Some news organizations are reporting that the Obama administration is studying the creation of a new governmental body that would be empowered to protect consumers of various financial products as well as have authority in other areas. The White House is planning to increase the Consumer Product Safety Commission’s budget by 71% (see generally the Commission’s website at http://www.cpsc.gov/businfo/businfo.html). Apparently, President Obama is intending to reinvigorate the agency by making Inez Moore Tenenbaum the CPSC’s Chairperson and Robert Adler a new Commissioner.
It often takes a crisis to get the government (and Congress) to Act. Enron led to the passage of the Sarbanes-Oxley Act. 9/11 led to the passage of the U.S.A. Patriot Act. One can debate for hours whether these laws accomplished their declared goals. Two things are certain; both pieces of legislation were passed in such haste that very few Senators or Congressman understood their substance. Many people in the private sector made significant profits from clients seeking to comply with the new requirements created by both laws.
There is a lot more to governing than holding press conferences and issuing press releases. The difficulty of Ms. Tanenbaum’s task should not be underestimated. First, she will have to win numerous turf battles (e.g. the Securities and Exchange Commission, the Federal Trade Commission, Department of Justice and numerous state and local agencies.). Second, the CPSC needs new legal powers and a means to become financially self-sustaining. Third, the CPSC has to avoid “agency capture” – whereas business interests and wealthy individuals can organize and lobby legislatures, consumers seldom can.
Presumably, the decision has been made that the CPSC will remain an independent agency – which is probably a good thing since the above-mentioned federal bodies are unlikely to assign consumer protection a high priority. Grafting it onto an existing governmental entity or making it an amalgam of existing bureaucracies can be problematic. There should be no doubt as to the CPSC’s mission.
If the Obama Administration indeed wants to be taken seriously by businesses, let me suggest some initial steps:
(i) Prohibit stock and insurance brokers from having mandatory arbitration clauses. Most contracts between a consumer and corporation is a contract of adhesion – that is, their terms are not negotiated. Arbitrators tend to favor industry (after all an individual consumer may not be the source of future cases). In addition, many arbitrators like to “split the baby down the middle.” Unfortunately, most arbitrators lack the wisdom of King Solomon). Furthermore, it is almost unheard of for an arbitrator to order punitive damages. Let the consumer have his day in court.
(ii) Don’t give consumers a false sense that the CSPC will have the resources and time to fight on their behalf. Lessons can be drawn from the manner in which the Equal Employment Opportunity Commission operates. The EEOC only takes on the most egregious cases. Submitting a complaint to the EEOC can be like dropping a file in a bottomless pit. Thus, it should come as no surprise that most persons that seek to vindicate their rights under the Americans with Disabilities or Age Discrimination in Employment Acts need to hire private attorneys. This shifts the cost of ensuring that the law in this area calls on private individuals as opposed to the budget.
(iii) Give “whistleblowers” economic incentives and job protection to ensure that the law is enforced.
(iv) Make all consumer rebates payable at point of purchase. A majority of consumers never receive rebates to which they are entitled. They may turn in the rebate form late. Send a xerox copy of the product’s UPC Code (which is understandable if consumers think they may return the product). They may not properly complete the product codes – many people make mistakes writing down a 14 digit number, such as inverting numbers). There are scores of other reasons that many rebate claims are denied. Consumers do not have the opportunity to observe whether an employee of the rebate provider simply “loses” or shreds one of the items that must be sent in to receive the rebate. The failure to make rebates redeemable at the point of purchase will either facilitate fraudulent conduct or give the manufacturer a free loan. Does it make any sense for creating a new way to clog up the courts with class action lawsuits?
If the U.S. economic recovery depends in large part on consumers buying more, should all legislators support the last proposal? Shouldn’t Congressman be concerned with the needs of their constituents?
President Obama may have the best of intentions. He has yet to fully appreciate the power of inertia, limited government resources due to budgetary constraints (and the American public’s allergy against any tax increases – even though U.S. citizens want the benefits that government might offer) and lobbying. One’s sense of realism usually increases with the passage of time.