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Unsafe at Any Rate



August 01, 2010 – Comments (21) | RELATED TICKERS: T , HE , FT

By Elizabeth Warren - 2007.

No one expects every customer to become an engineer to buy a toaster that doesn’t burst into flames, or analyze complex diagrams to buy an infant car seat that doesn’t collapse on impact. By the same reasoning, no customer should be forced to read the fine print in 30-plus-page credit card contracts to determine whether the company claims it can seize property paid for with the credit card or raise the interest rate by more than 20 points if the customer gets into a dispute with the water company.

No-one except Hopelesslylost, that is.

t is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?

The difference between the two markets is regulation. Although considered an epithet in Washington since Ronald Reagan swept into the White House, the "R-word" supports a booming market in tangible consumer goods. Nearly every product sold in America has passed basic safety regulations well in advance of reaching store shelves. Credit products, by comparison, are regulated by a tattered patchwork of federal and state laws that have failed to adapt to changing markets. Moreover, thanks to effective regulation, innovation in the market for physical products has led to more safety and cutting-edge features. By comparison, innovation in financial products has produced incomprehensible terms and sharp practices that have left families at the mercy of those who write the contracts. - Elizabeth Warren

Full article here and very worth reading. Written by Elizabeth Warren, and the truth as I see it.

Note: There are some people who think that Elizabeth Warren should be asked to head the Consumer Financial Protection Agency. They are the liberals. Do not confuse them with the Libertarians who think that Governments only role should be to enforce obscure, illegible, well hidden contract language at the point of a Federal gun.

- Devoish


21 Comments – Post Your Own

#1) On August 01, 2010 at 11:10 PM, AbstractMotion (< 20) wrote:

Opposition to the CFPA, is pretty odd, especially from the libertarian camp.  The crux of the issue is full disclosure to enable an informed consumer.  While I think the structuring of the agency is a bit odd it's well within the scope of even limited government views.  It's primary function is simply to enable proper disclosure and fine practices that are deliberately misleading.  You simply cannot have markets that function properly without adequate disclosure of risks and liabilities.  Outside of pure anarcho-capitalists I don't know who could object to such an institution.

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#2) On August 01, 2010 at 11:59 PM, FleaBagger (27.51) wrote:

People are so stupid that they need government to protect them from themselves, right? I'm sure the same government that stifled the financial institutions' competition and gave them free money and bailed them out is trustworthy to protect us against them, especially considering that it has been abetting their abuse of us for more than a human lifetime now. Good idea. 

AbstractMotion - what is being proposed is not disclosure of risks and liabilities, vis a vis the 30-page, disclosure-filled contract that devoish is referring to, but a ban of financial instruments that devoish and Ms. Warren don't like. 

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#3) On August 02, 2010 at 4:07 AM, AbstractMotion (< 20) wrote:

FleaBagger - What is being proposed is largely about risks and disclosure and the method by which it is disclosed.  It has provisions to specifically ban or fine deceptive practices and that's about it.  Given that government has the right to define and prosecute fraud, it's well within their rights to set up such an agency.  Aside from true anarchists who don't believe in the establishment of a state in general I can't see many people objecting to it, that might contain some more extreme branches of libertarian ideology, but not the more practical ones.


Things like interest only loans for example, are still allowed as long as the terms and risks are confirmed as clearly defined under new terminology.   I really view it as having the opposite effect, it ensures there is personal responsibility for the person actually signing the contract by making sure it's readable to someone without a law degree.  It doesn't take 30 pages to describe the fee structure, credit limit and interest rate of a credit card.  Anyone who believes in market efficiency in the slightest should be able to see how excessively long and needlessly opaque legal documents impede market functionality, it's bureaucracy by another name.  

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#4) On August 02, 2010 at 9:30 AM, ChrisGraley (28.62) wrote:

I'm sorry, I missed the part that gives you the right to tell me what to do.

You continue to propose legislation to protect me from myself, when you really should focus your efforts on protecting me from people like you.

People are stupid and they will continue to be stupid with or without your legislation. The fact that you want to subsidise stupid doesn't help things. It makes things worse.

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#5) On August 02, 2010 at 9:38 AM, catoismymotor (< 20) wrote:

The fact that you want to subsidise stupid doesn't help things.

