credit cards by Capital One Bank. A Capital One spokeswoman told the magazine that the "vast majority" of Capital One cardholders had only one account, but that "a very small percentage" had three or more cards.

Reverse redlining. Lenders have historically denied residents of minority communities equal access to credit, a form of discrimination known as redlining. Some issuers, seeking to exploit that history, have launched "affinity" campaigns that market high cost products, including fee harvester cards, to minority communities. For example, a marketing company called Urban Television Network distributed the Freedom Card, a fee-harvester card that often had a credit limit of only $300. Promotional efforts for the Freedom Card included a contract with musician Queen Latifah.

It's tough to beat the statement by his fellow FCC commissioners and consumer champions Jon Adelstein and Michael Copps in response to the grungy official release and pronouncement from FCC chair Kevin Martin that the next and last FCC hearing on media ownership will be in Seattle, but next week.The full statement follows:

A hearing with only five days notice is no nirvana for Seattle and the Pacific Northwest. This smells like mean spirit. Clearly, the rush is on to push media consolidation to a quick and ill-considered vote. It shows there is a preordained outcome. Pressure from the public and their elected representatives is ignored. With such short notice, many people will be shut out. We received notice of the hearing just moments before it was announced. This is outrageous and not how important media policy should be made.

Read all of the statement here at the CPSC [although for the original letter, the link below loads faster than the CPSC link]. Here is an excerpt:

This week, several members of Congress publicly called for my resignation as CPSC Acting Chairman, citing a letter I recently sent to the Senate Commerce Committee expressing my views on pending legislation before that committee. In the letter (pdf), I respectfully pointed out what I think are several unwise proposals in a bill to reauthorize and expand the mission of the CPSC. However, despite media reports to the contrary, nowhere in the letter (or anywhere else) did I assert that the CPSC does not need additional resources. In fact, quite to the contrary, the main message of the letter is that if CPSC resources are diverted to new missions and mandates, we will need a dramatic upsurge in our personnel and funding, far beyond what either the House or Senate are proposing for our pending budget.

Considering everything negative about reform that Nancy Nord has been saying from inside the CPSC, (supposedly an independent agency), here's a surprisingly weak letter from White House economic chief Al Hubbard expressing the administration's official position opposing S. 2045, the CPSC Reform Act, which passed the Senate Commerce Committee yesterday. He does take the opportunity, however, to bash those pesky state Attorneys General. (Our previous CPSC blog).

I get offered a receipt each morning when I pay cash to buy my cup of coffee, where a mistake is meaningless and I certainly cannot deduct the cost of the coffee on my taxes, or get reimbursed by PIRG, as far as I know.

But do I get a receipt when I vote, where mistakes matter to democracy? Each year, poll workers jokingly give me a "I voted" sticker when I ask, but no real receipt. But worse, many voting machines don't even keep a printed internal "paper trail" receipt for audit purposes. No, not with today's new and "improved" touch-screen voting machines. You can watch U.S. PIRG democracy advocate Gary Kalman (pictured) and other experts in a Voice of America video talking about the need for paper trails in electronic voting machines. Excerpt from commentary by VOA's Jeffrey Young:

The credibility of a democratically-elected government begins with balloting the public believes to be fair and accurately counted. And as the technology of voting advances, election officials have to take new steps to ensure accuracy, and with it, credibility.[...]Unfortunately, many of the electronic voting machines now in use do not create receipts. So, states and [smaller subdivisions called] counties would have to purchase many millions of dollars worth of new equipment to have this capability. But ultimately, what is at stake is the credibility of the election system in a democratic society.

(UPDATE: Here is Nord's letter.) The acting chair of the Consumer Product Safety Commission (CPSC), Nancy Nord, has told Senate Commerce Committee leaders in a letter that large parts of their PIRG-backed CPSC reform bill [S. 2045, the CPSC Reform Act of 2007, sponsored by Sens. Pryor-D-AR, Inouye, D-HI, Durbin-D-IL and others] scheduled for a committee vote next Tuesday are "crippling" and "hampering" to product safety. From Nord:

The result is clear: enactment of S. 2045 would harm product safety and put the American people at greater risk.

While Nord makes some useful suggestions on personnel and rulemaking issues raised by the bill, much of the letter reflects her personal view that holding wrongdoers more accountable is the wrong way to go. We disagree.

What disappoints me most is that Nord reserves some of her greatest ire for one of the most important sections of the bill, its provision granting co-enforcement authority of product safety laws to state Attorneys General, saying that it "would invite nothing short of product safety chaos" and "undoubtedly lead to the inconsistent application of federal law." This section of her letter, which incidentally is addressed not only to full committee chair Daniel Inouye but also to subcommittee chair Mark Pryor, the former Arkansas Attorney General, reads like something out of the big-business-backed American Enterprise Institute's anti-state attorney general campaign organizing materials (previous blog has links). It's clear, from the federal government's abdication of its role as a health and safety enforcer, that we need 51 consumer cops, not one.

Annys Shin of the Washington Post also has a story on the letter: Product Safety Chief Sees Setbacks in Senate Bill.

We'd all be better off if states figured out a better way to raise money for education and other government services than their regressive lottery systems, which rely heavily on the dreams and paychecks of the poor for funding government programs. It's the wrong way to run a government. Even worse, as the New York Times points out on Sunday in its latest expose (link to the series) on these legalized gambling systems, just two firms have used "heavy-handed" tactics to divide up the domestic state and now international lottery business into their own cash machines. The story Divide and Conquer: Meet the Lottery Titans, by Ron Stodghill and Ron Nixon, alleges that the duopoly has used "heavy-handed" tactics, sometimes including bribes, to dominate the industry and make billions feeding at the public trough:

Every business has its titans, of course. But according to analysts, lottery officials and public documents, Gtech and Scientific Games have done more than just ride the gambling boom -- they have strong-armed their way to the top of a publicly sponsored industry that they now dominate. [...] Gtech, in particular, has been heavy-handed at times. According to court papers and regulatory filings, the company's representatives have drawn persistent allegations of bribing their way into contracts.

Amit Paley's story Confusion Cited In Overpayments To Student Lenders in today's Washington Post details the long-running machinations over at the Department of Education concerning the Brobdingnagian student loan scandal that cost taxpayers hundreds of millions of dollars while unjustly enriching student lenders. The story points out that "Some inside the department sounded alarms," which were apparently ignored at headquarters by Education Secretary Margaret Spellings.

"I have come across what appears to be significant federal waste," department researcher Jon H. Oberg wrote in a 2003 memo to agency officials. "I estimate it amounts to about $30,000 per day, perhaps more."

"I don't know if it's a knowable number," she said. "I guess it's knowable by somebody. But my inspector general doesn't know it, to my knowledge. And I don't. We haven't found out."

In September, Congress passed, and the president signed, without inviting us, PIRG-backed legislation eliminating the subsidies and reforming the program (previous blog).

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.

The Interstate 35W bridge tragedy in Minnesota last week has so far brought pain and suffering. Perhaps it will also alert the Congress, the public and the administration that we need existing infrastructure funding. Many of our roads and bridges are in a state of disrepair. Road conditions are a factor in a third of the nation's 40 thousand annual road fatalities. "Fix It First" policies would prioritize deferred maintenance projects over new capacity. Doing so would also slow down sprawl and free up funds for public transportation.

The state PIRGs support such a "Fix It First" policy. We're urging our members (and you) to contact the Chairman of the House Transportation and Infrastructure Committee, Rep. James Oberstar (D-MN) and urge him to take action now to introduce a "Fix It First" policy.

The Center for Justice and Democracy has a comprehensive new white paper on the corporate assault on public protections: Corporate Empowerment and the Decline of Public Safety.

Just look at today's federal regulatory agencies, which were created to safeguard the public from corporate abuses. These agencies have been captured and are controlled by the very industries they were intended to regulate. This transformation of mission and management is primarily the result of the President's agenda to minimize the government's role in protecting its citizens. [...] And finally, the Bush administration has been quietly attempting to wipe out or render meaningless the legal rights of consumers hurt by the very dangerous products and practices that the agencies themselves were created to safeguard against and have failed to prevent.

Reporters keep calling and saying: "Why can't the CPSC do the job of protecting us from dangerous Chinese imports and other hazardous products?" One big reason is money. In a previous post, I pointed out that the CPSC's startup budget of $34 million in 1974 would be $149 million today, but its actual budget is only $63 million. Here's another analysis:

$63 million = Annual CPSC budget.

