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Why is consumer protection important?

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Quick Answer

Consumer protection helps keep people safe from unfair financial arrangements. These regulations are often strengthened in response to widespread financial hardship. Protecting consumers also protects businesses from unethical competition.

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Consumer protection laws are designed to prevent some forms of exploitative financial scenarios. In addition, they regulate how financial institutions can collect debts and the interest rates they can charge. Historically, banks and other entities have entered into one-sided agreements with consumers facing financial hardship. These regulations are designed to prevent unfair situations.

Consumer protection laws also ensure fair competition. If one financial institution uses immoral lending or collection practices, its competitors might have difficulty keeping up and might feel forced into practicing the same immoral acts. By implementing and enforcing strong laws, regulators and lawmakers can prevent a race to the bottom.

In 2010, the United States created the Consumer Financial Protection Bureau in response to the financial crises that started in 2007. This agency provides a number of tools to help people determine how much their loans cost over time, and their tools are targeted toward college students and others who might face high interest rates. The bureau allows consumers to lodge complaints online, and it has regulatory power to investigate and bring charges against violators.

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