The President of the New York Banker's Association has answered calls for stronger regulation of his industry by making an assertion that sounds familiar: "Ultimately, an educated and informed consumer is the best defense agains
The President of the New York Banker's Association has answered calls for stronger regulation of his industry by making an assertion that sounds familiar: "Ultimately, an educated and informed consumer is the best defense against predatory practices," he declares. If readers want any more evidence than the recent economic collapse to demonstrate that we need a new mindset in the banking industry, and a new approach to regulating consumer financial products, then this "personal responsibility" mantra of the banking industry will provide us with "Exhibit A."
A century ago it was common to blame injuries on unskilled consumers rather than poor products. The automobile industry, for instance, denied responsibility for car designs that made accidents more likely or more severe. "Those cars are as safe as we can make 'em," auto advertisements claimed well into the 1950s. The only design defect problem they reported was "the loose nut behind the steering wheel." A new millennium and millions of accidents later, it should be abundantly clear to citizens that even the best educated and the best informed consumers in the world cannot defend against products that are poorly designed or intentionally unsafe.
Consumers do try to be vigilant in the marketplace, and vigilance does help to avoid certain bad products and predatory sellers. But precautions by individuals too often just shift misfortune somewhere else. Pickpockets thwarted by zippers look for other pockets.
The enforcement of sensible standards and rules is necessary to limit many such losses in the aggregate. This is a lesson about good laws and regulations learned the hard way, and not just with reference to automobiles -- but in areas including food and drugs, insurance policies and pension plans. It's time the banking industry acknowledged that the under-protected consumer is often the industry's most profitable customer, and that improving financial literacy is a valuable but insufficient approach to a fairer marketplace.
Norman I. Silber is Professor of Law and Dean of Intellectual Life at Hofstra