$70 million = Total amount wasted by FEMA by not delivering ice to New Orleans Katrina survivors. Instead, FEMA drove ice all around the country in trucks, then stored it for two years at 12 regional ice "installations" and just recently, melted it ($3.5 million for melting alone). Sources: AP story and news release from U.S. Rep. Steve Cohen (D-TN).

On a related matter, the House Oversight and Government Reform Committee recently held a hearing on FEMA's toxic formaldehyde-laden trailers for Katrina survivors, after the problem was exposed by Sierra Club testing. And, some are saying that the formaldehyde in FEMA's toxic trailers came from China, too. FEMA says: Open the windows. Brownie, you did a heck of a job.

In scheduling a two day Town Hall to Examine Privacy Issues and Online Behavioral Advertising on 1-2 November, the U.S. Federal Trade Commission (FTC) has taken its first deliberative, tentative baby steps in response to the fall 2006 online privacy complaint filed by U.S. PIRG and the Center for Digital Democracy. The FTC has also received additional filings in support of our views from other experts, as well as our subsequent USPIRG/CDD/EPIC petition against Google/DoubleClick's merger. PC World explains that the FTC wants to "learn more about current practices in targeted advertising." But our co-complainant, Jeff Chester of the Center for Digital Democracy says in the same story: "The FTC should be issuing rules, not invitations for an industry talkfest that will result in a delay protecting consumers."

In the story today After Protests, City Agrees to Rewrite Proposed Rules on Photography Permits the New York Times reports:

Responding to an outcry that included a passionate Internet campaign and a satiric rap video, city officials yesterday backed off proposed new rules that could have forced tourists taking snapshots in Times Square and filmmakers capturing that only-in-New-York street scene to obtain permits and $1 million in liability insurance.

A series of unwise adverse court and regulatory decisions has preempted state authority to protect consumers from unfair bank practices. Today, Travis Plunkett of the Consumer Federation of America represents (his testimony) U.S. PIRG and a coalition of leading consumer and community groups at a hearing of the House Financial Services Committee on Improving Federal Consumer Protections In Financial Services. Basically, most federal consumer rules are written by the Federal Reserve Board, which could care less and often ignores Congressional deadlines. Worse, most of those rules and laws are enforced by the powerful but obscure Office of the Comptroller of the Currency (see our OCCWatch page), which has a lack of will to offend the national banks which fund its fiefdom. The question, then, is what should Congress do? In our view, the most important things that it could do are to (1) restore authority for dual enforcement by state attorneys general; (2) eliminate the sweeping preemption of state consumer laws; (3) increase oversight of the sleepy (Fed) and aider and abettor (OCC) federal regulators; (4) grant authority to the FTC over banks, as an honest broker regulator not in bed with the banks. Our testimony by Travis Plunkett has more details (excerpt below):

One of the most difficult problems that the Committee will face in attempting to improve consumer protection efforts is a culture of coziness with the financial institutions they regulate at most of the agencies and an insensitivity to consumer concerns. For example, most of the regulatory failures we highlight today are in areas, like oversight of high-cost "overdraft" loans, where federal regulators have existing authority to act and have chosen not to do so. Simply increasing the authority of the agencies to write or enforce rules, or to offer a unified complaint hotline, will not change the culture in some agencies that has caused them to ignore festering problems in the credit arena or to reject adequate consumer protection measures. [...] The key to addressing these root problems is to make the regulatory process more independent of the financial institutions that are regulated. This means allowing the Federal Trade Commission (FTC) to bring enforcement actions against national banks and thrifts for unfair and deceptive practices and to initiate regulation of these entities. It also means granting consumers the right to privately enforce federal laws. Finally, Congress should act to rein in lending abuses where agencies have shown an unwillingness to act vigorously, such as credit card lending, sub-prime mortgage lending and the use of deceptive and high-cost “overdraft” loans by national banks.

The obscure but powerful federal bank regulator known as the OCC (our OCCWatch page) has a long way to go improve its public relations with either state enforcement officials (it has preempted enforcement or enactment of all stronger state consumer laws as they apply to either national banks or any non-bank company that is an operating subsidiary of such a national bank) or consumers (no consumer advocate believes that it does itself actually enforce the laws to protect consumers, although it certainly claims it does). This month, OCC rolled out the website Helpwithmybank.gov. We're unimpressed. One sample: When they can't help, it's apparently not their fault:

Can the OCC help me find out if a bank has been cited for a violation of a regulation or law?

According to Federal law, results of examinations are considered confidential. The OCC cannot release any information relating to any supervisory actions or regarding whether a violation of law or regulation occurred in connection with your complaint.

However, you can look for two kinds of information on our Web site, www.occ.gov:

* whether a bank is in compliance with the Community Reinvestment Act (CRA)
* whether a bank is subject to an enforcement action

Thanks for that! Recently, the Government Accountability Office (GAO) issued a report on OCC consumer complaint handling efforts.

The long-awaited FTC staff report on net neutrality is out. In her statement, FTC chair Deborah Platt Majoras tells us "policy makers should be particularly hesitant to enact new regulation in this area." Actually, FTC, the Internet is too important to do nothing in the face of telecom monopoly threats. Telecom leaders such as AT&T's Whitacre have routinely described business models and bold plans to hijack the free and open Internet. We're fighting to save it, while the FTC fiddles.

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."

So why put all the Social Security Numbers of 64,000 Ohio state employees on one apparently-barely-encrypted backup data disk? (AP-Ohio data loss is worse than said) And why add the names and Socials of 53,000 citizens receiving drug benefits? And then, why entrust this identity theft treasure trove to an intern who left it in a car to be stolen? Big companies, and big agencies, need to take data protection a little more seriously. Citizens, consumers and employees deserve better.

We testified today before the Consumer Subcommittee of the House Energy and Commerce Committee on a series of product safety bills. At the last minute, the acting chair of the Consumer Product Safety Commission (CPSC), Nancy Nord, refused to testify because she wasn't given her own personal panel and would have had to sit at the same table as me and Sally Greenberg of Consumers Union. When the perceived trappings of high government officialdom are more important to an official than what subcommittee chair Bobby Rush justly called "doing the people's business," there is something very wrong.

Banks continue to make life miserable for consumers whose debit cards are victimized by fraud or identity theft. Don't let those shallow "zero liability" promises fool you-- a debit card is less protected by law than a credit card. Even if the bank decides to honor its promise: remember, you've already lost your money and you've got to fight to get it back. You also could face similar problems getting your money back with electronic transfer fraud or forged check fraud, as Bob Sullivan's latest MSNBC Red Tape Chronicles blog explains:

For two full weeks after [Rachel] Poor reported the [forged check] crime to her bank, her imposter continued to withdraw money from her account as fast as she added it. As a result, she was hit with 20 overdraft fees totaling $670, and nearly six weeks after the fact, she was still fighting to get all her money back. "Basically, I feel like I was the victim of fraud twice, once by the (person) who was using my account and again by Bank of America," Poor said. "Every time my balance went positive for even a moment another fraud charge would pass through ... so you can imagine my frustration."

Even though the regulators don't like this, begin immediately to copy all letters and faxes to your bank's regulator. It is often the only way to get the bank's attention. Don't wait until your dispute fails to get your money back.

Not sure which of the hodgepodge of regulators to write to or call? The OCC, chief regulator of national banks, is a good bet. They're not too busy, as no one's ever heard of them and they like it that way. They'll tell you which other regulator to complain to if they're the wrong one. Ignore their advice about trying to work it out with the bank first. Work with the bank, but keep the regulators apprised every step of the way.

Due to an "insufficient" PR campaign to taxpayers by the IRS (its fact sheet), billions of dollars in phone tax refunds due to consumers and businesses are still unclaimed, according to a release by the authoritative Center for the Study of Responsive Law:

Standard refunds for individuals may seem small, $30-$60, but taken together Americans are missing out on billions of dollars. It's Not Too Late: While the April 17 deadline is past, claims can still be made over the next three years (until 2010) for the refund by all those eligible who have not already done so.

The agency in charge of airport security, the Transportation Security Administration, has lost a hard drive containing detailed sensitive information on current and past employees, according to news stories including TSA Hard Drive With Employee Data Is Reported Stolen by Spencer S. Hsu in the Washington Post.

The FBI and the Secret Service have opened a criminal investigation into the apparent theft of a computer hard drive containing the personal, payroll and bank information of 100,000 current and former workers of the Transportation Security Administration, including airport security officers and federal air marshals, the TSA said yesterday.

