Elizabeth Warren Is Dreaming the Impossible Dream

On CNBC yesterday, 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.

Broadly, 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.


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