UPDATED: Elizabeth Warren – Dreaming The Impossible Dream

10 Nov

To dream the impossible dream...

On CNBC earlier, Elizabeth Warren said (someone correct me if memory is off, not watching on DVR)

In a recent survey, 96% of consumers want to eliminate “fine print” in credit card (etc) contracts…

Wait, so the majority of people are effectively saying they don’t want to be bothered with/responsible for reading the legal contracts they’re signing?  And this is a surprise?  Duh.

The larger point I want to make is that whenever I read/listen to Warren it seems like she’s convinced she can accomplish not just the improbable, but the impossible.  In her world-view – one which given her background should be very well informed – consumers with little-to-no financial/legal education should be able to access credit without understanding the details involved with so doing.

Pardon my cynicism, but wasn’t that a large factor (borrowers not knowing what they’re getting themselves into) in the build-up to and collapse of the economy?  As a Law professor at Harvard, I’m curious how Warren would suggest eliminating about 90% of the “legalese” in consumer credit documentation so that lay-people could understand what was going on, and more importantly, how she suggests doing so without eliminating important clauses, stipulations, and other details.

Surely, there’s plenty of “fine print” that, with a concerted effort between lenders, legislators, regulators, and consumer groups could be eliminated/simplified, but it seems like Warren wants to go WAY beyond that point.


Just to clarify/expound on my concerns, etc, let me restate.  I think simplifying consumer credit agreements/contracts/term sheets is 100% a reasonable goal, one which I also 100% support.  HOWEVER, this has already been done/required to some degree (e.g. a Countrywide amortization schedule, term-sheet that laid out performance/values under different situations, too bad I can’t find a copy of it) yet I think the results are still too complicated/nuanced for the average borrower to comprehend/care about.

Why not simply eliminate the more exotic/esoteric features of consumer credit products instead of trying to grossly-oversimplify contracts/terms to the point where it’s likely self-defeating?  I’ve written about concepts like this before, and I think at a high-level, we should shift from a mindset where we assume borrowers know what they’re getting into to one where borrowers have to prove their understanding before-hand (of course in practice this is not quite so easy, but that’s another conversation/series of articles…).

Would this make obtaining consumer credit (regardless of form) more difficult to obtain (ed: uh, as compared to what, 2002-2006??)? Probably, but as I’ve postulated rhetorically before, would that be such a bad thing?  People – especially relatively uninformed ones – tend to assign higher probabilities to positive outcomes and significantly lower ones to negative (or less positive) outcomes.  Methinks for the good of the system and all parties involved protecting consumers from themselves is just as important as protecting them from (predatory) lenders.



6 Responses to “UPDATED: Elizabeth Warren – Dreaming The Impossible Dream”

  1. Kid Dynamite November 10, 2010 at 4:25 pm #

    Now, you know I’m ALL in favor of caveat emptor and personal responsibility, but fine print is something that bugs me. I’m thinking more about ads – so often on TV you’ll see fine print on the screen of a car ad, or a financial ad – yet this stuff cannot possibly be read. I’ve tried – I paused my HD-DVR and still couldn’t read it – it’s total nonsense.

    It’s certainly in everyone’s best interest to simplify contracts and lessen legalese whenever possible, don’t you think? Fewer lawyers = better society (no offense, lawyers)

    how about EULAs that you click on when you download software? do you read them? I have to admit – I frequently do not. What if it says “we have the right to hack your system steal all the money out of your account if you use our software” ? Shouldn’t there be a reasonable limit to how long a EULA can be?

  2. Anal_yst November 10, 2010 at 4:39 pm #

    I just had a similar discussion with Dr. Dad about why pharmaceutical ads in print & tv are so rife with legalese. Ever read the 2+ full pages of fine print for a pharma ad in a magazine? As if the average consumer/patient really knows/cares/can understand pharmacokinetics or all of the other crazy details contained therein.

    I definitely don’t get all the illegible fine print in tv ads, but I’m more concerned about the “fine print” in consumer credit contracts like credit card and mortgages. How does Warren suggest lenders cover all their bases while dumbing-down the contract content and language so lay-people can understand what’s going on? I don’t have an answer, and I’ve yet to hear the details of one from her.

  3. Jws November 11, 2010 at 6:03 pm #

    I think the main point here is about power and consumers that have no other choice to getting credit being taken advantage off by lenders. Warren seems to wan to regulate the terms that lenders can impose. A laudable goal to protect disenfranchised borrowers but which will likely cause lenders to limit credit to borrowers who can’t afford it and in many cases would borrow regardless of terms. On the other hand, limiting borrowing to people who understand their obligations would be a step in the righ direction for everyone, in my humble opinion

    • Anal_yst November 11, 2010 at 6:10 pm #

      Agreed with your final humble opinion, unfortunately, it’s likely a political impossibility. No politician is going to get elected/re-elected by saying “I want to protect you from yourself, I want you to be more educated, for your own good!” (interpreted in the same vain as “Trust me, I’m from the Government and I’m here to help…”)


  4. Geoff D. November 11, 2010 at 6:05 pm #

    I’m going out on a limb and saying no one has ever read the fine print on credit card contracts just like no one’s read the fine print for the click-wrap contract to use iTunes. If you want the product, you agree. Would the credit card company change the wording if you sent them back a marked up copy of the thing?

    I think the fine print should stay, but that it’s accompanied by very large print that says, “I, agree to pay for the stuff I buy with this card”.

    That said, I don’t think being willfully ignorant of one’s responsibility has ever absolved one of that responsibility…. except maybe if you’re Citi, or BOA, or GM, or Chrysler, or Fannie, or Freddie, or……

    For as much as I think Warren has spoken compellingly about the collapse of the middle class, the credit card issue is a bit of a red herring. You want to reform retail banking? Regulate changes to Debt Serviceability Calc’s. Sure, you can afford this loan (if you don’t eat or pay taxes). And the loan consumer needs to understand that just because the bank agrees to lend to you, it doesn’t mean you can necessarily afford it (if you want to eat, pay taxes).

    All that said, I think retail consumers have gotten lazy. The sitcom crowd are marks.

    • Anal_yst November 11, 2010 at 6:16 pm #

      Re: willful ignorance of responsibilities (financial obligations), were I to posess the inclination, I could cite dozens of articles about mortgage borrowers not paying what they owe on their mortgage(but staying in their homes for years nonetheless, or worse, breaking back in, etc).

      I firmly believe we need a(n at least) 2-pronged approach. On one hand, fix banking/consumer financial regulation/enforcement, and on the other, protect consumers from their own ignorance/proclivities/etc.

      Sadly, I fear we’ll maybe get 1/4 of the former, and about 1/1024 (or less) of the latter, and as you say, the sitcom crowd will continue to be easy prey…

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