Retirement Savers Catch a Break
This week, the Department of Labor finalized a rule to protect retirement savers by shoring up the guidelines around the advice they get. Now, advisers will have to offer retirement savers options that are best for them, not advisers who are interested in harvesting fees. The Save Our Retirement coalition, of which Americans for Financial Reform Education Fund is a part, put it this way:
The rules will require all financial professionals who provide retirement investment advice to put the best interests of their clients ahead of what’s best for their own pockets. This commonsense requirement is long overdue and promises to be a major improvement over the status quo, which allows too many financial professionals and firms to offer self-serving retirement advice at the expense of workers and retirement savers.
Conflicted advice, the term of art for guidance that retirement savers get from advisers with something to gain, costs investors billions. Analysis of a single investment product, fixed index annuities, found that conflicted advice cost them $5 billion per year.
People might remember that DOL put out something called the fiduciary rule, which aimed at these sorts of practices that cost investors. The Trump administration made plans to repeal the rule and Gary Cohn, the former Goldman Sachs guy turned Trump adviser, actually criticized it: “like putting only healthy food on the table,” he said. And the Fifth Circuit, already on its way to being a right-wing bastion, vacated the rule.
This week, retirement savers got another crack at better protections.
BANKING AND FINANCIAL STABILITY: Capital One/Discover – Banks vs. Nonbanks – Bank Control Act – How Banks Lobby – Financial Stability
CONSUMER: Credit Card Late Fees – Mortgage Servicing Junk Fees – VA Home Loans – Walmart the Lender – Non-Competes
CAPITAL MARKETS: The SEC’s SPACdown
PRIVATE MARKETS: Labor Practices – PE and Healthcare – PE and Vets – PE and Special Education – Other Private Markets News
CRYPTO: Crypto vs. the SEC
HOUSING: Energy Codes
CLIMATE AND FINANCE: Green Investment – The People vs. Citi
POLITICS AND MONEY: Shareholders – Exposing Project 2025
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
Capital One/Discover.
This week, AFR filed a comment with regulators opposing the proposed mega-merger between credit card giants Capital One and Discover. The filing addresses the numerous anticompetitive and harmful-to-consumers effects that would occur if the deal goes through, ranging from overconsolidation leading to consumers getting locked into high-cost schemes, to concerns about displacing other companies and raising prices for merchants who rely on these credit networks. The resulting oligopoly would be concentrated in the non-prime credit market, disproportionately hurting Black, Latine and low-income cardholders. Wrote AFR:
The size and complexity of the transaction immediately makes it clear that it warrants close and skeptical scrutiny; a closer look will show that ultimately the antitrust and banking regulators must block the merger to protect consumers from the anticompetitive exercise of consolidated market power.
AFR and over one hundred other organizations called on regulators to block the merger this week.
Banks vs. Nonbanks.
Asset managers, who today control twice as many assets as traditional banks, are dethroning banks as the big players on Wall Street, WSJ reports. Behemoth firms, like BlackRock or private equity managers KKR and Blackstone, grow increasingly complex, which investors warn will create novel risks in the market. Regulators are pushing for safeguards: the SEC’s rulemaking to increase transparency by requiring more disclosures, the FDIC’s probe into whether asset managers are inappropriately influencing bank shareholder votes, or FSOC’s rule allowing large funds to be designated and regulated as systemically significant.
Bank Control Act.
This week, the FDIC considered two competing proposals that would strengthen how the agency addresses large asset managers, like BlackRock and Vanguard, who own controlling stakes in banks, or over 10%. A proposal from Republican board member McKernan would direct the FDIC to more closely monitor and assess managers’ role in bank decision-making. CFPB director Chopra teed up a separate proposal that would more broadly give the agency more authority to stop investors from taking large stakes in banks. Acting Comptroller Hsu doesn’t support either, citing a need for interagency cooperation, further research and analysis, and a worry over FDIC resources being allocated away from bank supervision.
How Banks Lobby.
A study published by the Perspectives on Politics journal reports on how banks truly wield much of their influence in Washington. While formal lobbying of legislators receives much attention (and criticism), many banks also lobby the policymakers and bureaucrats working behind the scenes at places such as federal agencies. The research particularly notes “regulatory advocates,” such as lawyers who have agency and financial sector clients simultaneously.
Financial Stability.
