Today’s USA Today Editorial:

Why not scrutinize financial products before they’re offered?

Consumers won a big victory last week when Congress passed and President Obama signed a measure to rein in some of the credit card industry’s most abusive practices.

But faster than the president could sign the bill into law, the credit industry was already planning “innovations” to recapture the profits it will lose. These might include annual fees, higher interest rates for everyone and, more objectionably, charging customers interest from the moment of purchase. If the practices turn out to be unfair and consumers think Washington will help them again, they could be in for a long wait. Last week’s reform law was nearly two decades in the making.

The real problem for consumers is not the lack of laws to protect them. In many cases, they exist. The deeper failure is the lack of any federal agency looking out for consumers’ interest across a wide array of financial products, from credit cards to “payday loans” to mortgages. Oversight is splintered across an array of agencies that tend to treat consumer protection as a stepchild.

Harvard law professor Elizabeth Warren, who heads the Congressional Oversight Panel for the government’s financial rescue, had the right idea in 2007 when she wrote that consumers get better federal protection when they buy a toaster than when they take out a mortgage on the biggest purchase of their lives, a home.

Warren proposed a Financial Product Safety Commission much like the consumer products panel that sets safety standards on everything from toasters to bicycles. Now, some lawmakers are sponsoring measures to create one, and the Obama administration is discussing the idea, too. Such a commission could, for example, aggressively pursue deceptive practices and scrutinize new financial products for consumer safety before they go to the market.

Opponents of the idea insist that a gaggle of federal overseers already do this work. But their record is spotty at best.

The Federal Reserve, for example, didn’t move against abusive mortgage practices until 2007, far too late to prevent massive damage to homeowners and the economy. And the Office of the Comptroller of the Currency impeded state efforts to crack down on predatory lending.

A broad financial products overseer, with the sole mission of protecting consumers, could remedy the situation — assuming that it is carefully structured to prevent it from becoming just another level of weak regulation and bureaucracy.

Critics in the banking industry insist that more regulation would thwart competition and innovation. But some innovations — such as “no-doc” mortgages or mortgage offerings that only a team of lawyers could understand — deserve to be thwarted. If banks, thrifts, mortgage companies and other purveyors of financial products had to meet consistent federal standards — just as toaster makers do — they might offer consumers better products, rather than trying to trick them into buying products with hidden risks.

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