In 1966, Congress passed the Fair Packaging and Labelling Act, which required manufacturers of retail products to list the contents and weights of their products. The food industry fought hard against it. Breakfast cereal makers were accustomed to packing their cereal in big boxes to trick the consumer into thinking that they were getting more product.
In 1969, Congress tried to pass a law mandating unit pricing but the food industry lobbied hard against it and the bill died in the Senate. The reasoning was that consumers could figure out the unit price or the price per ounce of a product by themselves or bring recently introduced battery powered calculators with them when they went shopping. In 1970, some grocery stores began to offer unit pricing as a convenience feature to lure customers. Unit pricing in grocery stores is now commonplace.
Many years ago there was one mortgage product, a 30 year fixed loan, making it fairly easy to compare mortgages. Because easy comparison by a customer is not always good for the seller, mortgage companies competed by introducing a complexity of “points”, closing fees and prepayment penalty packages to distinguish their mortgage product from their competitors.
The 15 year mortgage arose a few decades ago, followed by a variety of mortgage products. This profusion of choices can be a boon to a consumer but it can also be confusing. This variety and confusion is an effective sales tool, making it more difficult for a customer to compare products and prices.
Just as the food industry fought packaging regulations, the financial industry will fight similar regulations on their products. Under proposed financial regulations, teaser rates of “0% interest for 6 months” will have to be followed by plain English of what that teaser rate will reset to in six months. No longer will credit card companies be able to bury the truth in impossibly small print referencing the greater of the LIBOR rate (what’s that?, you ask) or the Federal Reserve discount rate (what’s that?, you ask again). Mortgage companies would have to offer at least 2 – 3 standard products, like a 30 year fixed loan, that a consumer could compare pricing with a competing mortgage company. While this legislation works its tortuous way through Congress, the finance industry will be busy lobbying against it and figuring out how to outsmart it.