The crossroads for American consumers have arrived much sooner than expected. If you're not paying close attention, you might not have noticed: America's best (last?) hope at restoring a sense of fairness and honor to our marketplaces is about to go up in flames. The match is lit, the gasoline poured. Reforms that might end the reign of America's rip-off nation, the rule of commerce by Gotcha, are in mortal danger.
Each week I chronicle the bizarre and Kafka-esque trials that consumers suffer at the hands of credit card firms, pay TV companies, mortgage brokers, and so on, on a blog called the Red Tape Chronicles. In the last four years I have read hundreds of thousands of these maddening stories, and rolled them up into two New York Times best-sellers. My overriding premise is simple, and rarely challenged -- hidden fees, the death of the price tag, confusion marketing, fine print fraud, all these things are daily nightmares for average Americans. But together, they are something even worse: they threaten to bring about the end of our market economy, which is transitioning into something I call "Gotcha Capitalism." Companies sign you up, set you up, then lie in wait until you screw up and they can jump you with all manner of out-sized punishment. Account balance dipped $1.34 below zero? Gotcha! That'll be $35. Rental car returned 7/8th full? Gotcha! Gas costs $5.65 cents a gallon here. Pay $39.99 for 6 months! And after that, pay triple, or maybe quadruple that. In a world where price tags are meaningless, there is no real competition, and no free market.
Entire companies are now organized on this principle; they exist only because of these booby traps. In the electronics industry, the only profit margin on some products is the so-called "breakage" and "slippage" from rebates. Plenty of mortgage brokers, and even banks, stayed in business only as long as they could fool customers. These firms offer no product or service of value. They simply cheat well.
Hidden fees may be a daily annoyance for you; but for America, they are an economic calamity. Businesses formed on fraud are built like a house of cards, destined to collapse. Worse still: they crowd out good companies with honest policies and up-front pricing. Would you want to be the only hotel that was honest about daily $30 resort fees when listing prices on the Internet? No more than you'd want to be the only honest poker player at a $1,000-a-hand table. In America, businesses can't afford to be fair right now.
How did this happen?
Imagine if one day, half your police force disappeared. Suddenly, there were no cops on the beat during nights and weekends, or in your half of town.
No need to struggle conjuring up that image: you live like that now. The Federal Trade Commission -- the nation's chief agency designed to protect consumers -- has roughly half the full-time staff it had back in 1979. It's the same story at other federal agencies with consumer protection duties: the FCC, the SEC, the Consumer Product Safety Commission, have all been slowly emasculated, beginning in the 1980s with the great anti-regulation movement. Open season on U.S. consumers was declared. Now, when a 21st-Century-style street mugging is pulled off by a cable firm or bank, there's nowhere to turn for justice.
With the election of President Barack Obama, there was much rejoicing among consumer groups. Democrats, they believed, were poised to restore consumer protection to its proper place of importance.
Instead, one year out, the most important tool proposed to fix this mess has just been offered up as a sacrificial lamb. Democrats are now ready to bargain away the proposed Consumer Financial Protection Agency, the centerpiece reform of a package designed to give consumers an ally in Washington. Half measures, like spreading consumer protection efforts among existing agencies, will take its place, we're told.
Let's set aside the crazed logic of this possible outcome -- if your home collapsed because of poor design, would you ask the original architect to take another crack at it? Instead, let's focus on the current administration's track record with half-measures.
Aside from protecting America from its enemies, it's hard to argue that the most important problem of Obama's first year was dealing with all the empty houses dotting the American landscape. Empty houses are at the heart of much pain and suffering, and the heart of the economic collapse.
The much-ballyhooed tool for dealing with the empty house problem is Obama's Making Home Affordable plan. The complicated scheme is designed to please everyone, but mostly banks -- formulas were created to keep people in their homes while making sure banks didn't have to lose a bit of loan principle, and banks are paid for participating. How's it going? While 2.8 million U.S. homes were foreclosed last year, only 66,000 have so far received permanent help through the program. Meanwhile, as we discovered during a recent investigation on msnbc.com, thousands -- if not tens of thousands -- of applicants have faced Red Tape nightmares which rival those of Kafka's Joseph K. Deb Franklin, for example, made 9 straight on-time payments exactly as directed by the bank, and then received a foreclosure notice on the day after Christmas. Making Homes Affordable has been making struggling families crazy.
Fairness knows no party. Missteps in an attempt to restore it are apparently bipartisan, too.
I'm not naive about the blame consumers should shoulder in the housing mess, and in the larger economic malaise. In my new book, "Stop Getting Ripped Off: Why Consumers Get Screwed", I take on this issue. Americans stink at math -- about half can't reliably calculate the tip on a lunch bill. American teachers stink at math, too. We're greedy, needy, overly permissive, too image conscious, and overindulge in magical thinking. In short, we are a naive bunch, ripe for the picking. I get it.
But it is far easier to force 25,000 mortgage brokers to be honest than to train 100 million Americans how to read HUD-1 mortgage sale forms. And while I'm the first to advocate better training for U.S. consumers, those who like to exonerate corporate America by blaming regular folks for their mistakes should know: the fact that human beings can occasionally be ignorant, careless, or distracted gives no one the right to steal from them.
There's only one way to signal to banks, brokers, cell phone providers, and every other Gotcha-based business that fairness can make a comeback in America: bold, new steps to fix these broken marketplaces. Given the size of the calamity, and the clarity of the culprits, creation of the first new federal consumer protection agency since the 1930s seems the least we could do.
And so, we are at a crossroads. Yes, the economy seems no longer to be teetering on the brink of disaster. Some are arguing that things are getting better, so no dramatic reform is needed. Don't believe them. Real unemployment (as opposed to 'headline' unemployment) hovers around 17 percent. A record year of foreclosures is coming. And the ticking time bomb of resetting mortgage interest rates still lies ahead. Don't be fooled by the Dow. Change is needed. Hadn't we settled that argument already?
Fair marketplaces would be welcomed by honest companies who are tired of losing customers to competitors who lie about their prices and hide real costs under asterisks and fine print. Consumer protection is good business. America can thrive in a truly free market, but will perish in a free for all. After all we've been through, after we pushed the world economy to the brink of disaster and ruined millions of lives, how could we settled for less? If we don't renew our consumer protections now and make America fair again, will we ever?