When I first came to Washington 17 years ago, and would read the printed Congressional Record, its regular listings of military officers receiving promotions, such as to general officer rank, included names and Social Security Numbers. While SSNs are still the military ID, at least their unwise disclosure in the CR (but not on family ID cards) stopped years ago. Now, in today's New York Times, Ron Nixon reports in U.S. Database Exposed Social Security Numbers that two different agencies, the Agricultural Department and its aider and abettor, the Census Bureau, have been posting SSNS on the Internet. An "unaware:"

Agriculture Department for years publicly listed Social Security numbers of tens of thousands of people who received financial aid from two of its agencies, raising concerns about identity theft and other privacy violations. [...]The problem was reported to the government last week by a farmer in Illinois who stumbled across the data on the Internet.

Teuber said the USDA had been using Social Security numbers as part of a 15-digit federal contract identifier number. The practice dates back more than 25 years, she said, to when Social Security numbers were printed on checks. She said the USDA's information-security division was not aware of this continuing practice until last week.
The loans database was part of a larger public Web site run by the Census Bureau, which collects all federal loan and grant data. The site has been up since 1996.

We've joined the Electronic Privacy Information Center and the Center for Digital Democracy in an important complaint to the Federal Trade Commission (Washington Post story today by Ellen Nakashima explaining complaint) challenging the announced merger of the online powerhouse Google with the ad-server giant Doubleclick. The filing urges the FTC to consider the effects of the information collection regime that the merger creates. Before it can go forward we want the FTC to ask: if Google can record, analyze, track, and profile the activities of Internet users with newly-available abilities to combine data that are personally identifiable and data that are not personally identifiable, how can privacy be ensured? We also urge the FTC to require Google to publicly present a plan to comply with the recognized gold standard rule for information collection: the OECD Privacy Guidelines. Finally, we make it clear that the federal government must also consider the antitrust implications of the combination before allowing it to go forward.

Co-filer Jeff Chester of the Center for Digital Democracy has a recent column The War Against Google in The Nation along with a number of recent blog entries explaining the issues. In November, PIRG and CDD had filed a previous FCC complaint asking for FTC action against Microsoft, Google and others for a broad variety of new behavioral tracking practices that fail to guarantee Internet privacy and may subject conusmers to price discrimination (weblining) and other harms. Privacy on the Internet, to the extent that it is guaranteed at all, is protected largely through privacy policies, not by enforceable privacy rights. The two complaints, together, raise troubling questions about how new technologies have enabled the collection and use of massive consumer information resources by Internet firms, for a variety of behavioral, consumer control and other purposes without any government oversight, consumer knowledge or consent or any ethical consideration of the implications on consumer lives. Yet, the technologies also afford an historic opportunity to protect privacy, if used fairly.

Three leading consumer groups filed detailed comments this week objecting to a proposed Federal Trade Commission settlement with the retailer Kmart over its practice of deceptively selling gift cards with hidden fees that reduce their value by more than $50 in less than two years of inactivity. The Consumer Federation of America, Consumers Union and U.S. PIRG, longtime advocates for stronger state and federal laws to protect gift card holders, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains. FULL NEWS RELEASE:

FOR IMMEDIATE RELEASE: Friday, 13 April 2007
CONTACT:
Ed Mierzwinski, U.S. PIRG, 202-546-9707
Travis Plunkett or Jean Ann Fox, Consumer Federation of America 202-387-6121
Gail Hillebrand, Consumers Union, 415-431-6747

Leading Consumer Groups Oppose Proposed FTC Settlement With Kmart Over Deceptively “Shrinking” Gift Cards
-- Say Settlement “Unjustly Enriches” Violator--

Three leading consumer groups filed detailed comments this week objecting to a proposed Federal Trade Commission settlement with the retailer Kmart over its practice of deceptively selling gift cards with hidden fees that reduce their value by more than $50 in less than two years of inactivity. The Consumer Federation of America, Consumers Union and U.S. PIRG, longtime advocates for stronger state and federal laws to protect gift card holders, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains.

"Attention, Kmart shoppers, this settlement is unfair to you," said Ed Mierzwinski, U.S. PIRG Consumer Program Director, "It's bad enough that you'll need to jump through innumerable hoops to maybe get reimbursed for your incredibly shrinking gift card, but this sends exactly the wrong signal to other corporate criminals that the FTC is soft on crime."

"Numerous states have taken action to prohibit gift card sellers from even including dormancy or other monthly fees on gift cards," said Gail Hillebrand, senior attorney for Consumers Union. "At the very least, companies should not be allowed to deceive consumers into purchasing cards with hidden fees, and should be punished when they do." [More from Consumers Union on gift cards.]

The proposed settlement was approved on a 5-0 vote, with two commissioners, Jon Leibowitz and Pamela Jones Harbour, dissenting in part over the failure to require Kmart to disgorge its ill-gotten profits. The FTC will now review comments and decide whether to make it final. In their comments, the groups noted that in another recent settlement, against Darden Restaurants, the owner of Red Lobster and Olive Garden, that the FTC ordered automatic reinstatement of card value.

This is the second settlement order in the last few months where Leibowitz has dissented due to a weak, non-disgorgement penalty (see the DirectRevenue decision of 16 February 2007), Mierzwinski noted.

The groups were represented pro bono in this matter by David Balto, a former senior FTC attorney.

"Consumers need greater rights in gift cards and indeed in all plastic cards ranging from other types of stored value cards to debit cards, where rights are vastly inferior to the protections offered credit cards," concluded Jean Ann Fox, the Consumer Federation of America's director of consumer protection. "Taking action against Kmart for deception is a first step, but it should have been a more meaningful step."
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Today, the Consumer Federation of America, Center for Responsible Lending and the National Consumer Law Center issued a joint statement expressing concern that the Pentagon's proposed regulations implementing the tough 2006 Military Lending Law are too weak and ignore Congressional intent to ban all usurious loans:

We have frequently commended the Department of Defense for concluding that payday and other high-cost loans are harmful and abusive, and support the Pentagon’s commitment to protecting its military families from financial exploitation. However, the regulations they have proposed in attempting to carry out the landmark Military Lending Act include loopholes that will allow payday and other predatory lenders to tweak their products and continue trapping borrowers into high-cost loans. The proposed regulations also inexplicably exempt some highcost loans that have been criticized by the Pentagon and are covered under the law, such as military installment loans.

These loans would be allowed under the Department of Defense’s proposed regulations:

Advance America offered an open-end loan in Pennsylvania that included a $149 monthly “participation fee” plus a nominal interest of 6 percent. The effective annual interest on a $500 loan is 364 percent. This would be permitted under the proposed rules.

Most payday lenders in Illinois now structure their triple-digit interest loans with terms that exceed the 120-day definition of Illinois law. This would be permitted under the proposed rules.

A sailor reported getting a subprime credit card from a South Dakota bank that imposed $294.60 in fees for $84.85 in purchases after just two months. This open-end credit card cost over 2,000 percent interest. This would be permitted under the proposed rules.

First Bank of Delaware offers 350 percent internet installment loans through PurposeLoans.com. These loans could be offered to Service Members if the payment period is extended from 6 to 13 weeks under the proposed rules.

In asking Congress for action last fall, Admiral Charles Abbot, director of the Navy-Marine Corp Relief Society, testified before the Senate Banking Committee that an installment loan from a California company cost a Service member $30,000 to repay $5,000 over a ten year period.

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.

Partly because laws were enacted before there was an Internet, and partly because government agencies lack the will to use their broad authority to do something about it (and the Congress, in thrall to special-interests, certainly would not go out of its way to solve the problems), many consumer protections in the real world don't apply in Internet sales.

UPDATE: Here are PIRG's Lobby reform pages.
If you've ever tried to measure the effect of corporate and private influence peddling on the Congress, as we have, you've probably run into one or another of the U.S. Senate's quaint 19th century contrivances that hook it up to the Internet. These work like Rube Goldberg's "vote- getting machine" (left, larger view at Library of Congress), but aren't funny. My "favorite" is its so-called lobbying database, sopr.senate.gov, which might as well be taken out in back and shot to put it out of its misery. We agree with the editorial in today's New York Times, Of Senate Snails and Scriveners, that argues that the Senate's systems appear designed to purposely delay disclosure. As the Times points out about the Senate's similarly clunky campaign finance disclosure system:

the Senate still clings to its slo-mo evasion of the law's prompt disclosure duties by burying information for weeks upon weeks in the paperwork era. Voters and watchdogs searching for the silken underbelly of special-interest money often are left waiting well after Election Day for the full picture.

As expected (prevous blog), the president recently sent to the Senate the nomination of National Association of Manufacturers' lobbyist Michael Baroody to head the Consumer Product Safety Commission. In an editorial, the Toledo (OH) Blade minced no words:

Mr. Baroody has no credentials to indicate he would act as anything other than a business shill. Indeed, he is a long-time Republican functionary who started out in Washington as a speechwriter for GOP senators, including Bob Dole, during the Nixon administration.

