Consumer Protection Redux: The Lessons of History

For your Labor Day reading enjoyment, we bring you this guest post by Lawrence B. Glickman, who teaches history at the University of South Carolina and is the author of Buying Power: A History of Consumer Activism in America.

“We’re proposing a new and powerful agency charged with just one job: looking out for ordinary consumers,” said the president on June 17th.  The centerpiece of his proposed overhaul of the nation’s financial system, the Consumer Financial Protection Agency (CFPA), is designed to end what the president called “failure of…government to provide adequate oversight” by monitoring banking transactions, including mortgages, credit cards and checking and savings accounts. It did not take long for the predictable critics to denounce the agency with predictable rhetoric.  “It’s bad for the consumers,” said Steve Bartlett, president of the Financial Services Roundtable, a lobbying group for banks.  The institution will add “yet another regulatory layer” while advancing “the agenda of activist special interests,” according to the U.S. Chamber of Commerce.  The new agency represents “an unprecedented grant of power to mandate business practices” claims the American Bankers Association.

This is the language of conservative populism, a mainstay of the Republican party from Ronald Reagan to Newt Gingrich to Karl Rove. Conservative populism, wrote Jonathan Chait in the New Republic last year, “dismisses any inference that the rich and the non-rich might have opposing interests” and defines elites in cultural rather than economic terms as  “intellectuals and other snobs who fancy themselves better than average Americans.” Several decades of repetition have made this rhetoric familiar: federal efforts to help ordinary people–consumers–will inevitably hurt them; government is the problem rather than the solution; bureaucracy is “bumbling” (to use the words of a Crain’s New York Business poll about the proposed Agency); federal agencies designed to serve the public good actually serve narrow special interests.  It has been, in no small measure, through the ready deployment of this language that the Republicans have positioned themselves as simultaneously the party of big business and working Americans while denouncing Democrats as representing both intrusive government and elitism. This meme has been devastating for liberals since any expansion of government services can be dismissed with a quip–Bureaucrat!, Red Tape!, Nanny State!– rather than an argument. Recently, for example, Senator Lindsay Graham said that the American people would never tolerate the public choice option in health insurance because “you’ve got a bureaucrat standing in between the patient and the doctor.” For similar reasons, Senator Kit Bond dismissed the CFPA proposal as a “bad idea.”

To understand how Republicans have married free market homilies with the anti-elitist sympathies of ordinary Americans we must look back even before Reaganism to the 1960s and 1970s when policies favoring big business were first dressed up in the language of sympathy with ordinary folks.  One of the first successful efforts in this idiom was the battle against an earlier consumer protection proposal.  From 1969 to 1978 efforts to enact a Consumer Protection Agency (CPA) came tantalizingly close to passage in Congress.  With its leader appointed by the president, the CPA was to represent the consumer interest before federal agencies and courts and to serve as a clearinghouse for consumer complaints.  The CPA had widespread popular support and seemingly overwhelming Congressional support: the Senate passed a CPA bill 74-4 in the 91st Congress (1969-1971); the House passed a similar bill 344-14 in the 92nd Congress; and in the 94th Congress both the House and Senate passed the bill but without a big enough margin to overcome an expected veto from President Gerald Ford.  Yet the CPA ran into a buzzsaw of lobbying and never became law.  This  fight against protection sheds light on the rise of a style of conservatism that continues to veil itself as populism today.

Obama’s efforts to reignite consumer protection suits the current  historical moment in which for the first time in two generations reflexive antiliberalism appears to have lost its rhetorical punch.  Passing consumer protection legislation may well be a way to advance and modernize the stalled and seemingly moribund liberal project.  Although President Obama stresses the twenty-first century nature of his proposals, the architect of the CFPA, the Harvard Law Professor Elizabeth Warren draws explicitly on the unfinished agenda of the earlier campaign for consumer protection. Her 2007 article that first proposed the agency was entitled, “Unsafe at any Rate.”  Not only did she take her title from Ralph Nader’s 1965 blockbuster, Unsafe at any Speed, Warren noted that the model for “such safety regulation is the U.S. Consumer Product Safety Commission,” the product of many consumer-friendly laws passed between the mid 1960s and mid-1970s.  Safe appliances came under the government’s mandate in the 1960s, Warren notes, and incorporating financial services fulfills the goals of consumer protection by expanding it to the less tangible but equally important category of family finances.

