U.S. PIRG Consumer Blog

PIRG, coalition release: Total Recall: The Need for CPSC Reform Now

[UPDATE: Below are links to Exxon Mobil phthalates lobbying reports, including payments to at least 5 K St. hired gun lobby firms.]

Yesterday we released a new report: Total Recall: The Need for CPSC Reform Now. The report's key finding: Recalls are up 22% in 2008, despite the toy industry's claims they've cleaned up the worldwide mess they made just last year. Meanwhile, 50 members of the House, led by Rules Chair Louise Slaughter and Chris Van Hollen (D-MD), sent conferees a strong new letter urging swift action to finish action on CPSC reform before the August recess. (Note: The current total is 50 signers, although this original letter had 37.)

While 95% of the conference is done, the Senate awaits an offer from the House on critical issues including the Senate bill's phthalate ban (we're for it and Exxon Mobil's against it) and the Senate bill's requirement that all toy hazards be subjected to the new third party testing requirements in both bills (we're for it). Yet, some House conferees are siding with the toy industry, which is demanding that a new provision (in neither bill now) be added that permanently preempts states from auditing or reviewing that new, untested third party testing requirement, or requiring new tests as new hazards arise. We are against that. These and other remaining conference issues, such as why whistleblower protection will improve product safety, are discussed in the report. Links to ExxonMobil lobby reports listing their phthalate lobbying efforts are after the "continue reading" jump:

New credit card survey from Consumer Action

Our colleagues at Consumer Action have released their annual credit card survey. From the release:

Notable findings:

Four of the top ten credit card issuers cited factors beyond a consumer’s control that might cause an interest rate increase such as: "market conditions," "the economy," and "business strategies."
77% of surveyed credit card issuers (17 of 22) answered "Yes" to the question "Can you increase my APR or change my terms 'any time for any reason'?" This includes all Top Ten issuers - even Citibank which pledges not to change a customer’s terms before the card's expiration date.
Five financial institutions told CA surveyors that they would reduce a cardholder's credit limit because of perceived customer risk. Factors include: a decline in credit scores, late payments and balances that go too close to the credit limit.

These are dismal findings, but buttress our demands for reform. Consumers should not be treated like sheep to be shorn for perpetual fees and interest income. Along with CA and other allies, we continue to push the Congress to enact meaningful credit card reform. Our best chance is that the House FInancial Services Committee will hold a vote on HR 5244, the Credit Cardholders Bill of Rights, before the August recess. More on our credit card work.

Clock ticking on CPSC bill

We ran a full page ad in some editions of USA Today yesterday urging Congress to finish the CPSC Reform Act. ExxonMobil and the toy industry are pulling out all the stops to delay it or gut it. If they delay it until after the August recess, there's a chance Congress will not finish the job of protecting America's littlest consumers.

You can see the ad, and if you like it, help defray its cost, by logging on here.

ExxonMobil makes phthalates, the toxic chemicals that are endocrine disruptors linked to developmental disorders. The Senate version of the CPSC Reform Act would ban phthalates in children's products and toys to limit this risk. The House has so far refused to take the provision.

The toy industry is insisting on adding a new harmful layer of preemption to the CPSC Reform Act's (both House and Senate) centerpiece requirement that all toys undergo independent third party testing. It is always a mistake to preempt the right of the states to solve consumer or environmental problems. Some mistakes are bigger than others, though. When you have a new, untested federal law provision -- such as third party testing -- that may not work and may not completely solve the problem addressed by Congress, it would be one of those big mistakes to tell the states they have no authority to to fix what Congress didn't fix.

Why should Congress listen to the companies that created the mess that Congress is trying to clean up on this matter anyway? Shouldn't Congress listen instead to the state Attorneys General who've been leaders in protecting consumers and who oppose this provision, too?

FCC holds "Future of Internet" hearing in Pittsburgh

Tim Karr of SavetheInternet.com has a nice blog explaining the successful FCC hearing on the Internet held at Carnegie-Mellon University last night: Excerpt explaining the digital divide and need for expanded efforts to make broadband hookups available to everyone:

America’s digital divide is delineated by class, location and race. Only 35 percent of American homes with less than $50,000 in annual income have broadband, according to the Census Bureau, while 76 percent of households earning more than $50,000 per year are connected. Meanwhile nearly 20 million Americans live in areas not served by a single broadband provider, while tens of millions more live in places with just a single source for high-speed Internet. Just 39 percent of rural households subscribe to broadband service, compared to 54 percent of urban dwellers.

U.S. PIRG is ramping its efforts to ensure that national infrastructure funding programs include broadband as a necessary "road."

