A Fighting Chance

We had one big advantage in talking about the idea of a new government agency to a skeptical public: we could point to plenty of agencies that had already done a lot to protect consumers.

In the 1970s, the Consumer Product Safety Commission (CPSC) had been created to establish safety standards, recall unsafe products, and ban products that pose unreasonable risks. That agency works to keep us safe from arsenic in toys, car seats that collapse on impact, and, yes, toasters that catch fire. In fact, the CPSC estimates that standards for three products alone—cigarette lighters, cribs, and baby walkers—save American consumers more than $2 billion every year and prevent a lot of terrible injuries.

Congress can pass a law to make something illegal, but the usual “one and done” approach is fairly rigid. Agencies, by contrast, can be nimble. The CPSC didn’t pass a regulation about the safety of, say, infant car seats back in 1982 and then sit around and do nothing for the next thirty-five years. Instead, the CPSC constantly tests new products and gathers new data as things change in the market. When the agency discovers that a new model of infant car seats has a tendency to collapse on impact, it researches the problem, figures out a solution, and issues a new regulation. In many cases, it orders recalls. The world changes, products change, and so do the agencies’ rules.

That could also be the mission of an agency designed to protect consumers from financial traps. New financial products come out every day—they’re often created when just a few new words are added to a long and complicated contract—and the agency could keep up with changes in the industry. It could eliminate deceptive terms and help make disclosures shorter and clearer. And it could stamp out marketing that advertises a 5 percent interest rate in large print and buries the 35 percent interest rate hike in the fine print.

Not surprisingly, a lot of people were dead set against this idea when I first started talking about it. I heard the arguments against the agency over and over, sort of like a continuous-play music list with only a few songs.

The agency would engage in price fixing. Nope, the new credit agency would have the power to make prices clearer, but it wouldn’t set prices.



The agency would grow the nanny state. Nope, the agency wouldn’t try to prevent people from charging too much on a credit card or buying an overpriced car. Again, this was about transparency, making the terms of the deal clear and then letting people make their own choices.



The agency would stop innovation. Nope, banks could still come up with cool new products, but they couldn’t build new things just to trick people about the price or trap people by hiding the risks.



The agency would put banks out of business. Well, it depends. If a bank built its profit model around tricks and traps, then it would be in real trouble. On the other hand, if a bank wanted to compete straight up and make the terms of its deals clear, then that bank should be very happy about the new agency.



The last point was really important. Through the years, a lot of reputable banks had struggled to extricate themselves from a terrible bind. Their problem reminded me of the drug industry back when snake oil salesmen promised to cure cancer and baldness with just one bottle: the honest players found it difficult to sell an effective product at a reasonable price. Who could compete against companies that were willing to deceive and cheat their customers? After all, when so many contracts were awash in fine print, how could people tell the honest companies from the cheaters?

But in a world where everyone is required to be on the up-and-up, honest banks with an honest product should find it easier to get their message through. Over time, customer confidence should improve. Ultimately, this would be a good thing for the free market. Tell the truth about a product, and customers can take it or leave it. Better products attract more customers, and bad products gather dust on the shelf. What’s not to like about that?





The President Talks Toasters