The lessons from past consumer battles are not only ideological but organizational.  Unwilling to be out-lobbied again, a coalition of 200 consumer groups has created Americans for Financial Reform, which will aim to influence Congress and vows to respond vigorously to the opponents talking points. President Obama has also indicated his willingness to take the offensive. “The American people sent me to Washington to stand up for their interests,” he said in his weekly radio address on June 20th. “And while I’m not spoiling for a fight, I’m ready for one.”

Such a fighting attitude may well be necessary if the earlier consumer protection battle is any indicator.   In the first fight against CPA legislation, conservative business leaders, lobbyists, and politicians successfully took aim at liberalism by first taking on the consumer movement. With a well-financed and well-coordinated campaign facilitated by an informal consortium of lobbyists called the Consumer Issues Working Group, CPA opponents described consumer protection as exemplifying the flaws of American liberalism and as standing in for the twentieth-century liberal project as a whole.

The revived consumer movement of the 1960s and 1970s was central to what the political scientist Jeffrey Berry has called “postmaterial liberalism,” a politics concerned not just with economic growth but with improving the quality of life.  “For half a century we called upon unbounded invention and untiring industry to create an order of plenty for all of our people,” as president Lyndon Johnson said in his “Great Society” speech in 1965, which exemplified this postmaterial view. “The challenge of the next half century is whether we have the wisdom to use that wealth to enrich and elevate our national life, and to advance the quality of our American civilization.” Consumer protection was to Johnson and many others central to that mission, and a variety of popular laws, including “truth in lending” and “truth in packaging” were enacted. in his administration and in the Nixon presidency that followed it . Consumers Union doubled in membership between 1966 and 1972 as it joined the battle against pollution and suburban sprawl to its mission of scientific product testing. Presidents of both parties from John F. Kennedy–who declared a “Consumers’ Bill of Rights” in 1962–to Johnson–who appointed a White House advisor on Consumer Affairs in 1964–recognized the political salience of appearing pro-consumer, to Nixon and Ford who also appointed consumer affairs deputies.  The high point came in Jimmy Carter’s campaign for the presidency in 1976 when he told an audience that he hoped to rival Ralph Nader “for the title of top consumer advocate in the country.” (It may be hard to recall today, in the wake of Nader’s unpopular actions in the 2000 election and beyond but throughout the 1960s and 1970s he consistently ranked as one of the most admired Americas.  When Carter wooed Nader to meet him in Plains it was seen as a coup for Carter’s effort to establish his liberal bona fides.)5 Between 1969 and the late 1970s consumer activists, notably Nader, and many Congressional leaders of both parties, including the Republicans Jacob Javits and Charles Percy, put their weight behind the plan for a federal agency to protect and promote consumer interests.  In 1973 the New York Times conveyed the conventional wisdom when it declared that “there is in the air the possibility that consumerism will become a mass movement of untold economic and political power.”   The CPA seemed the minimum achievable goal of that movement.

From its beginnings, however, the revived consumer movement alarmed opponents.  As early as 1964, the advertising trade journal, Printers Ink called it an “ominous phenomenon.” By 1967, the consumer affairs reporter Sidney Margolius noted that the “business backlash has been unusually sharp and surprisingly effective.”  Ever since the consumer movement began in the 1930s, business groups organized to weaken its power, creating counter-organizations, attacking the motives and personnel of consumer groups, and predicting the terrible consequences of consumer protection.  With the popularization of the consumer movement in the 1960s, business groups once again organized, and they shifted into high gear in 1969 when Benjamin Rosenthal (D-NY) sponsored legislation for the CPA.