Rather than aggressive enforcement of product-safety regulations, the association [where Baroody works as a principal, NAM] has called for the commission to focus primarily on educational programs and allowing manufacturers to set voluntary safety standards.

The latest sign of the apocalypse: David Cay Johnston has a story today in the New York Times, I.R.S. Letting Tax Lawyers Write Rules:

The Internal Revenue Service is asking tax lawyers and accountants who create tax shelters and exploit loopholes to take the lead in writing some of its new tax rules. The pilot project represents a further expansion of the increasingly common federal government practice of asking outsiders to do more of its work, prompting academics and other critics to complain that the government is going too far.

A number of esteemed commenters, including former Bush regulations czar John Graham (and we don't often agree with him), raise concerns in the story about the idea. Our colleague Gary Bass of OMBWatch gets the last word: "Why don't we just privatize Congress and outsource the development of our laws?" he asked.

This week, we joined the Consumer Federation of America and Consumer Action in detailed comments opposing proposed rollbacks of accounting standards by the Public Company Accounting Oversight Board, or PCAOB, (say "peek-a-boo") (PCAOB Letter) and the SEC (comments to SEC). Over at the Corporate Crime Reporter, editor/publisher Russell Mokhiber -- the nation's only fulltime reporter on the corporate crime beat -- has a detailed story on our PCAOB filing. MORE:

When Congress said "No more Enrons" and enacted the Sarbanes-Oxley (SOX, or oddly, Sarbox) corporate crime law in 2002, two core parts of the law were its creation of a new investor protection watchdog known as the Public Company Accounting Oversight Board and its Section 404 -- which requires CEO-certification of financial statements. These two investor protection measures have been under a relentless and unwarranted attack by the U.S. Chamber of Commerce. To believe the Chamber, you'd think that these important investor protection measures were steps toward a corporate apocalypse.

The result has been predictable. Both the SEC and the PCAOB have attempted to appease the Chamber by responding with a slew of anti-investor rollback proposals. These proposals by the government are being put forward despite any documentation of a real problem, and significant counter-evidence that the law is working fine.

As our PCAOB letter points out, one-time startup compliance costs are dropping dramatically for companies in their second year under Section 404, and further, the benefits of Section 404 far outweigh its costs:

Moreover, substantial evidence supports the conclusion that SOX 404 brings benefits that greatly exceed its costs. That evidence takes a number of different forms. These include: statements by institutional investors that they have seen significant post-SOX improvements in the quality of financial reporting; statements from senior managers of public companies that it has helped them to streamline and improve processes and make better business decisions; evidence that, absent the requirement, many public companies had failed to maintain adequate internal controls or report weaknesses in those controls; and academic research on the effects of SOX 404.

The significant difficulty that many public companies experienced in implementing Section 404 -- a factor that has helped to drive up implementation costs -- has been taken by some to imply a problem with the standard itself. AS2 [the implementing standard] can hardly be blamed, however, for public companies' poor compliance with a requirement that has been on the books for decades, for their lack of adequate competent personnel to oversee controls, or their failure to adopt adequate control systems.

Finally, the latest shrill attack on SOX is that has caused massive "Capital Flight" -- the claim is that companies are going public" not in New York or Silicon Valley, but in Europe and Asia, due to the new law. Yet, as we document extensively, their argument is not based on the facts:

In making its case against SOX 404, the business community has repeatedly argued that a relaxation of the standard is needed to preserve the competitiveness of U.S. securities markets.

Recent reports have thoroughly discredited this argument. For example, a study by Thomson Financial analyzing 20 years of initial public offerings (IPOs) reportedly found no noticeable ill effects from SOX. Instead, they found that foreign IPOs accounted for 16 percent of IPOs in the United States last year, the highest proportion in the 20 years covered by the study. Furthermore, the $10.6 billion foreign companies raised through U.S. IPOs last year represented a 23 percent share of U.S. IPO volume, the highest level since 1994, according to the study.

To the degree that the United States has seen a decline in its share of global IPOs, a number of analyses, including recent reports by Goldman Sachs and Ernst & Young, have clearly documented that other factors are primarily responsible. The Goldman Sachs analysis notes that U.S. share of global equity market capitalization dropped dramatically from 1970 to 2000, long before the passage of SOX, attributes recent IPO trends to "economic and geographic factors" as well as the spread of the "U.S. capital market 'culture'" and notes that U.S.-based but globally minded firms stand to benefit from the growth of world markets.

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.

Yesterday the Bush Administration EPA responded to a 2004 lawsuit filed by EarthJustice on behalf of U.S. PIRG and the Sierra Club by announcing a new rule cutting benzene emissions from gasoline to the air. From our joint release:

"The good news," said Emily Figdor of U.S. PIRG, "is that today's rule is expected to limit benzene levels nationwide, which should make the air safer in many places. The bad news is that EPA will allow benzene trading. That means some refineries won't reduce the benzene content of their gasoline, and may even increase it. Having benzene levels go down in Newark, New Jersey won't do much for the health of people in Portland, Oregon."

The end of the day this Monday, 5 February, is the deadline for filing comments to the Pentagon in support of the new Military Lending Act. It's the most important pro-consumer law enacted by the Congress in years. Its foes -- from the banks to the predatory lenders -- are lining up their lobbyists in Armani and Gucci-clad ranks to convince either regulators or Congress to weaken the new protections that apply to the camouflage-clad ranks [along with their families back on base] that we're sending to Afghanistan and Iraq to protect us.

The Military Lending Act protects active duty servicemembers and their families from abusive credit practices. It was passed with support of an unprecedented coalition of military family support groups, consumer advocates and the Pentagon itself, aligned because crippling, punitive predatory loans imposed on low-paid soldiers and sailors were hurting the nation's military preparedness.

The new Military Lending Act caps interest rates at 36% annual interest including extra fees and insurance premiums. It also prohibits securing loans with personal checks (payday loans), or through electronic access to the Service member's bank account, mandatory allotments, or car titles. Procedural rights are safeguarded through its ban on mandatory arbitration clauses, waiver of rights, and other burdensome requirements. You can comment at the Federal eRulemaking Portal. Follow the somewhat clunky instructions for submitting comments. Comments are posted to the public, so be careful about personal information. Include the agency name (Department of Defense) and docket number: DOD-2006-0S-0216; FR Doc. 06-9518. What should you say? Here are some ideas:

1. Congratulate the Department of Defense on its thorough report to Congress (large pdf) on the impact of predatory lending on Service members and their families. Urge quick implementation, by 1 October 07.

2. Urge DOD to automatically provide coverage to servicemembers. Tell personal stories. By far, that's my most important advice. If you've been victimized by predatory practices--explain how it worked and how it hurt you and your family.

3. List the protections in the Military Lending Act that are important to you: The 36% interest rate cap (usury ceiling) that includes all costs of borrowing in its definition, the ban on soliciting unfunded checks as security for a loan, the protections against unfettered access by collectors to bank accounts or military pay, and the civil justice protections.

4. Urge DOD to deliver on the promises of the new law by applying it to all types of lenders, especially including banks, and to all types of loans, especially including all open-end credit (e.g., credit cards) as well as bounced check overdraft "protection" loans. These are a source of inordinate predatory profit for the nation's well-heeled banks [and, think about it, are such a deal, since you can avoid those shabby payday lending storefronts. Your bank will gouge you just the same right there on your monthly statement or at its well-appointed branch office.]

These are significant protections that will eventually -- if we work hard -- be extended to all Americans. For now, however, we must simply work hard to make sure that the banks are included and that rules aren't gutted. The banks are trying to create the false inference that the only problem the new law was intended to address was payday lending, not unfair bank and credit card practices. Wrong. Their record profits have been largely fueled by their virtually unregulated and growing use of predatory practices, from credit card tricks to bounce protection loans. They, along with the full-time predatory lenders, have many friends on Capitol Hill. The banks also have many friends at the Federal Reserve and the OCC (the obscure, but arrogant chief regulator of national banks). These bureaucrats are upset that the Military Lending Act passed through the Congressional military committees, not the banking committees, and that the Pentagon, not them, was given lead rulemaking auuthority, and have been whining ever since at their lack of control of the process. [They're not left out, they're just down a ways on the chain of command structure.]

By the way, we call it the Military Lending Act, for short, or the Sens. Jim Talent (R-MO)-Bill Nelson (D-FL) amendment to the John Warner National Defense Authorization Act for Fiscal Year 2007, in Congressional longhand.

