The Honorable Jonathan Leibowitz
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Dear Chairman Leibowitz:

I am writing to request the Federal Trade Commission investigate whether agreements exist among Canadian oil shippers that violate U.S. antitrust laws.  The agreements involve transportation of tar sands oil via the proposed Keystone XL pipeline, which will span the length of the continental U.S. and allow tar sands crude to bypass existing Midwest refineries.  It has been brought to my attention that documents and testimony indicate that at least seven Canadian oil shippers have agreed to incur increased near-term shipping costs on the new pipeline in order to impact market supply in the existing markets so as to drive up the overall price of their product for U.S. refiners.  Because of the potential impact on US gasoline consumers and because of the long-term impacts that such arrangements and the construction of the Keystone XL pipeline could have on U.S. oil supplies, markets and energy security, I am requesting the FTC investigate whether anti-competitive practices violating U.S. antitrust laws have occurred in relation to the proposed pipeline project and related shippers’ agreements.

On October 8, 2008, the U.S. Federal Energy Regulatory Commission (FERC) approved Transportation Service Arrangements (TSAs) between TransCanada Keystone Pipeline, LP and shippers to utilize, or pay for, capacity on the Keystone pipeline system. While the Order does not expressly state who these shippers are, it is my understanding they are members of the “Keystone Shippers Group,” which includes: Canadian Natural Resources Limited, Conoco Phillips Canada Marketing & Trading ULC, EnCana Corporation, Shell Trading Canada, Total

E & P Canada Ltd.’ and Trafigura Canada General Partnership.  Although these TSAs were approved by FERC, they remain secret, and were granted confidential status by FERC and by the Canadian National Energy Board (NEB) in a Sept. 14, 2009 NEB Order. Thus, it is my understanding the exact terms of the TSAs remain hidden and the complete nature of the agreements among these shippers has not received full public scrutiny.

While the full nature of the arrangements agreed upon by the Canadian shippers is unclear, there is clear indication that there is a coordinated “strategy” among Canadian suppliers to gain higher prices. According to TransCanada, the proposed Keystone XL pipeline can be used by Canadian oil shippers to add up to $4 billion to U.S. fuel costs. Testimony taken on September 17, 2009 before the NEB indicates that the Canadian companies intend to incur higher pipeline tariff costs using the Keystone XL pipeline to bypass PADD II refineries in the Midwest.  This will have the effect of manipulating supply levels allowing prices of oil refined in PADD II to rise and ultimately benefitting the Canadian companies with higher prices.  This comes to the fore in this exchange between Mr. T. Wise of Purvin and Gertz on a panel for TransCanada Keystone Pipeline GP Ltd. and Mr. D. Davies of Enbridge Pipelines Inc.:

3715. MR. DAVIES: Okay.

3716. And if we go back to Adobe page 35 of your evidence, you say that the test of reasonableness does not apply because — and I’m quoting from Line 6:

“A producer who supplies a committed volume on the Keystone XL Pipeline may expect to receive a lower net-back price on this volume but this strategy would be intended to raise the price in PADD II and raise the average net-back price.”

3717. Do you see that?

3718. MR. WISE: I do.

3719. MR. DAVIES: So, first of all, this “strategy” as you call it, would be intended to raise the crude price not only in PADD II but also in Ontario; right?

3720. MR. WISE: Yes, it would raise it in Ontario and in Western Canada.

3721. MR. DAVIES: And, to be clear, the strategy is that a producer who supplies a committed volume on XL would be prepared to take a financial hit on that volume in order to raise crude prices in PADD II and Ontario; right?

3722. MR. WISE: Yes.

3723. This goes to the idea of a one price on a committed barrel — call it “a term price” if you like — versus a spot price.

3724. MR. DAVIES: And is it your view, Mr. Wise, that a single producer could use this strategy to raise the crude prices in PADD II and Ontario or would it take a number of producers pursuing this strategy together to increase the PADD II and Ontario prices?

3725. MR. WISE: I think it pertains to the committed barrels which total 380,000 barrels per day and represented by seven shippers.

3726. So —

3727. MR. DAVIES: So seven —

3728. MR. WISE: In this case, the answer is seven.

3729. MR. DAVIES: So seven shippers or seven producers are, in your view, pursuing this strategy in order to increase the PADD II and Ontario prices. Do I have it right?

3730. MR. WISE: We gave a sample calculation a few — a page earlier in this same evidence which shows how — shows how that would work.

3731. But if some of — if a minority of the barrels were sold at the Gulf Coast at a Gulf Coast price, that that would have the effect of raising the price not only in the Midwest and Ontario but in Western Canada thus reduce — increasing the net-back price for producers.

