Consumers Beware of Standardization

I meant to post this two weeks ago and it got lost in my “to blog” list. In the aftermath of Barney Frank cutting “plain vanilla” power from the Consumer Financial Protection Agency, progressives were initially outraged while conservative and libertarians cheered. But the voices didn’t continue very long. It didn’t take long for the smoke screen to be rooted out. “Plain vanilla” might be gone, but the CFPA would still have power to direct the product offerings of businesses.

The pro-CFPA Tim Fernholz writes that “these concessions are mostly smart politics, not undermining policy”:

The biggest worry is the elimination of the “plain vanilla” requirements, which would mandate that lenders offer simple, basic financial products alongside whatever other options, risky or not, they would normally lend. But for the time being, that’s out the window.

Is it the end of the world, consumer-protection wise? According to consumer advocates, not really. Ira Rheingold, the executive director of the National Association of Consumer Advocates, e-mails to say “the devil is in the details — but I think you can still have a pretty effective agency.” Others made similar points, noting that the agency will still have broad rule-making power over the entire industry. And the loss of plain vanilla isn’t the end of the world: The agency can still right rules to ensure that standardized, understandable contracts are used by lenders so that consumers are still protected.

See my whole piece on the continued dangers of a CFPA here. The piece largely points out how businesses will be negatively affected by the new government agency. But what is bad for businesses will be bad for consumers as choice is limited and costs are passed on.