The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper Defining and Detecting Predatory Lending on payday loans by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York. The Fed paper comes to the preposterous conclusion that while payday lending is "expensive," it is not "welfare-reducing" and therefore not "predatory." I had a premonition that this paper would contain such out-of-step findings when the first reference I saw to it was a laudatory pre-publication tease, with excerpts, on a rent-to-own industry website. From the Center for Responsible Lending critique:

Morgan's findings are flawed for three key reasons:

The analysis contains fundamental errors in its characterization of which states allowed payday lending. Example: Morgan identifies North Carolina--which had at least 500 stores during the analysis period--as a non-payday lending state.

Key definitions utilized by the research are overly narrow or are contradicted by available data. Example: Morgan, in part, defines vulnerable households as those with unpredictable future income. However, an industry survey notes that households are nearly three times likely to borrower payday loans because of unexpected expenses.

Morgan's finding that unlimited payday lending leads to lower prices is flatly contradicted by other research. Example: Researchers from the FDIC, using a national, random sample, found that most payday companies charge the maximum rate permitted by state law.

UPDATE: 30 Jan 2007. I should have been clearer that while NJPIRG has serious concerns, its position is not in full opposition to what is a not-yet-fully-described plan to privatize NJ toll roads.

Here's a note from Abigail Caplovitz Field, NJPIRG legislative advocate: To clarify, NJPIRG's position is one of open-minded but serious concern. We will listen to the details of a deal before judging it. That said, there are many reasons to be concerned. We recognize that addressing these concerns would make the road less valuable to potential investors. Nonetheless, the furtherance of the public interest, not the size of the payout, must be the focus of any decision about a possible privatization deal. Our chief concerns are the following:

1. The length of deals in other states--50, 75, and 99 years--is too long to cede public control over key pieces of infrastructure; the unforeseeable can occur that changes everything. After all, the interstate highway system was created 50 years ago; the Model T was introduced 99 years ago.

2. The size of the scheduled toll hikes: Indiana and Chicago allow punitive increases that may become unaffordable to many drivers.

3. Loss of public control over the state's transportation decision making -- particularly given the long time-frames involved.

4. Use of proceeds: To the extent that the proceeds were used for anything other than paying off other long-term debt and restructuring the state's transportation fund, a sell-off would seriously worsen the state's existing revenue shortfalls by eliminating public use of toll revenues for generations to come.

Original post: U.S. PIRG tax and budget analyst Phineas Baxandall, Ph.D, has a nice critique of NJ governor Jon Corzine's short-sighted plan to sell off the state's toll roads in today's New York Time story Option to Rent: Great New Jersey Views, Many Lanes, Tollbooths Included. Baxandall:

New Jersey has a long track record of using short-term fixes for long-term budget problems. If they spend the money in the first 10 years, the question is what happens in Year 11.

By far, one of the clunkiest, over-priced 19th-century interfaces to the digital world has been the device that sits on top of TV sets known as the set-top box. Why care? If you want your HDTV, and your TiVO, your digital cable and all your toys to play well together, we need the better devices that competition and some long-delayed FCC action on its so-called CableCard rule can force. The cable guys have had a long-standing monopoly (at a hefty monthly fee, don't forget) and they've offered a Hobson's choice. Now, as the New York Times reports from the Consumer Electronic Show in Las Vegas, Atop TV Sets, Basic Black Boxes Face Competition:

At the Consumer Electronics Show in Las Vegas last week, makers of set-top boxes exhibited devices with a host of new features: more hard-disk space for storing digitally recorded TV shows, easier-to-navigate program guides, connections to Web sites, DVD burners and video games. The box manufacturers and the cable operators like Comcast, Cox and Time Warner Cable that they sell to, have an age-old motivation for improving their products: fear.

Although the geek-meter on most of the links in this post is spiking high in the red zone, here's a succinct summary from Karen Sum-Ping:

Consumers should care about CableCARD because it is what allows digital device manufacturers to compete against that digital cable set-top box and provide better features and prices. Previously, a cable subscriber had little to no choice but to lease a digital set-top box from his particular cable provider.

Nina Olson, the taxpayer advocate at the IRS, released her encyclopedic annual report (release, executive summary, full report) to Congress yesterday. It focuses on solutions to major problems taxpayers face and continues her past, deserved harsh critique of the performance of the agency's dumber-than-dirt recent program to hire private debt collectors (my previous blog) and urges the program's repeal. From Olson's report:

The IRS's solution to early intervention is to relegate many of these taxpayers to the Private Debt Collection Initiative, whereby the government (aka taxpayers) has the "privilege" of paying up to 25 percent of any taxes collected to private collection agencies, even while estimates show that IRS employees could perform the work far more efficiently, with a return on investment of approximately 13:1. We ask, in this report, what business case exists for such an arrangement, and conclude that there is none. As a result, we recommend that Congress repeal Internal Revenue Code section 6306 and terminate the Private Debt Collection initiative once and for all.

The FTC has penalized 4 diet pill and vitamin manufacturers, including the massive Bayer, a total of $25 million for making false or deceptive promises about the effects of their products. One company involved, Trimspa, used Anna Nicole Smith as its celebrity. The Pharma Marketing Blog has a good post called If FDA were as Powerful as FTC explaining the difference between the FTC's enforcement actions (which often include money penalties) and the FDA's (generally limited to "don't do this again" letters). From the blog:

FTC has powers far beyond those of mortal FDA -- it can impose fines, force the liquidation of assets, and put liens on property to collect settlement fees, all of which the FDA cannot do -- or has never done to my knowledge.

PIRG's latest report on weak FDA enforcement is Turning Medicine Into Snake Oil.

Over at the Boston Globe, in a story yesterday Credit agencies lag on errors, fraud (reg. may be required),reporter Beth Healy has followed up with a number of victims of identity theft and credit bureau mistakes who'd contacted her after a major Globe series -- Debtor's Hell-- she'd co-written last summer. Healy asked, as they say, "How's that going for you, anyway?"

Answers: Badly. Not well. From the Globe:

Nearly five years later, collectors are still hounding the wrong Eric Carroll....Many felt victimized by the power and ruthless tactics of debt collectors. But Carroll and others complained of another maddening aspect of the system: The glacial and ineffectual response of the three giant keepers of consumer credit records -- Experian, Equifax, and TransUnion...The local, state, and federal law enforcement response to complaints of identity fraud is similarly passive, despite the huge volume of complaints -- 255,000 last year to the Federal Trade Commission alone. Consumers are left to fend for themselves...

Here are links to a few interesting recent entries in the various consumer and public interest blogs I read:

UPDATE: 30 Jan 2007. I should have been clearer that while NJPIRG has serious concerns, its position is not in full opposition to what is a not-yet-fully-described plan to privatize NJ toll roads.

Here's a note from Abigail Caplovitz Field, NJPIRG legislative advocate: To clarify, NJPIRG's position is one of open-minded but serious concern. We will listen to the details of a deal before judging it. That said, there are many reasons to be concerned. We recognize that addressing these concerns would make the road less valuable to potential investors. Nonetheless, the furtherance of the public interest, not the size of the payout, must be the focus of any decision about a possible privatization deal. Our chief concerns are the following:

1. The length of deals in other states--50, 75, and 99 years--is too long to cede public control over key pieces of infrastructure; the unforeseeable can occur that changes everything. After all, the interstate highway system was created 50 years ago; the Model T was introduced 99 years ago.

2. The size of the scheduled toll hikes: Indiana and Chicago allow punitive increases that may become unaffordable to many drivers.

3. Loss of public control over the state's transportation decision making -- particularly given the long time-frames involved.

4. Use of proceeds: To the extent that the proceeds were used for anything other than paying off other long-term debt and restructuring the state's transportation fund, a sell-off would seriously worsen the state's existing revenue shortfalls by eliminating public use of toll revenues for generations to come.

ORIGINAL POST: New Jersey PIRG has organized a coalition (news release and other links and news story) to oppose raise concerns over the potential privatization of the New Jersey Turnpike as a one-time revenue gimmick that will end up costing taxpayers more in the long run. "New Jersey's highways should be managed for the public's interest, not private profit," explained Abigail Field, Legislative Advocate for NJPIRG. "Decisions about where and when to build or expand our roads, and what tolls to charge, should all be made based on New Jersey's needs, not a company's profit margin." Excerpt from NJPIRG fact sheet:

New Jersey's Infrastructure Decisions Should Be Based on Public Needs, Not Protection of Investor Profits To ensure high numbers of toll payers for investors, privatization contracts typically include "non-compete" clauses that restrict the state from building or improving nearby roads that would be attractive alternatives to paying the high tolls. California was forced to buy a private road when it insisted on improving "competing" roads. In Colorado, non-compete clauses required communities to lower speed limits and add traffic lights on competing roads. When the details were disclosed, Coloradans passed a law to forbid similar non-compete clauses in the future.