Please, please someone out that on a bumper sticker!


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#6) On August 02, 2010 at 6:39 PM, devoish (71.86) wrote:

You continue to propose legislation to protect me from myself, when you really should focus your efforts on protecting me from people like you.

Actually I continue to propose legislation to protect me from  people who steal at the point of a contract. Because in the real world - where I live - I cannot understand every bit of legalise in a thirty page contract. And in a world -yours - where Govt's only roll is to enforce contracts, you promote the thievery.

Glad to be in your way.

The Grand High Exalted Mystic King Devoish

PS. You didn't read your health insurance contract, or you credit card agreement and you  don't have the legal backgrond to protect yourself either. Or at least that's my guess.

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#7) On August 02, 2010 at 8:25 PM, ChrisGraley (28.62) wrote:

You would guess wrong about me not reading any contract that I agree to. I live in the world where people are responsible for their mistakes. Not in the world where everyone depends on government to bottle feed them and tuck them in at night while making their life savings more and more worthless by the day.

If you can't read a contract, you have no business signing one. You're the one that promotes the thievery by pretending that those tax payer funded regulators won't take the first bribe that comes along or be as inept as the regulators watching Madoff.

In the real world, people can actually take care of themselves. I needed someone to take care of me when I was 6, but I think that I can handle it now. 



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#8) On August 03, 2010 at 5:36 AM, devoish (71.86) wrote:


any? Have your read your credit card agreements or not? Have you read your health insurance contract or not? Did you get the floor swept today?

In the real world most people - including you - aren't treading the contracts they sign. From the credit card agreement to the Motley Fool rules.

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#9) On August 03, 2010 at 6:30 AM, ragedmaximus (< 20) wrote:

Thw american consumer is a victim. Sure we are free to choose but just about every choice has absurd interest or small print like all those commercials .The american consumer has been victimzed by over priced goods and services and taxes and surcharges and govt. disposal fees etc. etc. Whenever somebody figures out a way to screw another dime out of you like increased taxes across the board example you use to buy goods over the internet without certain taxes,no more now you pay for whatever state you ship to.Gee WALLY mom said our house isn't worth what they said it was,how come our property taxes are not adjusted.Boy if the value goes up I bet they raise the taxes just not the other way around so screw you american consumer!

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#10) On August 03, 2010 at 6:33 AM, ragedmaximus (< 20) wrote:

THE and VICTIMIZED (spell check,see article above)

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#11) On August 03, 2010 at 11:04 AM, ChrisGraley (28.62) wrote:

Yes, I read every contract that I sign.

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#12) On August 03, 2010 at 3:58 PM, jasenj1 (38.88) wrote:

"I'm sorry, I missed the part that gives you the right to tell me what to do."

 I thought that's what government was. People with guns and the right to deprive you of property & liberty if you break the rules. Or was that a more personal "you"? Once we concede that there can be ANY government, then we are just quibbling about where to draw the lines on that power.

"You continue to propose legislation to protect me from myself, when you really should focus your efforts on protecting me from people like you."

Legislation protects you from yourself and others who would do you harm every day. Speed limits? Water quality standards? Fire-proof requirements? OSHA regulations? Restaurant sanitation requirements?

What is the problem with establishing industry-wide regulations that ensure consumers are not putting themselves in indentured servitude when signing up for a credit card? 


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#13) On August 03, 2010 at 4:57 PM, devoish (71.86) wrote:


In the article Elizabeth Warren talks about the risks.

With every agency, the fear of regulatory capture is ever-present. But in a world in which there is little coherent, consumer-oriented regulation of any kind, an FPSC with power to act is far better than the available alternatives. Whether it is housed in a current agency like the CPSC or stands alone, the point is to concentrate the review of financial products in a single location, with a focus on the safety of the products as consumers use them. Companies that offer good products would have little to fear. Indeed, if they could conduct business without competing with companies whose business model involves misleading the customer, then the companies offering safer products would be more likely to flourish. Moreover, with an FPSC, consumer credit companies would be free to innovate on a level playing field within the boundaries of clearly disclosed terms and open competition–not hidden terms designed to mislead consumers.

