Smothering The Best In Consumers
It is very difficult to sit quietly at a Consumer Advisory Council meeting. It is tempting to share one's own ideas. It is sorely tempting to shout out retorts to the stupid or uninformed ideas presented. But sitting in silence and listening to the members' discussion is a good opportunity to also take a look at where the compliance tornado is taking us.
Regulatory burden is supposed to be for a reason. It is supposed to have a purpose - a good one. But all too often we get so wrapped up in technicalities that we forget what we intended to do. We are so busy with working out interesting and esoteric aspects of one or more regulations that we easily overlook the primary beneficiary: the consumer. After all, isn't this all about consumer protection?
One thing that becomes clear in listening to the CAC is that consumer problems never end. One walks away with the sense that consumer protection simply isn't working. After more than four hours of discussion and debate, it is worth asking what is wrong.Somewhere in all this excitement about consumer protection we have lost sight of something very important: the responsibilities of the consumer. We are so busy protecting that we overlook the fact that the consumer should be responsible for looking out for themselves. Disclosures and other protections are designed to make that possible. But we cannot protect a consumer who we allow and even encourage to stay ignorant. The "don't worry, we'll protect you" method of child-rearing is a proven disaster. Why are we applying it to consumers?
We are putting a huge amount of time and effort into protecting consumers from themselves. We are spending no time tying to teach consumers how to protect themselves. What is needed here is more education and less regulation.
We cannot foresee what will be in their best interests in the future and we cannot make assumptions about what they want. We can provide them with tools - information and education - to take care of themselves.
As with predatory lending, this phenomenon is difficult to describe. If we can't define what a predatory loan is, how can we possibly define what is in the best interests of a consumer? Some suggested the "smell test". This may be a noble concept, but try turning that into a regulation. And then put it into the hands of examiners and tell them to enforce it! The smell test approach simply doesn't work. Void for vagueness comes to mind.
Key tools don't seem to work. The APR, for example, is highly over-rated. It has had more than 30 years to make a difference in consumer credit transactions. But at the CAC, both consumer and industry representatives agreed that the APR is not fully informative and isn't understood. Try asking your neighbor what their APR is on their mortgage. Why are we still trying to use it? And why are we considering making it the lynch pin of the war on predatory lending? Perhaps it is because we simply have no other ideas. We have forgotten the lost art of American ingenuity.
It is time to look at the forgotten piece of the puzzle: helping the consumers protect themselves. The fact is, the tools are out there. We have APRs and GFEs and HUD-1s and adverse action notices. We shower customers with information. What we have failed to do is to teach consumers how to use it.
It is time - it is long overdue, in fact - to give attention to consumer education. Ignorance is the worst enemy of the consumer and the most powerful tool of the predatory lending. Financial institutions don't do enough consumer education - probably because they don't get enough credit for it.
Consider making consumer education an important part of your institution's community activities. Consider making it part of your CRA program. And most important, ask for credits for consumer education in your CRA comment letters!
Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 7, 7/01
First published on 07/01/2001