Free market (10) - Consumer protection

The governments in most countries consider it their duty to protect consumers from the bad practices of businesses.

In the financial services sector, it is possible for the financial institution to design products that take advantage of the ignorance of consumers and entice them with misleading promises that are not kept.

In the medical field, it is possible for drug companies to introduce products that may are unsafe for consumption or make benefit claims that are not verified by scientific evidence.

There used to be strong regulations on the sale of financial products, but the regulations have been weakened in recent years, during an era of deregulation. It was thought that, to promote financial innovation, financial products can be sold on the basis of product disclosure, and that should be left to make their own judgement about the suitability of the product, with the advice of financial advisers.

This approach turned out to be disastrous, as financial institutions introduced complex products that are designed to take advantage of the ignorance of consumers to reap big profit for the issuers. These products are sold with attractive commissions paid to the financial advisers, who pushed the products to consumers regardless of their suitability.

In America, the regulators took action to hold the financial institutions and advisers accountable for any misdeed. New legislation is now being introduced to set up an agency to protect consumers from predatory practices of financial institutions.

Singapore should consider similar measures as the problems faced by consumers here are of more serious than in America.

Fortunately, the control of the sale of drugs continues to be strongly regulated and consumers are well protected.

Tan Kin Lian