Taking down dirty lenders

The $3-trillion-a-year consumer financial-services industry wants you to play a game with them, one on one. Well, technically, it will be one of you against their stable of thousands of lawyers, business strategists, and marketing experts. But who's counting?

The stakes are the financial well-being of your family and the economic stability of the nation.

Oh, and they would like you to agree to play without rules or a referee. What do you say?

It sounds pretty ludicrous, but that is exactly what the credit card and mortgage companies are suggesting as they line up against President Obama's proposed Consumer Financial Protection Agency, which would be designed to ensure the safety of financial products while encouraging competition and innovation.

The consumer financial-services industry is hoping to keep the playing field just as it is, with a regulatory structure full of gaps, contradictions, and inefficiencies. That allows large companies to get away with dirty tackles and cheap shots while running up the score on the American public.

When the recent economic meltdown unfolded, 52 percent of subprime-mortgage issuers had no federal supervision at all. Of those financial-services players who do face some oversight, many have the ability to choose their regulators by simply reincorporating as a different kind of entity whenever they encounter rules they don't like.

Moreover, the government agencies that might be expected to cry foul over some of the industry's worst practices - such as the Federal Reserve Board, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency - are charged primarily with protecting the banks. In general, they have been unwilling to use their powers to ensure the fair treatment of consumers.

The result is dubious marketing practices and incomprehensible 30-page agreements riddled with hidden consumer traps. This tends to lead to kingly profits for companies and misery for working Americans.

In 2006, the public paid $89 billion in credit card fees, interest, and other charges. All were authorized by contracts that no consumer would agree to if he actually understood the esoteric details and were in a position to exercise free choice.

Similarly, recent estimates suggest that half the homeowners sold high-cost subprime loans would have qualified for prime-rate mortgages that would have been far less expensive.

All of this adds up to suitcases of money that consumers might have chosen to spend on school supplies, health care, or groceries. Instead, it went to enrich financial executives as a direct result of deception and trickery.

What's more, these figures don't capture the most significant costs forced on consumers: lost homes, decimated savings and retirement accounts, destroyed marriages, damaged job prospects, and deferred college plans.

This isn't right. And it isn't American to stand idly by while bullies beat up on the little guy. We need a referee who isn't intimidated by the linebackers of big finance. And with Congress' help, we could soon have such an entity making sure the industry plays fair.

The proposed Consumer Financial Protection Agency would be modeled on the U.S. Consumer Product Safety Commission, an independent agency created under the Nixon administration. Since its inception, the agency has helped ensure that companies don't sell cribs that kill infants while they sleep, lead-based toys that poison toddlers, or faulty space heaters that burn down houses.

The proposed regulator would have the equally important job of ensuring that companies aren't allowed to unfairly endanger families' finances. It would be able to blow the whistle on credit card products and provisions that do not meet minimum safety standards, including such underhanded tactics as hidden double-digit interest-rate increases, universal default clauses, and terms that the lender can alter after money has already been borrowed.

The agency would also be able to close loopholes and unify the current fragmented regulatory framework by ensuring clear disclosure on mortgages, credit card contracts, automobile financing, and payday loans, among other things.

In the end, a fair game doesn't mean companies won't make a profit. It means they have to make their money by offering innovative and effective products that people actually want, rather than making it by subterfuge and deceit.

Many decades ago, the United States made a similar commitment when it created the Food and Drug Administration, encouraging companies to earn profits by developing medicines that cure ailments instead of swindling people with snake oil. The FDA didn't kill the drug industry; it made it better, and it saved the lives of countless Americans.

Today, our financial security as individuals and as a nation is in serious peril. It's time to protect and reaffirm our basic right to safe consumer products, whether they are lawn mowers, cigarette lighters, mortgages, or credit cards.