3732. MR. MILLER: May we have a moment, please?

3733. MR. DAVIES: I think you should take one.

— (A short pause/Courte pause)

This “strategy” apparently relates to an attempt to reverse the recent relative lowering of pricing that has occurred in Midwest refineries.  The reasons for the price decrease in the Midwest are complex, but they can be reversed by Canadian shippers agreeing to bypass PADD II refineries and sending their crude to PADD III.  Construction of KXL would open the Gulf Coast to tar sands crude.  This would reduce total oil flows to the Midwest, in turn reducing the current crude supply and causing prices to rise in PADD II.  Midwestern refiners would pass this rise in price on to consumers.

The Canadian oil shippers appear to cooperate to use the new pipeline capacity to expand tar sands operations in Canada and then transfer some of the flows to the Gulf Coast, resulting in higher per barrel costs in the Midwest on all crude oil pipelines.  The increase would be $3.00 per barrel overall and $6.55 per barrel sold in Midwest markets. This could increase revenue for the Canadian producing industry by $2-3.9 billion per year.

The proposed pipeline will likely also encourage the eventual export of crude oil derived from tar sands from North America.  Substantial investments have been made in Canadian production by foreign firms, including China National Petroleum Corporation, the Chinese state-run oil company.  While it does not appear that SINOPEC or the other Chinese companies are currently included in the group of already committed shippers, the proposed pipeline expansion far exceeds the initial committed capacity.  As a result, other Canadian production will likely utilize the Keystone expansion, including projects supported by foreign investment.  Current pipeline capacity does not, on its face, warrant the kind of additional foreign investment that is occurring and strongly suggests that exports outside of North America are ultimately envisioned by these investors.  Canadian oil would then not only bypass PADD II refineries, but also PADD III refineries in the Gulf Coast; the avowed purpose of the pipeline.

It is therefore critical to determine whether the increased prices expected to be incurred by U.S. consumers and the potential for significant redistribution of crude oil supplies now destined to U.S. refineries due to the proposed construction of this pipeline is the result of anti-competitive practices that violate U.S. laws through agreements among the proposed shippers.  For these reasons, I urge the FTC to investigate the proposed Keystone XL pipeline and related agreements.

Thank you for your prompt attention to this important matter.

Sincerely,

RON WYDEN
United States Senator

Labels must also specify species’ country of origin, the manufacturer and other information for consumers. The measure was introduced by Rep. Jim Moran (D-Va.).

The Truth in Fur Labeling Act, which President Obama signed into law last December, was designed to address the illegal dog and cat fur trade. Before this bill, there existed a loophole in the Fur Products Labeling Act of 1951 which allowed garment labels to exempt the species and origin of small amounts of fur.

“This loophole has been exploited to pawn off dog, cat, and other animal fur as an artificial fiber,” Moran said in a press statement. “Many Americans choose not to purchase fur products, preferring instead ‘faux’ fur as a substitute. Consumers with allergies or ethical objections to fur, or those who may have concerns about the use of certain species for fur production, will now be protected from deceptive advertising and able to make educated purchasing decisions.”

According to the release, in recent years, investigators from the Humane Society of the United States discovered that major U.S. retailers were unknowingly selling falsely labeled dog fur on clothing. Investigators found that 96 percent of the fur-trimmed jackets examined contained parts of domestic dog, wolf or raccoon dog — these were either mislabeled or missing a label altogether.

The Federal Trade Commission won’t enforce policy for clothes purchased prior to March 18, 2011. Read the FTC’s ruling here.

But regulations on servicers are thin. Servicers can, Andy Kroll noted earlier this year, change their charges and fees without notifying homeowners in advance. The companies routinely mess up families’ paperwork. And often they benefit from the confusion — tacking late-payment or wrong-payment fees onto customers’ bills.

Servicers have existed for decades, but have remained obscure — to the press, to the public and even to the regulators meant to be overseeing them. The federal regulators in charge of mortgage servicers — including the Office of the Comptroller of the Currency and the Federal Trade Commission, though each in a limited capacity — generally have not taken action when they break laws. In fact, though the Housing and Urban Development Department receives thousands of complaints a year, Washington hardly ever reacts. Instead, state governments are responsible for regulation. And that means a patchwork quilt of responses. Some states, like Ohio, go after the companies aggressively. Others don’t.