In the Fed’s latest financial stability report, the central bank noted a decline in commercial real estate prices as the sector’s fundamentals erode (important because a huge bulk of CRE loans are approaching maturity, heavily concentrated among somewhat turbulent regional banks), increasing leverage at the largest hedge funds (indicating higher borrowing), notable losses on banks’ fixed-rate assets, concern over uninsured deposits, stablecoin vulnerabilities, and annuities holding a high rate of risky assets, among other observations.
CONSUMER
Credit Card Late Fees.
The CFPB petitioned the Fifth Circuit to reverse its recent ruling, which called District Judge Mark Pittman’s decision to send the credit card late fee case to D.C. improper. The agency argued that the decision to return the case to Texas “rested on flawed factual premises” and could set a dangerous precedent for future cases involving “aggressive and well-funded plaintiffs,” like the industry groups currently suing over the regulator’s $8 cap on credit late fees. AFR is collecting letters to send to representatives to oppose industry efforts to halt the CFPB’s late fee crackdown.
Related: Financial services company Synchrony announced it would raise its interest rates on credit cards, citing the profit lost to the late fee rule. The National Consumer Law Center calls the move “unjustified,” noticing that Synchrony is in good financial health, having recently announced more stock buybacks. Blaming profiteering on government regulation is an old saw.
Mortgage Servicing Junk Fees.
The CFPB cracked down on illegal junk fees in the mortgaging servicing industry after examinations revealed some servicers forced homeowners to pay for prohibited or unauthorized services, sent deceptive notices to homeowners and violated loss mitigation rules. Financial institutions were made to refund junk fees to their borrowers and stop their abusive practices.
VA Home Loans.
During the pandemic, many veterans were offered a mortgage forbearance and were told their mortgage payments wouldn’t accrue. But when the Department of Veterans Affairs suddenly ended the program, the borrowers were told they owed all the missed payments at once. Now, a VA rescue plan seeks to give vets who qualify for new mortgages a 2.5% rate. Some advocates warn, however, that the program leaves out vets who aren’t in default, including those who have already lost their homes or were forced into accepting more expensive loan modifications to stay afloat.
Walmart the Lender.
The fintech startup firm One, majority owned by Walmart, has started offering buy now, pay later loans for pricey items at some of the retailer’s stores. This development is bound to alarm banks, who stand to lose if Walmart customers quit using credit cards, while also raising concerns about the already humongous corporation extending its reach in banking, which has previously been blocked by policymakers.
Non-Competes.
If a company makes a worker sign a non-compete contract, they effectively bar the worker (eight years ago, it was one in five employees) from working with a competitor or even in the same industry when their employment ends. Thanks to a proposed rule from the FTC this week, non-competes will be banned when it takes effect in four months. The FT says the new rule sent “a shockwave across Wall Street.” A tax firm called Ryan LLC sued the FTC over the ban, tapping Eugene Scalia, son of former SCOTUS justice Antonin Scalia and a conservative thorn in the side of regulators, for representation. Accountable.US spotlights the firm’s ties to the Fifth Circuit Court of Appeals – where the case would end up if appealed – as well as to the U.S. Chamber.
CAPITAL MARKETS
The SEC’s SPACdown.
The SEC recently finalized a rule which closed a loophole that Special Purpose Acquisition Companies (SPACs) – publicly traded companies created for the sole purpose of acquiring or merging with another company – use to profit at the expense of investors. The new rules designate any business combo involving a shell company like a SPAC as an offering of securities, require more disclosures from SPAC issuers, offer clarity on when SPACs are considered investment companies, and open up false forward-looking statements by SPAC issuers or advisers to more legal liability. Like when Astra Space, currently on the verge of bankruptcy, promised investors it’d be launching rockets into space by 2024, or when electric vehicle company Nikola lined its founders’ pockets without ever having made a single car.
PRIVATE MARKETS
Labor Practices.
As public pension funds continue to invest in private equity, White House officials met with the heads of five major funds this week directing them to adopt stronger labor standards in their investment strategies. The funds, including CALPERS and a New York state pension fund, “committed to standards that promote unionization, the ability to negotiate union contracts, workplace safety standards, and the elimination of the use of forced labor, including child labor.” This comes a little over a year since the Department of Labor discovered that Packers Sanitation Services, owned by private equity megafirm Blackstone, had employed more than 100 children as young as thirteen to work overnight shifts cleaning slaughterhouses.
PE and Healthcare.
FTC Chair Khan stated this week the agency is concerned about private equity’s practice of buying a hospital, selling off its real estate assets, and then forcing the hospital to lease it to get it back. Khan points out that this practice is a quick profit grab that weakens long term viability, and reduces competition. The practice has received sharp criticism from Senators Warren and Markey in relation to the Steward Health Care crisis.
