Elizabeth Warren explains why we need to carefully regulate credit

December 9, 2008 | By | 2 Replies More

I’ve spoken to several conversative lawyers who argue that people should more carefully read their contracts, including their fine print.  “They shouldn’t sign up for loans that they can’t afford–it’s their own fault.”

But what if we are fully aware that millions consumers don’t have the math and reading skills necessary to understand the long-range consequences of signing financial paperwork?   Should we just send them to the wolves?  And what if the wolves themselves are showing no motive to fairly evaluate financial risk, on a massive scale, resulting in an immense national shift of taxpayer money (I won’t call it a “bailout”)?

Back in May, 2008, Elizabeth Warren made the case for carefully regulating consumer contracts for financial services.   The bottom line:  if they are not regulated, they are dangerous. Warren is a Harvard law professor who teaches contract law, bankruptcy, and commercial law. Here’s her opening paragraph to her well-written article:

It 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 your home with a mortgage that has the same one-in-five chance of putting your family out on the street—and the mortgage won’t even carry a disclosure of that fact. Similarly, it’s impossible for the seller to change the price on a toaster once you have purchased it. But long after the credit-card slip has been signed, your credit-card company can triple the price of the credit you used to finance your purchase, even if you meet all the credit terms. Why are consumers safe when they purchase tangible products with cash, but left at the mercy of their creditors when they sign up for routine financial products like mortgages and credit cards? . . . Consumers entering the market to buy financial products should enjoy the same protection as those buying household appliances.

How did financial products become so dangerous?  Part of the problem is that financial services companies have turned “disclosure” into a weapon against consumers (see also here).

disclosure has become a way to obfuscate rather than to inform. In the early 1980s, the typical credit-card contract was a page long; by the early 2000s, that contract had grown to more than 30 pages of incomprehensible text. The additional language was designed in large part to add unexpected—and unreadable—language that favors the card companies.


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Category: Consumerism, Economy, Fraud

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

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  1. Niklaus Pfirsig says:

    Several years ago, I took out what was suppose to be a 2 year consumer loan for for $2300. The account was purchased by Household Retail Services, Inc who immediately and without my prior knowledge or explicit approval, issued a credit card in my name with a $2000 credit limt, charged the total amount to the card, then revoked the card and proceeded with every conceivable predatory lending practice imaginable to perpetuate the loan. after paying for 8 years, the principle had increased to over $2800, and I paid off the loan with a debt consolidation loan from Commercial Credit, which was paid off in 5 years as agreed in the original contract.

    HRSI, violated dozens of lending regulations and laws then in effect, but got away with this wholesale robbery through political lobbying, contributions, and an unwillingness for state and federal regulators to actively enforce the regulations. The deregulation under Bush simply made their actions slightly more legit, but But a class action lawsuit which led to the conviction of HRSI's CEO on racketeering charges in 2002, did not make any difference.

    From what I could determine, HRSI was owned through a network of about 3 dozen shell companies by the London based Hongkong Shanghai Bank Corporation (HSBC), the third largest bank in the world (just behind Citicorp and Bank of America) After the racketeering conviction, HRSI was "purchased" by HSBC and renamed HSBC Finance Corporation (HFC). Under the new name, it's business as usual. It appears that HSBC is above the law.


    What I wonder is: who owns HSBC?

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