The good news is that this will soon change. Already, the Consumer Financial Protection Bureau technically has the mandate to oversee and write rules for mortgage servicers, though it is not staffed or set up yet. If the foreclosure fraud crisis is big enough, the new Office of Financial Research and Financial Stability Oversight Council might become involved. And last week, Rep. Brad Miller (D-N.C.) said of Congress, “We now have resolution authority that we can take out for a spin.”

Plus, Congress and the White House are now paying attention. Though the administration is using kid gloves, not pushing for new solutions or calling for a national moratorium on foreclosures, the Hill is more active. Sens. Richard Shelby (R-Ala.) and Chris Dodd (D-Conn.) have called for hearings when Congress comes back into session, after the November elections. Other offices I spoke with, including Sen. Sherrod Brown’s (D-Ohio), said they are considering new legislation or hearings to look into the fraud crisis. In the meantime, about 40 state attorneys general are investigating or initiating cases related to the crisis.

According to the Associated Press:

Aiming to clear up confusion for consumers about what various terms mean, the Federal Trade Commission has revised its guidelines for businesses that make claims about so-called “eco-friendly” products.

The proposed new version of the agency’s Green Guides was released Wednesday, with recommendations for when to use words like “degradable” and “carbon offset” in advertisements and packaging, and warnings about using certifications and seals of approval that send misleading messages.

Debt settlement companies generally charge consumers a percentage of their debt, often credit-card debt, in exchange for negotiating with lenders on the customers’ behalf. Some companies advertise aggressively, promising to cancel half of a customers’ debt or more. But, often, consumer advocates and the Better Business Bureau say, consumers going through debt settlement end up deeper in the red.

Starting Oct. 27, debt settlement companies that speak with clients over the phone will no longer be able to charge upfront fees. They need to better inform consumers about their fee structure, how long it might take to negotiate debts and possible bad outcomes. Additionally, any savings accounts that debt settlement companies ask customers to pay into (rather than paying their bills) need to remain in the customers’ name, in an independent bank, with the funds always accessible to the customer.

Consumer advocates applauded the change. “We commend the FTC commissioners for exercising their authority to lay down common-sense rules in the debt settlement arena, where unfair and deceptive practices are rampant,” said Michael Calhoun, the head of the Center for Responsible Lending. “Until now many debt settlement companies have required hefty fees — usually based on the size of the debt — at the beginning of a client relationship, before any of  the customer’s debts are settled. Far too often these companies never perform the task they were paid to do.”

The FTC plans to fine companies that violate the rules $16,000 per infraction. It also said it will go after companies posing as nonprofits.

The advertisements challenged by the FTC featured the drink’s probiotic straw. In one ad, the straw jumped out of the drink box, formed a protective barrier around a girl as she encountered a sneezing boy, and then formed steps allowing her to reach a basketball hoop and shoot a ball into the net.

The ads falsely claimed that BOOST Kid Essentials is clinically shown to reduce illness in children, to protect from colds and flu by strengthening the immune system, and to help children up to age 13 recover more quickly from diarrhea, the FTC charged.

It turns out, however, that some just went right back into their old line of business, sort of. The New York Times reports that former subprime lenders are making a killing by running loan modification companies that — surprise! — rip people off instead of reworking their mortgages.

From the ninth floor of a downtown office building on Wilshire Boulevard, Jack Soussana delivered staggering numbers of mortgages to homeowners during the real estate boom, amassing a fortune.

By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.

Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”

Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.

Jeffrey Broughton, one of FedMod’s initial partners, served as director of business development at Pacific First Mortgage, a lender that extended so-called Alt-A mortgages for borrowers with tarnished credit for Countrywide Financial, which lost billions of dollars on bad mortgages before being rescued in an acquisition.

The only problem here is that these financial geniuses aren’t exactly delivering on their loan modification promises, according to The Times.

Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company.

The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees. The suit seeks an end to FedMod’s practices, and compensation for customers.

“Our job was to get the money in and then we’re done,” said Paul Pejman, a former sales agent who worked out of FedMod’s two-story headquarters in Irvine, Calif. He recounted his experience, he said, because “I really feel bad.”

“I had people calling me crying, and we were telling them, ‘You can pay me or you can lose your house,’ ” Mr. Pejman said. “People were giving me every dime they had, opening credit cards. But I never saw one client come out of it with a successful loan modification.”

No surprise here.

Mark Thoma at Economist’s View has the best take on all of this:

See, the anti-regulation types are right. A Consumer Financial Protection Agency might stifle valuable innovation like this and prevent these companies from giving consumers the value that they pay for.

I might have that backwards.

Yes, how elitist to suggest consumers should have some protection from these predators. Chalk this one up to yet another lesson not learned from the financial crisis.