New York Times editorial board for CPSC reform now

The New York Times editorial board just posted to its blog Can't We All Agree On This?: Toys Should Not Kill (Or Injure) Children. Excerpt:

Industry lobbyists have been fighting some of the most critical reforms. The conferees need to stand strong.[...]C'mon, this is a battle between child-safety advocates and anti-breast cancer activists fighting for public health against the toy and chemical industries, who are fighting to protect their bottom line. Is it really so hard for members of Congress -- of both parties --to decide which side to come down on?

Oh, and ExxonMobil, opponents of the key Senate provision banning the toxic chemical phthalates they happen to make, spent over $3 million on lobbying in the first quarter of 2008 alone, according to its recent lobby report describing its phthalates lobbying. Some of that money went to a web of law and lobby firms working for them. When we get time, we'll post links to their reports.

Offsetting "market disruptions," Bank of America buoyed by service charge income

From today's earnings announcement from Bank of America:

Kenneth D. Lewis, chairman and chief executive officer, said: "Outside of real estate-related products, our operating results were quite good [...] Record quarterly net revenue of $20.32 billion was driven by an expanded net interest yield, loan growth and higher income from service charges, mortgage banking and investment and brokerage services [...]

Elsewhere in the release, BofA referred to those real-estate products as affected by "market disruptions."

From Earnings Fall 44% at Bank of America by Eric Dash on the New York Times website:

]]> Bank of America, the country's largest retail bank, said on Monday that its second-quarter earnings fell 44 percent as real estate-related losses overwhelmed record revenue across its businesses. The bank said that higher income from higher lending margins and fees from its consumer banking operations along with stronger investment banking results helped it muscle through a challenging economy. Among the lucrative retail fees BofA mentions as helping keep the bad news smaller than it might have been are debit card fees. The release also prominently promotes successes in Mobile Banking:

The service allows customers to check balances, pay bills, transfer funds, view posted and pending transactions and locate banking centers and ATMs, accompanied by maps and directions.

Court rejects FCC fine for Janet Jackson "wardrobe malfunction"

The U.S. Third Circuit Court of Appeals today threw out the FCC indecency fine totaling $550,000 ($27,500 levied by the FCC on each of 20 FCC-licensed CBS affiliates) over the 2004 Super Bowl halftime show featuring Janet Jackson's infamous "wardrobe malfunction" in the company of Justin Timberlake. Story from the New York Times. Excerpt from a statement supporting the court's action issued by Jonathan Rintels of the Center for Creative Voices In Media:

]]> [O]verly broad FCC decisions on what constitutes “indecency” that arbitrarily overturn decades of Commission precedent put creative, challenging, controversial, non-homogenized broadcast television programming at risk. In many cases, the very kinds of television programs that parents want their children to watch – high quality documentaries, histories, and dramas – have been impacted. Thus, the chilling effect of these now-overturned Commission decisions harmed not only media artists, but the American public. We documented this chilling effect in our report, Big Chill: How the FCC's Indecency Decisions Stifle Free Expression, Threaten Quality Television, and Harm America's Children...

Morgenson: Owe my soul to the company store

As she often does, Gretchen Morgenson of the New York Times has yet another story explaining how the banking system has gone awry, and now the economy itself is suffering. Her story in Sunday's paper explains how banks no longer merely earn money from reasonable interest, but instead have developed perpetual interest practices magnified by punitive fees to drive Americans deeper into debt. It's backfired as her story Given a Shovel, Digging Deeper Into Debt explains:

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up. It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders.

She goes on to say how bank practices have changed over the last decade:

Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards. Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage, according to the Department of Housing and Urban Development. These “junk fees” have risen 50 percent in recent years, said Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on mortgages.

If you want to look to where this all started, look to unwise preemption of strong state consumer protection laws by federal agencies and lazy courts that failed to understand either the law or the implications of their lazy decisions, and look especially to the OCC (PIRG's OCCWatch) -- chief regulator of all national banks, as an enabler of these unfair practices. OCC will claim it was mortgage guys outside their regulatory sphere-- don't believe them. Their national banks were critical players. As Morgenson quotes:

"Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset," said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.

Paper says 2005 bankruptcy law making mortgage crisis worse

From Professor Elizabeth Warren over at the Credit Slips blog (excerpt):

A new academic paper, Bankruptcy Reform and Foreclosure, argues that the 2005 bankruptcy amendments are deepening the mortgage crisis. The article was written by David Bernstein, an economist at the U.S. Treasury who chose to post this analysis as private citizen listing only his home address and home e-mail address. Drawing on data from the Survey of Consumer Finance, he links credit card debt, access to bankruptcy, and mortgage foreclosures.