Several key organizations played an especially prominent role in opposing consumer legislation, notably the U.S. Chamber of Commerce, the Business Roundtable, the Grocery Manufactures Association, the National Association of Manufacturers, and the American Enterprise Institute. These groups carried out what the veteran Congressional leader and future Speaker of the House Tip O’Neill called the most “extensive lobbying” he had witnessed in his quarter of a century in Washington. The anti-CPA lobby’s biggest success came in the promotion of a series of talking points which, in sum, amounted to a repudiation of American liberalism, and became familiar aspects of conservative discourse.  Outspending complacent pro-CPA forces by a huge margin, they ensured that their message would be heard through a series of press releases (often published verbatim in small-town newspapers throughout the country) and advertisements (“The Last Thing Consumers Need is Another Government Agency,” declared a full-page ad paid for the by US Chamber of Commerce in the New York Times in 1977. )

Although the proposed agency was relatively modest with an initial budget of $15 million/year, opponents depicted it as exemplifying a new and dangerous bureaucracy favored by overzealous liberals. According to critics, the authorization of a consumer protection agency would result in “big government,” a symptom of which was “red tape and lawyers,” as well as “onerous” and “mind-numbing” regulations.  The CPA bill would lead to “immense harassment of employers,” concluded the Nation’s Business, published by the U.S. Chamber of Commerce.         But the opponents went further than merely condemning the excessive paperwork the CPA might generate.  It represented a “bureaucratic nightmare,” according to James J. Kilpatrick who was one of many syndicated columnists–among them, Patrick Buchanan, William F. Buckley and George Will–to criticize the CPA in his columns, because the CPA was authorized with inappropriate and excessive powers, which would turn it into a “meddlesome” and “out of control” body, a “superagency,” even a “monster superagency.” Critics agreed that the CPA would hold what they variously framed as “irresponsible power,” “unbridled power,” “absolute power,” and “enormous power.”  The CPA would produce a group of potentially “despotic” and dangerous “super snoops.” According to the US Chamber of Commerce, the CPA bill marked “the most serious threat to free enterprise and orderly government ever to be proposed in Congress.”

The flip-side of bureaucratic arrogance and over-reach, according to the critics of the consumer movement, was the assumption of incompetence on the part of ordinary consumers. The very call for an agency on behalf of consumers was an expression of the bureaucrats’ lack of faith in the abilities of their countrymen and women.  Ronald Reagan, the ex-Governor of California, criticized the consumerists–whom he compared to Orwell’s “Big Brother,” in several op-ed pieces and radio commentaries in 1975–for “promoting the notion that people are too dumb to buy a box of corn flakes without being cheated.”  Reagan concluded that “professional consumerists are, in reality, elitists who think they know better than you do what’s good for you.”  A group of Senators who opposed the CPA also rejected the view, which they claimed was implicit in CPA legislation, “that all consumers are mental midgets who must look to Washington to find out how to manage their personal lives from some bureaucratic consumer `representative’ who will have neither the time nor the knowledge to shop for and cook a decent supper.”  According to the advertising executive, Arthur Fatt, the consumer movement sees “the typical consumer as a moron.” The celebration of the intelligence of ordinary Americans became a component of conservative anti-elitism and an element of its populism.  If consumer advocates were snobs condescending toward those they claimed to protect, it was easy to dismiss their proposal as tainted since, as the business journalist Mary Bennett Peterson wrote, “those the Movement is designed to protect can actually wind up as its victims.”

In time such dismissals of liberal proposals became rote but in the 1970s this was a new line of criticism, one that successfully consolidated conservative ideology.  As the CPA bill languished after its final defeat in 1978, conservative groups correctly foresaw the opportunity for what Jeffrey H. Joseph, of the U.S. Chamber of Commerce called a political and legislative “bonanza.”  And indeed the terms of that victory foreshadow the rhetorical (and electoral) victories of Reaganism and the concomitant delegitimation of liberalism.  The Wall Street Journal did not exaggerate when it noted that the CPA bill was “killed by words” and those words continued to resonate long after the once-popular federal consumer protection idea  faded from public memory.

