By Ann Brown - 03/03/10 01:52 PM EST
As former chair of the U.S. Consumer Product Safety Commission, I know a product when I see one. Mortgages or credit cards may not take up counter space or fit into toy boxes, but make no mistake: These are consumer products. They are marketed, sold and profited upon like any other product, be it a doll or a toaster oven. They can be just as dangerous and they should be regulated just as stringently. This is hardly a radical idea. Indeed my guess is that most Americans already assume that these products are indeed regulated by a dedicated team of experts. They aren’t; but that may change soon. The House of Representatives recently passed legislation creating a new Consumer Financial Protection Agency. The Senate should do the same.
The logic is simple. Consumers don’t buy a crib for a new baby hoping that the crib is safe. They purchase a crib with the confidence that the crib won’t collapse or that the baby’s head cannot get caught in the crib rails. That confidence is made possible by the Consumer Product Safety Commission, which ensures that cribs in the baby store are safe and will recall a crib if it doesn’t meet the standards.
By contrast, when potential home buyers go to see a mortgage broker they are on their own. If they have advanced degrees in finance and hours on end to read the stacks of documents and tiny print that come with a home loan they may catch a bad product before they buy. For most people though, they have no choice but to trust the lender and hope for the best.
As we learned in the current mortgage meltdown, too often sellers of these products don’t have the interest of the consumer in mind. In fact, many mortgage brokers made extra money by steering consumers into more expensive loans than the loans they actually qualified for. Too many of these consumers ultimately couldn’t afford these loans, which helped to bring our economy to its knees.
The CPSC’s mission, as set forth in the Consumer Product Safety Act, is to “protect the public against unreasonable risks of injury associated with consumer products.” The Commission has the authority to set safety standards, require labeling, order recalls, ban products, collect death and injury data, and inform the public about consumer product safety.
Similarly, the Consumer Financial Protection Agency would create and enforce clear rules to ensure fairness of credit card terms and conditions, overdraft loan programs, payday and car title loans, and of course, mortgages. The agency would not necessarily ban potentially harmful financial products, like subprime mortgages, but would ensure that mortgage seekers were offered good products that met their needs and were not steered toward inappropriate ones.
In doing its job, the CPSC saves $700 billion in societal costs each year. Since the Commission’s inception in the 1970s, product-related death and injury rates in the U.S. have decreased substantially. The CPSC’s oversight and standards for cigarette lighters, cribs and baby walkers alone save more than $2 billion annually.
The work of the CPSC is not just good for consumers, it is also good for business and the economy. The CPSC’s standards create confidence in the marketplace, and consumer confidence is a key factor in a healthy economy.
Of course, just as the CPSC can’t ensure that products won’t hurt a consumer if the consumer uses the product irresponsibly, the same goes for financial products and services. Neither the CPSC nor the CFPA will save consumers who act irresponsibly.
But a dedicated agency monitoring and reining in the reckless behavior of big banks on Wall Street, credit card companies, mortgage lenders and the like will go a long way toward ensuring we will not have a repeat of the financial crisis that cost Americans millions of jobs, billion in taxpayer-funded bailouts and trillions of lost retirement savings.
Brown served under the Clinton administration as the Chairman of the U.S. Consumer Product Safety Commission from Mar 1994 to Nov 2001.