Well, I guess if the credit card bankers "won" in 2005, and they did, against the views of every civil rights, consumer and labor organization, joined by independent economists and professors and the bankruptcy judges themselves, then Bernstein's paper is one more piece of evidence that consumers, homeowners, all banks and the economy all lost.

BW: The College Credit-Card Hustle

Business Week reporters Ben Elgin and Jessica Silver-Greenberg have posted their investigative story on the relationship between colleges and credit card companies: The College Credit-Card Hustle. It should appear on newsstands Monday. Excerpt:

Using state public disclosure laws, BusinessWeek has obtained more than two dozen confidential contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups receive larger payments from the banks if students use their school-branded cards more frequently.

The growing financial alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time when many young people graduate from college owing tens of thousands of dollars. Most undergraduates lack substantial income of their own and are especially vulnerable to late fees and other penalties if they fall behind on monthly payments.

For more on our work in this area, and information on the fair marketing principles we are urging colleges to agree to, go to our website truthaboutcredit.org.

CPSC Conference to meet today

The CPSC Reform Act conference meets today (announcement). Our position is simple. Protect kids. Here's one way to look at it, through the eyes of kids. The committee has completed 21 non-controversial items, but at least four PIRG priorities remain. Here's our statement today on those issues:

In today’s conference meeting, U.S. PIRG urges the conferees to accept measures to:

Place emerging toy hazards, such as magnets, under the new law’s protections.

Ban toxic phthalates from children’s products. These chemicals used as plastic softeners have been linked to developmental disorders. Safe alternatives are available.

Create an online public database of potential toy hazards. Both the FDA and the National Highway Traffic Safety Administration (NHTSA) allow consumers to search complaints about potentially hazardous products, even those that have not been recalled. Only the CPSC does not. Including this provision is a critical reform.

Ensure that states can protect their citizens. The current CPSC law already greatly restricts what states can do. Yet, the special industry lobby is making eleventh hour demands to create a new, more onerous limit on state action. That is unacceptable.

We call on the conferees to reject special-interest demands to remove or weaken key provisions of the bill, so that the final legislation sent to the president truly protects America’s children.

We were wrong. Government Will Bailout Fannie and Freddie Today

In fact, despite our prediction over the weekend that a bailout was no longer "likely," Treasury Secretary Paulson has engineered a massive bailout of the mortgage giants Fannie and Freddie. More later. Steve Labaton in the New York Times: Treasury Acts to Save Mortgage Giants. Neil Irwin and Jeffrey Birnbaum in the Washington Post: U.S. Unveils Plan To Aid Mortgage Giants. Yesterday's blog.

What's next for Fannie and Freddie?

The papers are awash with stories about the imminent collapse of Fannie and Freddie and what that could mean for homeowners, taxpayers, investors and the financial system. Treasury Secretary Paulson, Senate Banking Chairman Dodd and other political leaders spent most of the end of last week propping up the firms with soundbites, because some investors and analysts had the long knives out and their stock prices were tanking. Things seem to have settled and there will likely be no bailouts tomorrow.

The two were, until recently, high-flying stocks that were once government-sponsored enterprises (GSEs) that went private yet managed to maintain the illusion that they were 100% backed by the government and too-big-to-fail. This allowed them to grow even faster and larger. At times in the past 20 years, Fannie Mae and Freddie Mac grew almost exponentially but their fiscal controls did not match either their diversification into riskier businesses or the growth of their political power. That political power was enough to keep most members of Congress, regulators and even outside groups from making an adequate critique.

]]> Julie Creswell's New York Times story Protected by Washington, Fannie and Freddie Grew does a good job of explaining how the firms built unprecedented political power in Washington through sophisticated influence-peddling and strategic contributions to the hill and even to community groups to deter criticism. Importantly, the story also points out that "some of their longtime critics say the crisis has been building for years." Yet, the firms were so powerful very few people would criticize them, although Creswell quotes two: former House Banking Chairman Jim Leach (R-IA) and former Rep. Richard Baker (R-LA).

I attended a 1998 conference by Essential Information -- a Nader think tank -- called "Appraising Fannie and Freddie." As these minutes of the event from an industry analyst's newsletter point out:

Participants at the conference were reluctant to ask questions during the conference at the risk of being identified as criticizing the practices of Fannie and Freddie. None of the name badges of the participants listed company affiliations and some of the name badges only listed first names because according to conference organizers, some in attendance expressed concern ahead of time about being identified.