In recent years the hold of this ideology has weakened, creating space for a renewal of liberal politics, such as that represented by the renewed call for consumer protection after a thirty year hiatus.  But this is no time for complacency. As Travis Plunkett, the legislative director of the Consumer Federation of America has observed, “the financial industry is sharpening its knives” against the CFPA idea.  Yet although the old rhetoric has been revived–regulation is always strangling, bureaucracy remains dangerous, and the free market is inevitably the friend of the little guy–opponents have gone out of their way to acknowledge the problems and to agree that some regulation might be in order.  Even though the Chamber of Commerce has recently launched a multi-million dollar defense of the free enterprise system, Tom Donohue, its president, has acknowledged that economic realities “certainly justified some out-of-the-ordinary remedial actions by government.” According to the Huffington Post, one opponent said, “Opposing a consumer protection agency sounds really terrible, no matter how you try to spin it.” This cautious response suggests in part the moderate nature of Obama’s proposal but also the exhaustion of the anti-liberal rhetoric which has sustained the Republic Party for the last forty years.  It also provides an opportunity to make consumer protection once again a linchpin of modern liberalism.

By Lawrence Glickman

28 responses to “Consumer Protection Redux: The Lessons of History

  1. http://tcfrank.com/ for more on the anti-liberal crusade

  2. It is amazing to me that, after the past year, anyone still views their world through the lens of a political party. Has our framework for making decisions in this country ever been more disconnected from reality?

    Given where we stand right now, I think anyone would be well within their rights to be skeptical of government intervention in the markets and unintended consequences. I fear being governed from either extreme, be it by people enchanted with the financial sector or people operating from some vague sense of social justice. And it’s not like they cancel each other out cost-wise.

    And all we’ve been provided with is philosophy. No one has really outlined the CFPA concept, and for once I’d like to see a proponent say something beyond “of course you don’t like it, you are a Republican,” and actually start to flesh out what the authorities, jurisdiction, powers, etc. of this thing would be. When it comes to automobile safety, consumers’ interests are pretty aligned. This is also true for some financial products. But this is not necessarily the case with credit cards, for example. Some of us are clearly free-riding off the people who make themselves into profit centers. I’m not sure where the line gets drawn as to where that ceases to be acceptable, but I’d really like to get into the logisitics of how these decisions are going to be made. At any rate, if this is just another forum for Elizabeth Warren to play the scold-in-chief, it will probably amount to nothing. Personally, I find her only slightly more intimidating than my second-grade teacher. I can only imagine the fear Jamie Dimon feels.

    One of the things I dislike most about the CFPA concept is that all that it can accomplish pales to the rest of the necessary financial reforms. It is such an obvious political distraction. Maybe at the end of the day politicians will give Elizabeth Warren another chance to shake her fist indignantly, and they will claim victory – yes, see, we did actually come together to deliver something real for Americans – the masses are placated by something they think they understand, and meanwhile the rest of the system is just as instable as it ever was. That is to say, we are picking the wrong battle if we want to consider the things that will likely cost us the most in the long run.

  3. A discussion on language, and how it can be and is used to manipulate opinion and acquire political power, is very important. A functioning democracy needs citizens who are numerate and literate.

  4. Lavrenti Beria

    After providing an enlightening historical survey of past attempts to institute a consumer protection agency at the federal level and claiming that the failure of these attempts could largely be laid at the door of a “conservative populism”, Glickman amazingly fails to provide the glue to connect the cultural anti-liberalism Chait identifies with the purely lobby-specific opposition that ultimately did in these past initiatives. The anti-liberalism of conservative populism is blamed but a “buzzsaw of lobbying” and Ford’s veto are acknowledged as being the two-pronged coup de grace. It is hard to see the Glickman thesis, therefore, as free of contradiction.

    Chait is correct to say that conservative populism is largely “cultural”. To be sure it is almost entirely social. Opposition to the foundational, faith-related questions of abortion, stem-cell research, and an uncritical acceptance of homosexuality in society drive much of it. But it is far too facile for him to say that this populism “dismisses any inference that the rich and the non-rich might have opposing interests”, it doesn’t. As a matter of fact, it had its first home in the bossom of Franklin Roosevelt’s liberalism and was perfectly happy there and in the Democratic Party until expelled by the more zealous advocates of sexual revolution that came to be more closely identified with the term. The treatment of Robert Casey at the Democratic Convention in 1992, while hardly the beginning of this expulsion, was, nevertheless, emblematic. And given the frequent likenesses offered by self-identified “liberals” of conservatives as uneducated rubes and rednecks, one easily connects to the truth of conservative cultural claims. The distinctions are, in fact, cultural.