Chris is onll willing to talk about half the story - the half that makes him feel elite. But there is more. Very few of us are as capable as Chris claims to be, or make writing and understanding legalise a full time job - or for those of us working two jobs - even a third job

Perhaps Chris is writing the contracts that steal from us with obscure and well hidden clauses. Perhaops that is why he believes Governments only roll should be to use it guns and taxes and fines to enforce the crimes commited by contract.

Some Americans claim that their neighbors are drowning in debt because they are heedless of the risk or because they are so consumed by their appetites to purchase that they willingly ignore the risks. Surely, in such circumstances, it is not the responsibility of regulators to provide the self-discipline that customers lack. Indeed, there can be no doubt that some portion of the credit crisis in America is the result of foolishness and profligacy. Some people are in trouble with credit because they simply use too much of it. Others are in trouble because they use credit in dangerous ways. But that is not the whole story. Lenders have deliberately built tricks and traps into some credit products so they can ensnare families in a cycle of high-cost debt.

To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. Instead, it is about making certain that the products themselves don’t become the source of the trouble. This means that terms hidden in the fine print or obscured with incomprehensible language, unexpected terms, reservation of all power to the seller with nothing left for the buyer, and similar tricks and traps have no place in a well-functioning market.

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#14) On August 03, 2010 at 7:15 PM, ChrisGraley (28.62) wrote:

This may surprise you devoish, but I'm not against contract reform.

I am totally against putting any entity in charge of contract regulation though.

I don't have a problem with consumerist legislation, because for at least a little while longer, we have a domestic market that is 25% of the global economy. That means that we can demand a lot for the consumer and not hurt the economy.

As soon as you put the contract czars in charge though, you have perverted the process.

I'll give you an example. The FDA is in charge of making sure that the consumer gets enough nutritional information to make an informed choice about what they eat.

We chose to put the FDA czars in charge and they get the bribes from the corporations and turn a blind eye as long as the bribe money keeps flowing.

So in effect we get the most ineffective nutritional labels,where the corporations pick the portion sizes and the information that they want to include. We get sugar alchohols not included in the calorie counts since the FDA doesn't officially acknowledge that it has calories. You get outright lies in foods that aren't even close to being organic called organic and thousands of different marketing words used to describe products to fool the consumer into thinking that the food that they are buying is something sanctioned and approved by the same FDA that is out there to be the champion that will to take care of them since they can't take care of themselves.

The problem is as soon as the FDA got power, it didn't take long to figure out that companies with deep pockets would like to buy a little bit of that power.

Want to fix the problem? Let me sue those companies in a court of law. You see, there is a matter of damages to me if I consume a product that has more calories that it says on the label and I have something like diabieties, where I have to monitor calorie intake. If you remove the FDA and those guidelines that are for sale to the highest bidder, the company that I'm suing can't say that they have jumped through all the FDA hoops including the ones that they lobbied to give themselves lawsuit protection.

Now since you don't read the contracts that you sign, I'll offer you a proposition. I'll give you a hundred dollar bill if you sign a contract that I give you without reading it.

See how stupid that sounds?

I'm sure you are right and a ton of people don't read contracts, but do we want to promote that?

Does that help the country?

I can see people now using the excuse, "No, I don't read contracts, the government will protect me! Right? Beuhler? Beuhler?"

Give people a chance to make money by suing a deep pocketed company and I'll bet that they read that contract a little more before they sign it.

Contracts by nature have to be 2 sided. You have to give something to get something. Even if only a few people read those contracts enough to know that they didn't get what they were promised and sue, the companies have to retreat or face an avalanche of lawsuits from copy-cats.

What does this create? People that start trying to know what they are agreeing to.

Do you think that's a bad thing?




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#15) On August 04, 2010 at 11:43 PM, devoish (71.86) wrote:

Want to fix the problem? Let me sue those companies in a court of law. You see, there is a matter of damages to me if I consume a product that has more calories that it says on the label and I have something like diabieties, where I have to monitor calorie intake. If you remove the FDA and those guidelines that are for sale to the highest bidder, the company that I'm suing can't say that they have jumped through all the FDA hoops including the ones that they lobbied to give themselves lawsuit protection. - ChrisGraley

 If you remove the FDA, what laws will they have broken, so that you can sue them and win?

