The Case For A Financial Products Safety Commission

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Right now Congress is avidly arguing the pros and cons of financial reform. While there are some political persuasions that decry regulations, in the wake of the current financial crisis ranging from the housing bubble to the current fiasco with Goldman Sachs, it is interesting to note that right now in the United States a consumer is protected from purchasing an automobile that has faulty airbags or a toaster that has a 1 in 5 chance of bursting into flames when you toast your bread but those same consumers can end up paying over 400% interest on a payday loan or saying ?yes? to a mortgage that has a 1 in 5 chance of subjecting the family to a foreclosure that will put them out in the street.

While the CARD legislation has addressed some of these concerns as they relate to credit cards, there are still loopholes and CARD does not cover the entire financial industry.

How many people actually read and completely understand the pages upon pages of disclosures that come with a financial product such as a credit card or a mortgage?
If you have purchased a home with a mortgage, you know that the papers that you are required to sign are about 2 inches thick.

Did you read every page, word for word?

Or did the other people who got the loans that can increase up to 14%, thereby effectively rendering them helpless to pay the increased payments on the mortgage? How about the guy who just ?needs a break? until payday and ends up not being able to pay off the loan on time for whatever reason? Is it right to have to pay back over $3000 for a $400 short-term loan? Is 400% per year reasonable? Sure it was disclosed, in the fat stack of paperwork, with the disclaimer that the lender ?reserves the right to change the terms at any time for any reason? hidden deep in the fine print.

Elizabeth Warren, the Leo Bottlieb Professor of Law at Harvard Law School, has written a compelling article at Democracy, outlining why we need a Financial Products Safety Commission. See ?Unsafe At Any Rate?.

Establishing a Consumer Protection Agency is part of the financial reform bill that is being debated on Capitol Hill right now.