    How then to explain the reluctance of most social conservatives to see class questions as causative? In my view, largely because of the understanding they have of their responsibilty as being part of a coalition that seeks political power. To gain what they seek in the social sphere, they are prepared to submerge what today have to be developing economic anxieties. It will not be hard to uncouple them from their neo-conservative allies – who are hardly populist. But so uncoupled, they would more likely opt for obscurity than identification with some elitist, “limosine” liberalism of the Obama/Pelosi variety and understandably. After all, these folks are more apt to be wage earners, not librarians, PBS devotees, or university professors who talk class distinctions but who know little of their downside.

  5. I fear being governed from either extreme, be it by people enchanted with the financial sector or people operating from some vague sense of social justice.

    Actually that’s all just rhetoric. They are both just at the extreme edge of the same corruption.

  6. These quotes put on a clinic in the classical totalitarian lie of accusing the enemy of precisely what you’re doing or intend to do. Thus:

    The institution will add “yet another regulatory layer” while advancing “the agenda of activist special interests,” according to the U.S. Chamber of Commerce.

    In other words it seeks to erode the power of their “regulatory layer” of deception and rent-seeking, and to obstruct their special-interest activism. (It’s almost comical coming from a “chamber of commerce” thug. The activist special interest to end all special interests.)

    The new agency represents “an unprecedented grant of power to mandate business practices” claims the American Bankers Association…

    Only they intend to exercise unprecedented power in mandating business practices.

    Recently, for example, Senator Lindsay Graham said that the American people would never tolerate the public choice option in health insurance because “you’ve got a bureaucrat standing in between the patient and the doctor.”

    That quote tells the literal truth. There is a bureaucrat standing between, the guy on the private insurance death panel. They simply want only private feudal bureaucrats and death panels.

    According to the advertising executive, Arthur Fatt, the consumer movement sees “the typical consumer as a moron.” The celebration of the intelligence of ordinary Americans became a component of conservative anti-elitism and an element of its populism…

    They see the consumer as a moron, and they prove it too as they manipulate so many like this. Playing him like a violin – it’s fun, too. They laugh about it.

    business journalist Mary Bennett Peterson wrote, “those the Movement is designed to protect can actually wind up as its victims.”…

    Only if they defeat the Movement can they continue to victimize those the Movement seeks to protect.

  7. test. why do my comments keep saying “awaiting moderation”?

  8. Lavrenti Beria

    It’s God punishing you for your sin, Russ. :-)

  9. Looks like the rest of my original comment got lost, but I also said Obama’s clearly not the guy who’s going to seize this unique historical opportunity Glickman referred to.

    It would be too much for me to rewrite it now. Oh well.

  10. Yes, he’s finally penalizing the atheism he implanted in me. :)

  11. Lavrenti Beria

    Yeah, I see, He’s the one that did that, you were entirely passive and can’t in any way be held responsible. Just watch out for flying retribution, Russ. He’s taken over administration of this website and is now sure to get you. :-)

  12. What a great post by Professor Glickman. I always like when the “baseline” site gets some contributors from outside, who hold the site’s same basic philosophy on improved financial regulation but can give us some freshness in the way they present their views. Professor Glickman’s view from his knowledge and perspective definitely adds a strong and sturdy pillar to the argument for the Consumer Financial Protection Agency (CFPA). Alan Blinder wrote a related piece in the New York Times that is worth the few minutes it takes to read.
    http://www.nytimes.com/2009/09/06/business/economy/06view.html

  13. Oh yes, the conservative populists within the GOP – so successful in shrieking “JUST SAY NO TO EVERYTHING” louder than anyone else in the world.

    Wondering when they’ll realize that their base has been decimated by the prevailing GOP philosophy that government is root of all evil.

    Last I checked, it was the GOP who not only decided to transform a huge surplus into a massive deficit (one of the largest failed government stimulus programs ever – huge sums spent without a job created outside of Halliburton…)

    And it was the GOP who decided last fall to create the largest federal intervention into the financial sector – an intervention that was essential… or else.

    Regulatory oversight of the financial sector is absolutely critical – not just to protect consumers, but to protect the entire economy from catastrophic failure.

