Reason.tv: The Next Great Leap Backwards for Consumer "Rights": Todd Zywicki on Obama's Consumer Financial Protection Agency

Is your mortgage confusing to you? Are you bewildered by credit card offers? Do you crave the simplicity of "plain-vanilla" financial vehicles whose complete terms can be read in less than four minutes?

Be careful what you wish for: The Obama administration and members of Congress are pushing legislation that will create a new agency, The Consumer Financial Protection Agency, whose job would be to simplify and police all manner of financial transactions, from what sorts of mortgages could be offered to what sort of credit cards would be in your wallet to whether Wall Street could create new ways of buying and selling stocks. In the name of making your life easier and avoiding the next financial meltdown, the CFPA might just harshly limit how you spend your hard-earned (and dwindling!) dollars.

Would the CFPA do anything other than add another layer of bureaucracy and regulation on top of what already exists? Are consumers too bewildered by competing credit cards to make a rational choice? Reason.tv's Nick Gillespie recently sat down with George Mason University law professor, Volokh Conspiracy blogger, and Mercatus Center scholar Todd Zywicki to get answers.

"The agency is one of the centerpieces of the Obama regulatory reform act[s]," says Zywicki, "It goes far beyond how we've thought about consumer credit regulation for the past 30 or 40 years." More importantly, it will do nothing to address pernicious incentives that encouraged banks and consumers to take on more debt than was prudent.

Approximately 9.44 minutes. Go here for embed code and downloadable versions. Shot by Dan Hayes and Meredith Bragg and edited by Dan Hayes.

Comments

[A T]

The jacket is back!!

[Invisible Finger]

The Consumer Financial Protection Agency, whose job would be to simplify and police all manner of financial transactions,

Didn't WTFV.

The reason the contracts are confusing has more to do with the million of pages of laws than anything else. If the millions of pages of laws aren't going to be repealed, the proposed CFPA isn't going to accomplish anything other than begging for MORE laws rather than FEWER laws, and more complicated contract language will be the result.

[Thogek]

The Consumer Financial Protection Agency.

"This agency will have only one mission - to protect consumers." --Timothy F. Geithner, Treasury secretary.

Because consumers are too stupid to make intelligent decisions on their own, and we want to pad their world to ensure that they stay that way.

How about a Consumer Education Program (whether public or privately-run), to attempt to restore some of the self-sufficiency and personal responsibility for which the American population was once known and admired, instead of tranquilizing an increasingly ignorant population into Orwellian bliss?

[Ryan]

What would this consumer education program consist of?

[Dan]

The biggest risk is that the new agency will fall into the settled habits of the other agencies -- requiring reams of "disclosures" without actually constraining the contract terms that the Delaware loan-shark corporations engineer. Those contracts of adhesion are not going to be improved by requiring bigger typeface and underlines for onerous and confusing legalese.

The kinds of credit products that consumers need and want are quite clear by now. There is little to worry about as to "innovation." Who cares if a billing cycle must be 30 days, as opposed to 20 or 40 days? What the agency should do is create an arena for elemetary, brutal, to-the-death competition on price over "products" that are as nearly identical as possible. Then we shall see the true market dynamic at work.

[Nate]

Thogek | September 1, 2009, 6:13pm | #

The Consumer Financial Protection Agency.

"This agency will have only one mission - to protect consumers." --Timothy F. Geithner, Treasury secretary.

Because consumers are too stupid to make intelligent decisions on their own, and we want to pad their world to ensure that they stay that way.

How about a Consumer Education Program (whether public or privately-run), to attempt to restore some of the self-sufficiency and personal responsibility for which the American population was once known and admired, instead of tranquilizing an increasingly ignorant population into Orwellian bliss?

100% agree

[D$]

Hopefully the snake bankers won't be able to destroy our economy in the name of freedom.

"Because consumers are too stupid to make intelligent decisions on their own, and we want to pad their world to ensure that they stay that way."

I suppose you read all the clauses of your mortgage documentation and understood it... yeah.

Legal terminology is designed to not be understood by the layman, and unless you're a lawyer you can easily be hoodwinked. Not just that, most contracts you make as an individual with a bank or the like are written so as to heavily favour the bank, not you. That's why banks can charge you for making a mistake, yet if they make a mistake they don't pay you anything.

If this reform is about making banks say that in plain English as opposed to hiding it in page 4, column 3, clause 87, then I'm all for it. At least then we all know what we're getting into.

[D$]

Your contract with your bank will now look like this:
1. You must give us a minimum of $X a month.
2. We will charge you as much as we want if you ever make a mistake.
3. We won't pay you if we make a mistake. Unless you take us to court and by some faint miracle win a court case.
4. We will pay you as little interest as possible.
5. If you can't afford your mortgage, we will take your house.
6. If we can't afford our mortgage, we will take your taxes.

At least then you'll know.

[LarryA]

If this reform is about making banks say that in plain English as opposed to hiding it in page 4, column 3, clause 87, then I'm all for it. At least then we all know what we're getting into.

Except that 90% of the verbiage in a mortgage/credit card/etc. contract and most of the contract provisions are there because they are mandated by federal or state regulation. This is yet another case of calling on government to fix problems it caused in the first place.

[Tim S]

The CFPA is one of the most controversial plans out there. I've heard that it will increase the cost of credit and limit consumer choices. But I've also heard that its needed to increase disclosure and close regulatory loopholes.

Anyway, I came across this website by the Pew Charitable Trusts, it's all about financial reform and has a task force of people on the right and the left working for consensus on financial reform. Check their website here:

http://www.pewfr.org

[Vince]

I for one am sick of new regulations, laws, agencies...etc. that are designed to take care of the lowest denominator of financial intelligence. If YOU are not intelligent enough to understand the contracts YOU are signing, hire a lawyer BEFORE signing them. If YOU fail to take that simple step, suck up the fact that you got taken because YOU allowed yourself to be taken.
I don't want a single penny of my tax dollars going to an agency designed to protect people from THEIR OWN stupidity.
Call all of these companies what you will, greedy...corrupt...whatever. YOU signed a contract with them, at a point in time when YOU felt you were getting a deal favorable to YOU. Finding out that YOU were an idiot may be painful, but it is necessary for you to understand that FACT.
Just because there were 2.5 Million other idiots making the same mistake doesn't excuse YOUR idiocy. People need to grow the F&*%& up!
If YOU think the government is capable of solving problems with finance and credit in any way other than repealing the current mess of laws on the books, then YOU are the problem!

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