On August 12, 1986, President Ronald Reagan said “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.” Reagan clearly had fabulous foresight as he must have known that Dodd-Frank would be passed and Elizabeth Warren would start the Consumer Financial Protection Bureau (CFPB). I recently found out how bad things are with a recent refinance of my house.
My bank recently screwed up and bounced a mortgage check. While pleading for forgiveness they asked me why I had a loan with Wells Fargo and not them. I told them when last discussed (2009), they were cutting down my line of credit and making me get a loan elsewhere. They were anxious to remedy that. Even though my existing loan rate was quite admirable, they were offering me an insane rate for which I had to oblige them.
Being a professional in the area, I have heard from many people of the struggles they were having in getting financing these days. Though I am a preferred customer at my longtime bank, I still had to jump through some hoops which were not set by the bank, but the new rules. There is no doubt that the lending process in 2007 -- which was government-generated -- had been lax, but now had become absurdly difficult. Because my new loan was not government backed (Fannie Mae or Freddie Mac), they were insisting that we had a year’s payments including property taxes and insurance available before they would make the loan. This is not a bank rule, but a federal requirement laid down in regulations sprouting from Dodd-Frank. Whether I had been paying mortgage payments timely or not did not matter.
The thought that came to mind was how anyone is able to enter the housing market when they had to come up with a down payment, but had to have so much additional money in the bank (a Fannie Mae and Freddie Mac rule). Few would be able to do it and fewer would be able to do it without the help of Mom and Dad. You throw in the huge debt for college loans and the young generation has a lot to complain about.
Then there is the documentation sent to me to explain my loan and educate me. It came in at 178 (8.5 x11) pages of paper. For someone like myself, the task was daunting to begin even looking through the packet. I believe that for the average consumer this packet of paper is overwhelming.
The last 128 pages are pamphlets promulgated by the Warren Gang (CFPB). There are three different booklets 1) Settlement Cost Booklet, 2) Consumer Handbook on Adjustable Rate Mortgages and 3) What you need to know about Home Equity Lines of Credit. I sat down to read through these to get a sense of whether they were comprehendible to me, let alone the average person who might have a high school education (70% of Americans do not attend college.)
The next test was to run the documents by people who were college educated (but not in the financial area) or high school graduates. Though I did not do a scientific study with a statistically-valued group, it does not take long to figure out what the outcome would be, looking at this immense packet of financial documents. I knew the outcome before I started because of practical experience over close to 40 years.
Most people agreed they might just skim through the documents. When they did look at the documents under my direction, they did definitely comprehend some of the concepts that were being communicated. The problem is there are very detailed concepts with many catch words that people are unfamiliar with, thus have no frame of reference. They soon get bogged down and discouraged.
I spoke to loan representatives at the bank and to mortgages brokers who deal with borrowers regularly and they just laughed when I asked if they thought anyone actually read all of this information. I asked a couple if they ever had been queried by someone who had read these documents. The answer was a resounding no.
This plays right into the argument I have been making for years. Our education system treats our financial system as if we are still in an agrarian society circa 1890. We have a complex financial structure for which few have been educated. No wonder the few who have the information can possibly prey on the many who are ignorant.
There are two possible solutions. Create a massive bureaucracy where anointed government employees “protect” us from ourselves. Or educate the population to familiarize itself with how credit cards, bank accounts, mortgages and pensions work. My proposal is that we institute a class at the high school level that is a mandatory part of the curriculum -- just like American history -- that familiarizes Americans with the basics of our financial system and the products they will be using throughout their lives. We completely rely on young people learning from their parents. At least people would now be able to read the documents they receive regarding financial products and begin to comprehend them and protect themselves.
Senator Warren’s solution is to hire a group of people to do battle with financial institutions and protect us. To my knowledge Senator Warren has not once recommended improving the education of the populace on financial matters. Her only solution is to regulate and punish.
There you have it quite simply. You have two contrasting solutions: 1) Ever-expanding bureaucracy protecting us from ourselves or 2) A much smaller regulatory agency and an educated population able to safeguard themselves on most matters.
Which one do you choose?