Elizabeth Warren's Financial Product Safety Commission

Exploding toasters make a great lead in line to promote government intervention. But it is not a very good analogy. A better example would be to talk about the changes in electric rates that might affect the cost of getting toast.
To assume people are too stupid to realize that changes in interest rates will change the amount they pay does no one justice. The fact is that 80 percent of the people with these loans will keep their house (and probably try to refinance it). With the new regulations that might arise to help the 20 percent that will lose their homes, almost certainly a good chunk of the 80 percent that otherwise would have a home of their own, would not have access to funds to get the house. Very few of the 20 percent would get houses. So after the government has stepped in to help us all, far fewer people can have their own house. Where is the public benifit from the intrusion?

There is already "full disclosure" in the consumer finance field -- of course, you practically need a microscope to read all the fine print, and a team of lawyers to make sense of it, but it is there.

What is needed is regulation of predatory lending practices, and strict limits on fees and interest rates that can be charged. I personally refuse to have a credit card -- I always pay cash for everything (with the exception of a car I bought last September -- and the only reason I didn't pay cash is because my credit rating sucks because I pay cash for everything.)

This is semi-off topic, but I was shocked to find out that its practically impossible to get a "secured" credit card -- one where you buy a CD, and your credit limit is the value of that CD, and you can't cash in the CD without paying off the credit card. You would think that with actual CASH backing up your credit card, you'd be able to get a card at a reasonable interest rate, and no "activation" fees. But nothing like that exists.

The fact that such a simple, sensible financial instrument is virtually unavailable tells you a great deal about the consumer credit industry -- that its not about providing consumers with financial flexibility, but all about ripping off the consumers in any way possible.

I can relate to your position, Paul. I charge a fair amount, but always pay it in full every month. Thus, the banks consider me a bad customer, not because I am irresponsible with credit, but because they make little or no money off me (they get only the merchant's fee, while I get a float).

I too am intrigued by the FPSC. My natural inclination is to resist additional regulation. I don't currently have a mortgage, but were I applying for one today, I'm not sure I could guarantee that a mortgage broker wouldn't successfully steer me to an inappropriate offering. I like to think I'm smart and careful, but I have no background in finance or economics, and have little inclination to do the extensive research needed on today's complex financial products.

So how about this as a rough guideline, Justin? Would a "reasonable person" be able to understand and act on the terms as they are written? That won't protect someone who doesn't pay attention to what they are signing, but may protect those who might otherwise be subject to unscrupulous people or practices.

No sane person would expect the median american (with their supposedly 6th grade reading comprehension) to read and understand a credit card agreement or be able to understand the math involved.

And yet, it is that kind of credit that permits our economy to function.

I think the word for holding two incompatible beliefs is "dissonance" - consumers obviously can't understand current credit agreements (or do the interest math that they describe), but our economic well being depends on them continuing to use consumer credit.

There's no doubt we are long past the point where we needed this. We put labels on every pack of cigarettes spelling out the risks. Credit agreements need to have a box that shows how their debt grows if it goes unpaid for a period of months, and how much, including every fee, etc, they'll pay for the product by the end of the agreement, etc.

We don't expect consumers to calculate their own MPG on a new car, or to trust the manufacturer to report it fairly, why do we have that illusion about consumer credit?

I think this is a good idea. I agree with p_lukasiak that this basically falls into the category of regulating/banning predatory lending. More should be done in that area in general. Another place that the Fed under Greenspan dropped the ball (yes, I know a lot of the lender's weren't banks, but that doesn't mean he couldn't have done anything.

As far as GLD's comment. I hear that a lot. "Let's not forget about the good these loans did". Well, they did basically NO good. The default rate is ultimately going to be closer to 50% than 20%. And, studies say that a large fraction of the people could have qualified for better terms. So, most of the 50% are worse off too. In addition, just because someone is paying their mortgage doesn't mean they are doing ok. They could be hungry and turning down the heat so they can make the mortgage payments.