Similarly, a private manager of the Turnpike would have a strong incentive to reduce any costs. A private company would have no reason to spend on new environmental or safety improvements, such as for future road-sensor technology or less toxic ice melt. A private company also has no obligation to act on communities' concerns regarding changing off ramps or limiting noise.

For many years since his retirement from the New York Times, renowned investigative reporter and author David Burnham, along with his colleague Susan Long, a statistician at Syracuse University, has run the Transactional Records Access Clearinghouse, or TRAC. The group fights recalcitrant federal bureaucrats to obtain datasets about how well the federal government does its job, then posts those data on the web in an easy-to-use format so researchers or citizens can analyze it.

This week, according to the Associated Press, TRAC has caught the IRS reducing the amount of time it spends auditing big companies. The bean counters claim no decline, and instead, greater efficiency. You decide.

On Monday, FCC Commissioner Robert McDowell commendably reaffirmed he would recuse himself from the ATT-Bellsouth merger vote, despite intense pressure from Chairman Kevin Martin. At the FCC page you can also see statements on McDowell's decision by Martin and by Commissioner Michael Copps. Last week, we joined several other media reform groups in a letter to the FCC condemning the pressure being placed on McDowell to "un-recuse" himself. Excerpt from McDowell's statement:

Throughout my brief tenure here at the FCC, I have tried to be as thoughtful, transparent and direct as possible in my decision making. With each decision I make, I endeavor to keep in mind why the FCC exists and what the mission of each commissioner should be; and that, of course, is to promote and protect the public interest. We must never lose sight of the fact that the ultimate shareholders in every endeavor we embark upon are the American people. In this vein, it is incumbent upon every public servant to do all that he or she can to earn the public's trust in the integrity and impartiality of their government.

In light of these factors, I find that I have no choice but to abide by the terms of my Ethics Agreement, heed the independent advice of OGE and my personal ethics counsel, and, ultimately to follow my own personal sense of ethics. Accordingly, I disqualify myself from this matter.

The U.S. Ninth Circuit Court of Appeals yesterday condemned the Federal Energy Regulatory Commission's (FERC) lax oversight of the electric power industry that resulted (in addition to the loss of billions of dollars of investor retirement dollars) in skyrocketing energy prices and rolling blackouts in California during the height of the Enron debacle. The court allowed claims for compensation from what's left of Enron and affiliated banks including Morgan Stanley by California, Washington State, Nevada and local utility ratepayer districts to go forward. From the New York Times:

"The ruling makes it clear that markets need to have a cop on the beat and that the Federal Energy Regulatory Commission failed to step in and do its duty as that cop," said William J. Kayatta Jr., a lawyer who argued the case for California. "If the commission comes back and just says market prices are just and reasonable, they will be slapped down again."

Their company, Enron, was a house of cards that pretended to the world that it was making money with some of the most idiotic ideas ever-- leasing electricity barges off Nigeria and supposedly building trading markets in dark (unused) fiber-optic cable, video downloads and even water. All they were really ever doing was cheating to make these bogus, untested projects appear profitable. They also manipulated the California energy markets to steal from grandma Millie. They created hundreds of fak-o affiliated enterprises named for Star Wars and other movie characters to hide evidence of the thefts. They cooked the books so hot you could fry an egg on them. Throughout, however, they were shamefully aided and abetted by some of the biggest banks in the Wall Street world who all wanted their own piece of the action. Meanwhile their accountants, Arthur Andersen, forgot that the Supreme Court had designated accountants as "the public's watchdog."

In addition to shutting research libraries (previous blog), the U.S. EPA has aggressively sought to weaken hazardous waste reporting rules known as the Toxics Release Inventory (TRI) (previous blog) despite overwhelming support from the American people, health experts and state pollution agencies. U.S. PIRG staff attorney Alex Fidis has joined OMB Watch in its release of a new report (pdf) analyzing the comments to the agency on the proposal. Excerpt from the release:

According to OMB Watch’' analysis, EPA received comments from 122,420 individuals and groups. The vast majority of those commenting, 122,386 (99.97%), strongly opposed the changes, while only 34 commenters (0.03%) expressed some degree of support for the proposals. This support came almost entirely from companies and industry associations, with a few government agencies and individuals voicing partial support.

"The weakening of TRI reporting requirements provides yet another example of EPA's attempts to curtail public access to environmental information," said U.S. PIRG Staff Attorney Alex Fidis. "In this case, EPA wants to help hide toxic pollution rather than being upfront with the American public. The overwhelming repudiation of EPA's proposal is an unmistakable sign that no one is fooled by what the agency is trying to do here."

Comments opposing the changes cited concerns about threats to public health and the environment from increased, unmonitored pollution; the reduced ability of government agencies to make sound decisions on toxic pollution; and the lack of burden reduction that will result from the changes. For example, the Oklahoma Department of Environmental Quality argued that if the changes go into effect, the department "would no longer be able to track potential hot spots without the amount and location of [toxins] released in Oklahoma."

We've joined key public interest groups including Free Press and Consumers Union in a letter to the Federal Communications Commission condemning the failure of the agency to seek public comment concerning what appears to be a blatantly political decision driven by the "needs" of the not-so-Baby Bells: the FCC General Counsel's "un-recusal" of Commissioner Robert McDowell in the ATT-Bellsouth merger: MORE:

Given that the combined entity will control half of the business and residential telephone lines in the nation, it is the public, not AT&T or Bell South which has the greatest stake in the merger’s rejection or approval, with or without conditions. Any appearance that a federal regulatory decision that so directly affects the welfare of the public is based on prior or existing commercial relationships jeopardizes the public’s trust in the federal decision making process.

In defiance of requests from incoming Congressional committee chairs, Bush administration factotums at the EPA have begun shuttering regional libraries that have been important to citizens, first responders, plant workers and EPA's own scientists seeking information about hazardous chemicals and other environmental problems in their communities and workplaces. Today's New York Times op-ed column Keep the E.P.A. Libraries Open by Leslie Burger, president of the American Library Association, explains the important right-to-know and access to knowledge issues:

Anyone who needs to understand the environmental impact of, say, living downwind or downstream from a new nuclear power plant, or the long-term public health impact of Hurricane Katrina, cannot afford to find the doors barred to potentially lifesaving information. But neither can the rest of us, whose daily lives and choices will be affected by global warming. We all have a right to be able to get access to information about our air, water and soil.

After years of pressure (previous blog) from the Consumer Federation of America (CFA), National Consumer Law Center (NCLC), U.S. PIRG, Community Reinvestment Association of NC, Senators Chuck Grassley (R-IA) and Max Baucus (D-MT), and even its own taxpayer advocate, the IRS has finally realized that its corporate welfare program known euphemistically as "Free File" was nothing more than a conduit allowing predatory lenders to use the imprimatur of the federal government to deceive lower-income taxpayers into paying them millions of dollars in unnecessary triple-digit APR Refund Anticipation Loans (RALs), even as they paid their taxes online for "free." This week IRS announced that the tax preparers could no longer trick Free File taxpayers into buying RALs. (In Washington, stopping dumb, unfair programs is actually progress.) Now, the IRS needs to take the next step: giving every taxpayer the right to pay taxes online for free. The tax preparers will still be the government's contractor for online filing, and only some taxpayers can file for "free."

What can only happen in Washington, of course, is that the person responsible for the dumber-than-dirt program, IRS chief Mark Everson, and the person speaking for the groups feeding at the taxpayer trough, Tim Hugo, claimed they made the change voluntarily. According to USA Today:

Commissioner Mark Everson said the change was made voluntarily after we heard many legitimate concerns about the marketing of ancillary products during the last filing season. The head of the Free File Alliance, Tim Hugo, said that with the voluntary elimination of the offers, "the Free File Alliance takes another giant leap forward on behalf of the taxpaying public.

In November, Everson had given a major speech (previous blog) to the rapacious tax preparation industry warning he was under intense pressure and was going to have to turn off the profit spigot soon. Voluntary? Giant leap forward? This week's IRS release explained how the program worked:

Preparation and e-filing of federal tax returns have been free since the inception of Free File. However, manufacturers have offered refund anticipation loans and other products for which they charge a fee. RALs use a taxpayer's refund as collateral for a same-day, interest-charging loan. Taxpayers must enter Free File through the IRS Web site.

