Q&A with EW
December 23, 2010 | CFPB, Elizabeth Warren | Comments (0)All this implies that you want regulation to mandate clarity.
If the role of regulation is to make the price clear, to make the risk clear, and to make it easy to compare one product with another, then it’s possible to have regulation with a much lighter touch than [we’ve had] before. Twenty years ago, consumer credit markets had products that were pretty easy to understand, and the business model was built around making the right decisions about to whom to lend. If the lender was too reckless, the lender went broke because people couldn’t repay the loans. What began to change in the 1990s is that lenders began to realize that it was possible to create ever-more-complex products that appeared on the front end to be cheaper, but on the back end were more expensive [and more profitable]. So 3.99 percent financing is highly advertised out front. But the plan has a lot of fees and penalties and accelerated interest so that something that appears to cost 3.99 percent could cost 15, 18, 25 percent. The consumer says, “I can tell this card is cheaper because it’s 3.99 percent and that one’s 4.99 percent.” But you don’t know which one is cheaper, because the real price isn’t the price you see.
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