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Can disclosure do enough?

By Marcie Geffner · Bankrate.com
Wednesday, December 15, 2010
Posted: 9 am ET

Credit cards and mortgages.

Those two consumer financial products are in the sights of Elizabeth Warren. She's an assistant to President Barack Obama and special adviser to the secretary of the Treasury on the Consumer Financial Protection Bureau.

Credit cards and mortgages made the top of Warren's list because they are, respectively, "the most widely held credit product" in the U.S. and "the single most important financial decision that most families will make," she explained in the first of the Treasury's new "Five Questions" interview series.

Warren says she's a believer in personal responsibility based on clear disclosures of the risks and costs of financial products, the idea being that consumers will make better financial decisions if they can better understand their choices.

"When a family cannot tell the cost in full of a credit card, when it is not possible to determine the risks of a mortgage in advance, and when people can’t directly compare three or four products -- apples to apples -- to tell which costs the most and which bears the most risk, then the market is broken. This agency will drive toward making the costs clear, making the risks clear, and making it easy for consumers to compare one product with another," Warren said.

Indeed, it's hard to argue with the belief that consumers could make smarter decisions if the disclosures related to so many financial products weren't nearly -- or completely -- incomprehensible to anyone but the attorneys who wrote them.

But whether the goal of clearer disclosures can be achieved without major changes to the financial products themselves seems doubtful. Because, after all, how clear can disclosures be when the products have been deliberately designed so that no one can understand or compare them? A few examples -- credit-card balance transfers, adjustable-rate mortgages and even basic checking accounts -- come easily to mind as things that can no longer be that easily explained.

So here's the question: Can disclosures alone ever be enough to help people make good choices among products that are this complicated?

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3 Comments
karen
December 20, 2010 at 8:59 pm

Disclosure is not enough, but it is a basic requirement of free, fair and fraud-free markets, without disclosure there is no hope. So first disclosure, then hopefully, eventually, enforcment of fraud laws

gladys
December 20, 2010 at 1:41 pm

Wish she'd add health insurance disclosures (apples to apples) to that list!