This short USA Today story from Tuesday links to an older (September) story with rich detail. Here's a recent RAL warning from CFA and NCLC. Here's a blog from Martin Bosworth at ConsumerAffairs that summarizes a lot of the issues.

And as for anyone who thinks there's no money in offering services to these modest-income taxpayers, think again. One of the nation's most important tax programs is the Earned Income Tax Credit (EITC), which most of these taxpayers were eligible for. The tax preparers didn't just want a cut of the modest taxes that the taxpayers might owe; they wanted a cut from all of us -- they wanted to skim off the top of the EITC transfer that all taxpayers shift to lower-income taxpayers. That's where the really big money was for preparers such as HR Block, Jackson Hewitt and their ilk. That's corporate welfare at its worst.

Let's hope Sens. Grassley and Baucus keep the pressure on the IRS to allow all Americans to completely eliminate the relationship between IRS and these tax preparer companies. All citizens should be able to directly pay their taxes online for free. The IRS shouldn't be propping up businesses that can't make it unless they're fed at the taxpayer trough.

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."

Looks as if pressure from U.S. PIRG (our campaign materials), other public health groups and environmental champions in the Congress has forced EPA to re-think a "dumber-than-dirt" plan to roll back the reporting of toxic chemical hazards, as Juliet Eilperin reports in today's Washington Post story EPA Backtracks on Easing Toxin Rule.

Despite a series of post-Enron scandals, and despite that Enron was only five years ago, the accountants and Wall Street are cheering the retirement of investor champion Paul Sarbanes (D-MD), the U.S. Senator who led passage of the bi-partisan 2002 Sarbanes-Oxley Act to crack down on the culture of corporate crime and lax corporate governance that had lessened investor confidence and led to the loss of billions of dollars in retirement investments for millions of average Americans. According to Steve LaBaton and Floyd Norris in Panel to Urge Rewriting Rules to Aid Companies in today's New York Times, a group of academics aligned with Wall Street will release a report today describing the ways that our corporate crime laws must be weakened further to keep Wall Street happy: Excerpt:

It recommends making it harder for companies to be indicted by the government or sued by private lawyers, and urges policies to keep the Securities and Exchange Commission from adopting rules that impose high costs on business.

Some of you are anxiously awaiting election results. Some others are probably waiting for your deposited check to clear. Even though Congress two years ago passed a law known as Check 21 that gives banks faster access to the checks we write to others, it failed to shorten the length of time banks are allowed to hold the checks we deposit to our own accounts. Instead it required a study, and the regulators have been conducting it over their typical geological time cycle. Here's a blog entry by Gail Hillebrand of Consumers Union with more details. Here's a letter from CU, US PIRG and others urging the Fed to speed up the study and speed up the checkholds. Otherwise, banks will continue to pile on unfair bounced check fees as they game the system against consumers by imposing bounced check fees on deposited but "unavailable" funds.

[Update 7 Dec- corrected bad internal URL] IRS Commissioner Mark Everson gave a big speech (report from Government Executive Magazine) Friday to tax industry companies, where he warned them that that their long corporate welfare ride on the backs of taxpayers may be over. He said Congress is ready to allow taxpayers to file taxes online directly with the IRS for free. What, we can't now? No, we can't. MORE:

The tax preparers have been beneficiaries of something called the Free File on-line program, which is only free for certain low-income taxpayers, not everyone, and, even then, allows the companies to load up a shopping cart for themselves full of extra fees, including massive predatory Refund Anticipation Loan (RAL) fees and triple-digit interest, so long as there is no fee for actually clicking the button that sends the file off to the IRS.

Everson referred to a harsh letter from Senators Grassley (R-IA) and Baucus (D-MT) he received last week. Excerpt from Sen. Grassley's press release:

"It seems the tax preparation industry was holding all the cards in the renegotiation of this program," Grassley said. "The industry appears to be using the Free File program as an opportunity to bolster its revenue through the sale of ancillary products at taxpayer expense. I'm all for private enterprise, but not when it co-opts taxpayer service. The IRS is losing the game and doesn't even seem to realize it. The IRS' first priority is supposed to be the taxpayer. It shouldn't be taking away from taxpayer service to subsidize the tax preparation industry."

According to some press reports, Everson apparently tried to blame the demise of the program on the companies' greed and complaints about their sloppy tax preparation, forgetting that it was a dumber than dirt idea from the get-go to try and force most taxpayers to pay a private company if they want to file their taxes online. Our previous blog on Free File.

In Reluctance and Silence On Recalls in Saturday's New York Times, Damon Darlin talks to some product safety colleagues about the general ineffectiveness of dangerous product recalls by the Consumer Product Safety Commission (CPSC). While PIRG has often been at odds with CPSC leadership, and led a successful 2001 campaign to defeat President Bush's nomination of then-commissioner Mary Sheila Gall to become its chair, some of the CPSC's problems are not its fault. MORE:

Its enabling legislation was written with the considerations of powerful special interests, not safety, in mind. First, the CPSC is generally forced to negotiate modest voluntary recalls, because otherwise the one-sided rules would allow even-not-so-clever industry attorneys to use a variety of obvious tactics to delay and slow down the CPSC's proposal for stronger recalls. The CPSC has to decide quickly when it has extracted enough promises to go forward, and even then, the industry gets to approve the terms of any statements about the "voluntary" recall. Often, as in a recent case involving at least one toddler death and several injuries from ingestion of small magnets, the CPSC must settle for a compromise. In the magnet case, the compromise was for a replacement program where remaining inventory stayed on the shelves and can still be sold, even though the company agreed to replace products sent back by parents or caregivers. As the website magnetscankill points out

Only one problem! This was a voluntary program, and due to the manufacturer Rose Art's unwillingness, retailers were not required to remove the toys from the shelves. Mega Bloks went right on selling Magnetix and Magnaman while offering to replace any Magnetix sets that parents felt "uncomfortable with". Stores were supposed to prominently display signs about the recall for 90 days, but most didn't. Anyway, what would you think if you saw a warning notice next to a box on the shelf? Wouldn't you assume the packages for sale in front of your very eyes were a new version with whatever flaws fixed? Actually, consumers couldn't tell if any improvements were made since there were no "before" and "after" markings disclosed. Tragically, more children were injured, requiring intestinal surgery, from magnets they consumed AFTER the March 31 voluntary product replacement notice. The word just hasn't gotten out well enough.

The CPSC's recalls, and even its investigations, are stuck under a veil of corporate secrecy imposed by the tortured language of so-called Section 6(b) of the Consumer Product Safety Act (it's full citation is 15 U.S.C. 2055(b)(1)-(5)). Here's an excerpt from its implementing regulation:

Generally, section 6(b)(1) requires the Commission to provide manufacturers or private labelers with advance notice and opportunity to comment on information the commission proposes to release, if the public can readily ascertain the identity of the firm from the information...Section 6(b)(3) authorizes manufacturers and private labelers to bring lawsuits against the Commission to prevent disclosure of product-specific information after the firms have received the notice specified.

Obviously, the CPSC needs to be careful not to act recklessly in the handling of either trade secrets or corporate good names. Yet, other safety agencies, such as the FDA and NHTSA, do not labor under such a harsh set of rules that hurt, not help, safety efforts. We generally support the recommendations to reform the CPSC in recent testimony by our former PIRG colleague Rachel Weintraub, now with the Consumer Federation of America.

Here's another Damian Paletta story running on Dow Jones Newswires: this one's on the banks' unpatriotic attempt to use the coming lame duck Congressional session to roll back the Talent-Nelson amendment, now law, that prohibits predatory lending to the military. Here's my previous entry with more details. And, here's a new blog -- LameDuckHunt.org -- from our colleagues at Public Citizen, keeping track of this and other possible lame duck quackery plays by powerful special interests.

Tomorrow, the massive oil company Exxon -- which stands alone, even among oil companies, in its entrenched opposition to fighting global warming, is expected to announce its latest, probably obscene, profits. Meanwhile, over at the U.S. Department of Energy, the Bush-appointed Secretary Sam Bodman has decided that Exxon's leader emeritus Lee Raymond should lead an important government energy task force. Exxon's a company that still has not paid all the damages owed for the Exxon Valdez spill, by the way. Take action at the PIRG-backed ExxposeExxon campaign to urge Bodman not to let the oil industry lead us down the wrong energy path, again. The selection of Raymond is another "dumber-than-dirt" idea from the Bush administration.

This month the President signed PIRG-backed legislation banning payday loans and other predatory lending to the military. Could the banks be organizing to weaken the law already (more below)?