This is true. In fact, Ralph ended up reading "anonymous" questions to panelists sent up sub rosa from the audience on note cards. One of those panelists, Chuck Lewis, founder of the investigative reporting think tank, the Center for Public Integrity, said that in all their years of analyzing the strategies and contributions of powerful special interests, Fannie was the only one that not only hired the former Members and the former hill staffers, but "also hired their spouses and children" and as Creswell notes, "their friends." Fannie wanted blanket coverage of the political universe, and it could afford to pay for it.

Gretchen Morgenson's story The Fannie and Freddie Fallout, also in the New York Times also makes this important point:

The surprise is not that Fannie and Freddie grew too large for the taxpayers’ good. That was to be expected among companies run by executives whose pay is based on profit growth. Rather it is that Congress and the various financial regulators, especially the Fed and the Office of Federal Housing Enterprise Oversight, did little to keep the companies from getting out of control.

Other stories on Fannie and Freddie include Freddie Mac's Next Hurdle: Raise Cash by Jeffrey Birnbaum and Steve Mufson and Ripple Effects From Fannie And Freddie by Nancy Trejos, both in the Washington Post.

FCC expected to back net neutrality rule

Yesterday FCC Chairman Kevin Martin announced that the FCC would take action against the cable giant Comcast for illegally violating the principle of net neutrality, or Internet Freedom, when it gave preference to its own traffic while slowing other traffic. Essentially Comcast acted as a gatekeeper and illegally created a private fast lane on the Internet for favored content while it relegated competitor traffic to a slow lane. It's a big victory for a free and open Internet. If these sorts of abuses are not stopped the slowed traffic could eventually include public interest communications. And of course, the gatekeeper control would also stifle the competition and innovation that have made the Internet an engine of economic growth, while allowing the Comcasts and Verizons of the world to gain even more economic power without actually doing anything to deserve it. The FCC is expected to vote in three weeks. The FCC action is in response to a complaint filed by Free Press and Public Knowledge and backed by members of SavetheInternet.com, including U.S. PIRG. As Free Press explains:

...it all started with one person. When barbershop quartet enthusiast Robb Topolski found Comcast was preventing him from sharing legal music files with other fans, he took to his computer and launched a one-man investigation. Topolski uncovered conclusive evidence that Comcast was secretly blocking his uploads. His concerns echoed those of hundreds of other Comcast users, who had taken to the blogs and chat rooms to express their dismay.

Martin has said he will not fine Comcast, and this action is only one battle in the fight to preserve the net neutrality principle that has enabled the growth and dynamism of an Internet without gatekeepers, but this is a major victory. Washington Post and New York Times.

Speculative oil price bubble?

Get any email from your frequent flyer program lately urging you to take action on oil prices? Today's Wall Street Journal has an article about the airlines' joint campaign www.stopoilspeculationnow.com against oil price speculation. The story Airline Oil Lobbying Alarms Financial Firms (pd subs. req'd) by Elizabeth Williamson says:

Many economists join financiers in saying the attacks on speculators, while politically appealing, make little economic sense. They say speculation is less responsible for spiraling oil prices than is turmoil in supplier countries and the weakness of the dollar on world markets.

Yet, in his recent testimony before the House Select Committee on Energy Independence and Global Warming , Dr. Mark Cooper of the Consumer Federation of America argued that the speculative bubble could account for "about one-third of the world price," based on Senate Permanent Subcommittee on Investigations reports and other data.

]]> Dr. Cooper says:

The upward pressure that speculation puts on prices is not limited to crude, but applies to the whole energy complex and recent months have seen sharp increases in gasoline prices despite weakening fundamentals.[...]Growing global demand certainly has played a role in triggering the price spiral of recent years, but in a well-functioning market, steadily growing demand would not cause such a powerful upward surge in prices and a huge increase in volatility (see Attachment 5). It is the failure on the supply-side to invest, mergers resulting in highly concentrated markets, and barriers to entry that have allowed the cartel and the oligopoly to profit at the expense of the public. Speculation magnifies the upward spiral.

The airline-backed coalition, and senior members of Congress, back changes to the rules of the Commodity Futures Trading Commission to reduce the impact of speculation. PIRG has long backed some of these reforms, including unsuccessful efforts to close the Enron loophole opened during the reign of then-CFTC chair Wendy Gramm and to reverse later amendments to the CFTC championed by her husband, former Senator Phil Gramm (R-TX). These issues are explained in this recent Texas Observer article by Patricia Hart and a recent "Fresh Air" interview with Professor Michael Greenberger.