    Instead of saying “no” – the GOP should be working their asses off to create regulations that diminish risk without destroying incentives to innovate.

    Optimist that I am, I believe firmly such an environment can be created – but not if one party decides to remove itself completely from all thoughtful dialogue.

  14. That’s a great link, Ted. Thanks for posting it!

  15. And can I ask, how can the addition of ANY regulatory agency be “yet another regulatory layer” in a sector that seems without any regulation whatsoever?

    I realize that the “banking sector” is regulated. But there’s that whole “shadow banking sector” that grew up without any parental rules or involvement whatsoever – and that seems to be the area most heavily involved in the crisis.

  16. That happened too to me, but only when I used the word
    C0nspir@cy.

  17. I think we all know there’s “regulation” and there’s regulation.

  18. One party? Try both parties.

  19. You strike at the heart of the issue: Would you trust government over corporations. Of course not. The free market hypothesis insures that markets, read corporations, would never exploit consumers since they would go out of business.

  20. Corporations are like guardian angels to us. They are so wonderful and wonderous. They were incorporated in heaven. Jesus ran one back in the day.

  21. I, for one, do believe that consumers are capable of making their own decisions, and being responsible for the outcomes of bad ones. I also believe that the proposed CFPA is, in fact, a good idea. Consumers can make the best decisions, when and if they are presented with a complete and clear picture of what they are deciding to do, and if they know the alternative choices available to them. For me the CFPA would do no more than protect them from devious legally opaque financial products, and serve to eliminate products that would harm them by outlawing them. After all, there are some financial products which would be dangerous for anyone to choose, lots of them!!!

  22. An excellent article. I hate to interrupt the cheering for the CFPA, but has anyone noticed the performance history of the SEC? Consumers of credit have a simple choice: take the deal or go without the stuff. In a world of shrinking wages, that will continue to be a non choice for too many. It won’t help to publish the sleezy terms in fourteen point type, and what about all those trees? The Democrats always jump on this kind of band wagon; it gives them a convenient hobby horse they can ride and ride, without stepping on any contributor toes. No doubt the CFPA will be the triumph of our silvertongued president’s first administration. But I wouldn’t confuse it with an assault on monopoly capital, or expect it to have any significant effect.

  23. Another thanks. This makes checking the comments worthwhile.

  24. Consumer protection is also about education. Municipal bond brokers advertising on the radio every morning begin with, “investing in bonds involves possible loss of principal”. A simple warning that is repeated every time the ad runs.

    I wonder if a similar warning to mortgage buyers would make a difference. Suppose the sales person was required to say “the mortgage you are about to purchase can increase to $2200 per month from $1000 if you miss only one payment or that payment is late. Furthermore, you are obligated to make these payments for x number of years even if one or both signers lose his or her job, divorce, or cannot work due to illness”.

  25. Reform of our financial system is absolutely necessary. However, you have not made the case that consumer protection is what is needed. The frontrunning, pump and dump, naked short selling antics of the big Wall Street investment banks primarily hurt those companies listed on the exchanges, not the consumer. The average Joe consumer does not invest in those exotic derivatives either. It’s the entire economy that took that hit.

    One of the biggest areas where consumers need to be protected is how their credit card loans are treated. At a time. when the big banks are getting nearly free money from the Fed, those same banks have jacked credit card interest to over 20% on millions of people who are struggling to pay their bills. One would think that Congress would attack that problem.

    Oops, I forgot. They did already, and the end result was that credit card payments went way up not down! Those same compassionate so called liberals who are “always looking out for the little guy” once again stuck it to the little guy.

    And these are the same crooks and liars you want to entrust more consumer protection legislation, after this Congress and President has given billions to Soros, the Unions, ACORN and their biggest Wall Street contributors.

  26. An excellent article by Professor Glickman. Having lived through the CPA and CPSA years on Capitol Hill, I must disagree, however, with the Wall St Journal comment. The CPA was not “killed by words”, but by words backed by big money. Until the campaign finance laws are changed to cap political contributions, or to allow public financing, a revival of the consumer protection ideal, whether through government agencies (effectively monitored), or consumer self- help mechanisms will be very difficult indeed.