A coalition of community leaders and workers in Massachusetts, “Our Community | Our Hospital,” has launched an online petition over ownership of Steward facilities. The coalition is also holding a series of rallies and forums this week in support, while urging stakeholders and elected officials to take more action to prevent more hospitals from closing.
PE and Vets.
Private equity’s ventures into healthcare aren’t just racking up costs for humans. PE and corporations are scrambling to buy up smaller veterinarian chains and independent practices in the wake of higher pet ownership since the pandemic. There is concern among pet owners that high costs will mean they can’t afford even basic medications for their furry friends.
PE and Special Education.
The Boston based private equity arm of Audax Group was the subject of an investigation by Business Insider into the abuse that children with autism have suffered at the special needs education schools owned by the group. Audax is currently trying to sell New Story, the company that owns the schools, for a profit. But Audax’s gain has come at the expense of understaffing or inexpert employees: one girl was pinned down by employees and rolled up into gym mats. The investigation follows a similar incident under Blackstone-owned autism clinics in Louisiana.
Other Private Markets News.
Football. Currently, the NFL is the only major U.S. pro sports league to prohibit institutional investment. That might soon change with an incoming vote by NFL owners and the review of the league’s ownership policies. In the background, some private equity firms are already prepping football-exclusive funds ahead of a formal decision.
Music. Blackstone made a $1.5bn bid to purchase Hipgnosis Songs Fund Ltd., the music rights company that manages the song catalogs of Shakira, Blondie, The Chainsmokers, the Red Hot Chili Peppers, Journey and other big names.
Smoothies. Blackstone will buy Tropical Smoothie Cafe in a transaction that values the fruity franchise at around $2bn.
Noncompetes. The FTC ban on non-competes (see above) may chill private equity transactions, as “investors will be reluctant to buy a portfolio company if they can’t get assurance the executives won’t leave to start a rival business.”
CRYPTO
Crypto vs. the SEC.
In February, the SEC expanded the definition of a securities “dealer” to include hedge funds and other big trading firms, in a move that strengthened investor protections. This week, two crypto groups – the Blockchain Association and the Crypto Freedom Alliance of Texas – filed suit against the agency, accusing the Commission of overstepping its authority. The trade groups argue that the rule is too vague and broad, and doesn’t adequately address its impact on crypto-market participants, according to WSJ.
HOUSING
Energy Codes.
The Departments of Housing and Urban Development and Agriculture updated the minimum energy standards for new single- and multi-family home construction, expected to lower monthly costs for homeowners and renters. Ahead of the update, in a blog post for the Campaign for Lower Home Energy Costs, AFR-EF called for a modern update to homebuilding energy codes in order to protect vulnerable residents and reduce the cost of housing across the country. As extreme temperatures and climate-disaster-related damages expose housing finance systems to energy price spikes, low-income residents and people of color face heightened difficulties coping with increased costs.
CLIMATE and FINANCE
Green Investment.
This week the EPA announced $7 billion in Solar for All grants from the Greenhouse Gas Reduction Fund, with a goal of delivering solar energy to almost a million low-income households. Said AFREF’s Jessica Garcia:
“GGRF programs are now one step closer to deploying much needed grants and financing for green projects that will create health and economic benefits for low-income and disadvantaged communities and help mitigate U.S. greenhouse gas emissions.”
The People vs. Citi.
Community activist groups such as Climate Defenders are pushing back on Citibank’s investments into the fossil fuel industry. They point to Citi spending over $332 billion on the industry since the Paris Climate Agreement in 2015. The group emphasizes the impact of climate change by race, and how communities of color are impacted the most by the abuses of the fossil fuel industry - with money from Citi.
POLITICS and MONEY
Shareholders.
Corporate shareholders are increasingly interested in disclosures around political lobbying spending, if the 42 lobbying-related investor proposals pitched so far in 2024 are any indication. Trade publication The Deal says this suggests a “trust gap.”
Exposing Project 2025.
Project 2025, the Heritage Foundation’s authoritarian playbook for a second Trump term, includes several proposals aimed at drastically rolling back consumer protections. A report from Accountable notes that the project’s outline states the need for Congress to abolish the CFPB, spearheaded by Robert Bowes, a payday lender-aligned Trump administration official. The plan also involved overturning New Deal era ruling Humphrey’s Executor v. U.S., which gives agencies like the CFPB protection from over reaching presidents.