One reason that the Pentagon strongly supported the proposal was its growing concern over alarming increases in loss of security clearances and the effect on military preparedness. Now, the Associated Press has confirmed the problem: MORE:

Thousands of U.S. troops are being barred from overseas duty because they are so deep in debt they are considered security risks, according to an Associated Press review of military records. The number of troops held back has climbed dramatically in the past few years. And while they appear to represent a very small percentage of all U.S. military personnel, the increase is occurring at a time when the armed forces are stretched thin by the wars in Iraq and Afghanistan.

Of course, another reason for the Pentagon's concern, and the concern of a broad coalition of military aid societies that worked tirelessly on the amendment to cap interest rates to the military at 36% APR by Senators Jim Talent-R-MO and Bill Nelson-D-FL was the overall financial welfare of its largely young personnel, as detailed in recent Senate testimony by Defense Undersecretary David Chu and retired Admiral Steve Abbot, CEO of the Navy-Marine Corp Relief Society. More in previous blogs here and here.

Eileen Ambrose's Baltimore Sun column today explains this Talent-Nelson amendment. Eileen also explains another new law designed to stop high-pressure sales of low-performing mutual funds and insurance products on bases. The second law is the result of an expose over the past several years by Diane Henriques of the New York Times (PBS interview with Gwen Ifill).

Now along with other advocates, we are watching carefully to ensure that the banks don't sneak into the lame-duck Congressional session with some special-interest amendment to exempt them from the Talent-Nelson amendment's broad coverage against any form of predatory lending, even by banks (yes, predatory lending is so profitable, all the kids are doing it). The banks generally use the Bart Simpson defense whenever their practices are challenged: "I didn't do it, I wasn't there, it's not my fault." Expect them also to present their claim as an argument that only their expert regulators, not the Pentagon as the law provides, should be writing the rules implementing the new law.

Of course, these are the same bank regulators that

With "banks can do no wrong" bank regulators like these, consumers should be thankful that the Pentagon, at least, is leading the way on protecting some consumers from predatory lending. And of course, the powerful bank lobby is also worried that the reinstatement of federal usury ceilings -- even if only for military consumers -- will eventually result in re-establishment of these necessary protections for all consumers. Funny, they think that is a bad thing. We, on the other hand, are excited that possible reform of unfair bank practices, long stymied on Capitol Hill by a never-ending spigot of campaign cash that lulled Congress into ignoring unfair bank practices, has been reinvigorated by the passage of legislation protecting military consumers from unfair lending. It's too bad that it took nothing less than a threat to the nation's security to force Congress to debate the problem of usury, but now, at least, we have a debate.

Over at his Huffington Post blog, my colleague Jamie Love of CPTech has posted a good analysis of some of the issues raised at the important international meeting at Harvard Law School on Open Document Formats (ODF) I attended yesterday, along with Amina Fazlullah, our new media reform attorney (my previous blog). The meeting was sponsored by the PIRG-backed TransAtlantic Consumer Dialogue. Excerpt from Jamie's post:

A handful of thoughtful government officials are trying to require software vendors, including Microsoft, to use this new open standard, in order to achieve a number of important public policy objectives, including:

* More competition among suppliers of software,
* Improved ability to manage archives of data,
* Enhanced ability to use and re-purpose data contained in documents.

The State of Massachusetts and the government of Belgium and Denmark have already put in place requirements that ODF be supported by software companies, and now other governments are beginning to consider similar initiatives. If they succeed, it could result in a revolution in the structure of the entire software market, and bring much needed competition and innovation to these important areas.

[update 13 Dec 06-fixed bad urls] Following a letter from commissioners and consumer champions Jonathan Adelstein and Michael Copps to FCC Chairman Kevin Martin (his reply), the chairman has been forced to delay a rubber-stamp vote on FCC approval of the AT&T/Bellsouth merger recently rubber-stamped by the supposed antitrust authorities over at the Department of Justice. Along with the Consumer Federation of America, Free Press and Consumers Union, (our petition to deny and declaration of our experts and reply comments are available at the FCC AT&T/Bellsouth merger page), we've steadfastly opposed this merger, which is anti-competitive, fails to preserve net neutrality and practically completes the anti-consumer, pro-monopoly process of putting AT&T back together again. See also our previous blogs on the AT&T/SBC and Verizon/MCI mergers and our letter urging a court review of those rubber-stamped decisions. Here's a recent news story (13 Oct) on the ongoing review by U.S. Judge Emmett G. Sullivan.

Tragically, two toddlers have choked to death in separate incidents on toy nails that do not fail the Consumer Product Safety Commission's (CPSC) test for small parts banned for use in toys intended for children under 3 years old. Playskool is voluntarily recalling 255,000 units, even though the toy is intended by the manufacturer for older children and doesn't fail the test either. CPSC recall release. We've campaigned for years, as noted in our annual Trouble In Toyland reports, as have other consumer groups, to increase the size of the small parts tester. MORE:

The CPSC test is especially problematic when it comes to toys that don't actually fail the test but are shaped like wine corks and can literally "cork" a child's airway, as these toy nails are. We've also argued that manufacturer determinations of "age-appropriateness" are often skewed. From its pictures, this toy, although it has a number of parts, appears simple and brightly colored with rounded edges-- attributes of a toy parents might buy for younger children. As Don Mays of Consumers Union points out in a story in the Washington Post:

"That is a screening tool but not a panacea for catching choking hazards," Mays said. Mays believes the cylinder used for testing should be larger. Consumer Reports recommends that parents do their own test, using a tube from a roll of toilet paper. Mays also questioned the target age group for the Team Talkin' Tool Bench. "Clearly this is a toy that is attractive to a child under three," he said.

Yesterday the FCC announced that the deadline for initial comments in the Media Ownership rulemaking has been extended until October 23. Reply comments are due December 21. So, you can file comments here at PIRG's media action site until at least December 21. Meanwhile, Senator Barbara Boxer (D-CA) announced she'd found yet a second suppressed 2004 FCC report, this one on radio ownership issues: Review of the Radio Industry (large scanned pdf)). It forms a bookend with the report Senator Boxer released at Chairman Martin's renomination hearing last week: Localism Report (somewhat but not as large scanned pdf). These reports were apparently suppressed by unknown forces working under former Chairman Michael Powell at the FCC. Chairman Martin is doing all the right things. He's sent two letters (9/15 and 9/18) to Senator Boxer explaining he and other commissioners were not made aware of these reports, he's posted the reports on the FCC site (links above), he's made them part of the official record in the localism and ownership proceedings and he's asked for an inspector general report. We wouldn't be surprised if the extension of comment periods is also partly due to the unearthing of the two buried reports, too.

John Dunbar of the Associated Press is reporting today that the FCC destroyed all copies of a draft report showing that locally-owned media outlets covered local issues better than nationally-owned outlets did. The AP reports that former FCC official:

"Adam Candeub, now a law professor at Michigan State University, said senior managers at the agency ordered that "every last piece" of the report be destroyed. "The whole project was just stopped _ end of discussion,"

At yesterday's confirmation hearing for FCC Chairman Kevin Martin's new term, Senator Barbara Boxer (D-CA), a consumer champion, went after Martin over whether or not the FCC, under his predecessor, Michael Powell, had buried, or suppressed, a study prepared for its Localism Task Force documenting that locally-owned stations had significantly more local news than the broadcast giants, which typically run the same (primarily national) news on all their stations to the detriment of important local news for communities. Our coalition colleagues at Stopbigmedia.com have the story and a copy of the report (scanned). It's an important document and its suppression, if true, is one more check mark on the long list of "things that the failed former Chairman Michael Powell did wrong before he quit" chart.

As a followup to its 28 July announcement (previous blog) of a 6-month moratorium on approving applications for deposit insurance from commercial or industrial firms such as Wal-Mart seeking to establish a type of bank called an industrial loan company (ILC), the FDIC has announced a 45 day comment period on the issue. MORE:

The notice poses a series of 12 questions, such as Question 2:

2. Do the risks posed by ILCs to safety and soundness or to the Deposit Insurance Fund differ based upon whether the owner is a financial entity or a commercial entity? If so, how and why? Should the FDIC apply its supervisory or regulatory authority differently based upon whether the owner is a financial entity or a commercial entity? If so, how should the FDIC determine when an entity is "financial" and in what way should it apply its authority differently?

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.

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.

Research Director Alison Cassady has compiled a new edition of PIRG Preemption Alert. It details the latest Congressional and regulatory threats to the right of the states to enact strong laws to protect consumer health, safety and pocketbooks. MORE:

The preemption threat level remains high to severe: powerful special interests are pushing hard as the Congressional session winds down.