The answer is not to abandon the FDA or the EPA.  The answer is to elect people who care more about consumers and taxpayers rights than corporate rights.

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#16) On August 05, 2010 at 8:11 AM, ChrisGraley (28.62) wrote:

The answer is to abandon the FDA and EPA.

It doesn't matter what law that you create.

If the people enforcing that law are for sale, they'll never enforce it properly.


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#17) On August 05, 2010 at 6:38 PM, devoish (71.86) wrote:

And then you will sue them for breaking what law? What regulation?

You will not win a case against anyone for breaking a law that does not exist.

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#18) On August 06, 2010 at 4:38 PM, chk999 (99.97) wrote:

devoish - Believe it or not, I agree with you on this. Consumer debt contracts should by law be short and written in plain language so that people know the risks and costs they are signing up for. I've seen too many people (and not stupid people) have no clue what the credit was going to cost them and what bad things could happen to them.

This is also why I am for truth in labeling laws so that people can see plainly what they are putting into their bodies. (If presented with the information they then elect to do something stupid, that is a different problem.) 

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#19) On August 06, 2010 at 4:46 PM, QualityPicks (46.51) wrote:

If they just let the banks fail, like they let other business fail, they would learn the lessons themselves, and would learn not to "screw" their customers. Just like most other businesses have learned. But if you keep saving the banks, "the markets" cannot work!!

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#20) On August 06, 2010 at 5:23 PM, Melaschasm (70.45) wrote:

Why do I get the feeling that I have walked into the middle of a long running arguement?

I am not going to take sides, since I do not even know what the different sides are.  However, I have worked at a bank, and signed some complicated legal documents related to financial activites.

The notion that financial companies are not regulated, or face very few regulations seems absurd to me.  When I was working at a private bank, my entire day was defined by Federal Governent Regulations.  About the only way I could have been working under closer Federal control is if they told me when to pee and drink water.  This same level of government regulation controled the daily lives of most of my coworkers, who like me were processing data behind the scenes, with very little customer contact.

When I refianced a mortgage, on a duplex, as part of a business partnership, the contract was 100 pages long.  After reading the contract, and hiring a lawyer to explain a few parts, it was obvious that about 80 pages were purely the result of government regulation.  Of the remaining 20 pages, could have been condensed to 10 pages, with plenty of white space for easy reading, if they were not filled with complex legal terminology which has been developed by the Federal Government.

While I would like to see financial reform, I do not want to add even more pages of garbage to contracts that are already unneccessarily complex.

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#21) On August 06, 2010 at 6:55 PM, devoish (71.86) wrote:


I believe you. It has happened before.


 Creditors sometimes explain away their long contracts with the claim that they need to protect themselves from litigation. This ignores the fact that creditors have found many other effective ways to insulate themselves for liability for their own wrongdoing. Arbitration clauses, for example, may look benign to the customer, but their point is often to permit the lender to escape the reach of class-action lawsuits. This means the lender can break the law, but if the amounts at stake are small–say, under $50 per customer–few customers would ever bother to sue....

...The current regulatory jumble creates another problem: Consumer financial products are regulated based, principally, on the identity of the issuer, rather than the nature of the product. The subprime mortgage market provides a stunning example of the resulting fractured oversight. In 2005, for example, 23 percent of subprime mortgages were issued by regulated thrifts and banks. Another 25 percent were issued by bank holding companies, which were subject to different regulatory oversight through the federal system. But more than half–52 percent, to be exact–of all subprime mortgages originated with companies with no federal supervision at all, largely stand-alone mortgage brokers and finance companies. This division not only creates enormous loopholes, it also triggers a kind of regulatory arbitrage. Regulators are acutely aware that if they push financial institutions too hard, those institutions will simply reincorporate in another form under the umbrella of a different regulatory agency–or no regulatory agency at all. Indeed, in recent years a number of credit unions have dissolved and reincorporated as state or national banks, precisely to fit under a regulatory charter that would give them different options in developing and marketing financial products. If the regulated have the option to choose their regulators, then it should be no surprise when they game the rules in their own favor.

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