“Let the Buyer Beware”
Predatory lenders have caused a record number of home mortgage foreclosures. Credit card firms are extorting millions of dollars in “penalties” from customers who have never made a late payment or gone over their credit limit. Insurance companies are weaseling out of billions of dollars’ worth of claims, using the zaniest excuses imaginable. And you’re paying hidden fees and surcharges every time you rent a car, stay in a hotel, go to the bank, sign up for a new phone service (or cable TV or Internet service), deposit money in your retirement account…
And yet Libertarians and rightwing Republicans keep insisting that there’s no problem here. This is capitalism, Buddy; the free market. Caveat Emptor. That stupid mouthbreathing retard should’ve read the fine print.
Riiight.
What the fuck are we devolving into? A company can hide a booby trap on page 37 of a contract — written in legalese in a size .01 font — and it’s up to the customer to spend several hours poring over the contract with a magnifying glass.
How far does this “logic” go? Is it legal to sell fake Rolexes on the street for $200 apiece? After all, if some dumbfuck is gullible enough to buy one — cool!
Auto repair shops should be allowed to use the cheapest shoddiest parts they can find and then tell you they used the highest quality components money can buy (and charge you accordingly). Hell, why even make them work on your car at all? They can just tell you they did it and then charge you $1,200 for the work they didn’t do. Hey, if you’re suspicious, just look under the hood and check it out for yourself. What, you want some big fluffy drooling Nanny State hovering over you??
And why is it against the law to assault or mug someone? When you’re walking down the street, it’s up to you to be aware of your surroundings and be ready and able to fend off any would-be attacker. If a person is oblivious or preoccupied, and/or too feeble to defend him/herself — hey, easy pickings!
People get thrown in jail when they try anything mentioned in the previous three paragraphs. And when slippery businesspeople mug their customers with deceptive practices and fine print, they belong in jail too. And throw the key away.
March 7th, 2008 at 5:59 am
Credit card firms are extorting millions of dollars in “penalties ” from customers who have never made a late payment or gone over their credit limit.- I know this from personal experience. Its total bullshit, and when I demanded to know why they jacked my interest rate 5%, they said I was carrying too high a balance on my credit cards..I was like WTF? None are over their limit and since I am injured and on workers compensation..My monthly income has taken a dump and I can only AFFORD to pay the minimum’s.which btw are paid on time.
I love their logic..I really do. Hope they like mine..because I quit paying the two cards that pulled that shit on me. Yes, now my credit report shows two delinquent balances..but I don’t give a damn. I refuse to pay them at gunpoint. The irony in all this..
Now I get letters promising to lower my interest rate if I just give them a call and talk to them about it. LOL..fuck em.
March 7th, 2008 at 6:20 am
Here is a nice writeup about what MasterCard spent lobbying Congress last year:
http://www.chron.com/disp/story.mpl/ap/fn/5589213.html
A cool 1.8 million..
March 7th, 2008 at 9:44 am
“How far does this “logic” go? Is it legal to sell fake Rolexes on the street for $200 apiece? After all, if some dumbfuck is gullible enough to buy one — cool!”
Since a real Rolex is out of financial reach for most, why not allow the $200 dollar knock off so the working man can sport one as well? Are you of the opinion that only the rich should be able to afford the name brands?
“Auto repair shops should be allowed to use the cheapest shoddiest parts they can find and then tell you they used the highest quality components money can buy (and charge you accordingly) . Hell, why even make them work on your car at all? They can just tell you they did it and then charge you $1,200 for the work they didn’t do. Hey, if you’re suspicious, just look under the hood and check it out for yourself. What, you want some big fluffy drooling Nanny State hovering over you??”
The only thing stopping them from doing that now is the reputation they will get that will cause customers to chose another more reputable shop. What do you suggest, a government official to inspect every repair?
“And why is it against the law to assault or mug someone? When you’re walking down the street, it’s up to you to be aware of your surroundings and be ready and able to fend off any would-be attacker. If a person is oblivious or preoccupied, and/or too feeble to defend him/herself — hey, easy pickings!”
Because the government has taken away the ability of the law abiding citizen to protect themselves, they (the government) have to provide it. Allow citizens to arm themselves and there would be fewer attackers and therefore a lessor need for police.
Anecdotal evidence, but my son in law after returning from combat duty in the first gulf war was assaulted by three guys in Bolder for wearing his Marine uniform. He was charged with using excessive force in his defense. There was no objection to the fact that he was attacked but he was convicted of assult due to the fact that all three ended up in the hospital with serious injury. My son in law Dave was born in Mexico and, while here legally, he was trying to get naturalized and was almost denied due to the assault conviction. In spite of the fact that he fought for this country and served 8 years in the Marines the judge said “I am not sure we want people like you as citizens.” We all wrote letters for him and he did end up getting citizenship but this is an example of how the government regulates the degree in which you can protect yourself. Therefore they had better be ready and able to step up and do the job for us.
You are mistaken if you think the government will do a better job of watching out for you and your family than you can do for yourself.
March 7th, 2008 at 10:08 am
Well, manapp, according to what you’ve just said, you don’t think fraud or obtaining money by deception should be a crime. Is that accurate? If not, I think you’ve misread what Tom is talking about.
And do you also believe that the brands shouldn’t be able to protect their trademarks and intellectual property? That’s the only conclusion I can make given you apparently support the fake trade. Which is why I think you’ve missed the point.
March 7th, 2008 at 10:39 am
Paul, how do you equate entering into a legal contract, such as a mortgage or a credit card agreement as fraud? Which deception are you referring to? The one with the facts on page 37? Would it be less deceptive in your mind if the facts were on page one? Do you really think the people signing the contracts would have backed out if the terms were better explained? Not taken the credit card or the home loan?
As far as trademark protection I will agree that is a different matter as there are laws in place that address that. The selling of the knock off Rolex is a crime. But should it be? The real rolex is overpriced due primarily to the name and secondarily to the quality. One could indeed get a qualtity watch for $200 and just knock off the Rolex name except that it is illegal. Don’t the laws just protect the rich from having the unwashed masses trying to imitate them? Other than legal protection, how does one justify $2000 for a purse that sports the Gucchi name? If not for the knock off Gucchi, how do you expect those on the lower end of the spectrum to be able to look good? Walmart brands? You have to look at this from the “progressive” view. Perhaps we should just have universal clothing and accessories care to address the inequalities of the capitalist system. What should be illegal should be the brand names, not the knockoffs.
March 7th, 2008 at 12:28 pm
I’m referring to your belief that telling a client you’ve fixed their car using high-quality parts and charging accordingly when you haven’t is somehow acceptable, as you claimed. You said the only thing stopping this was a loss of reputation and that’s the way it should be. That is fraud and deception. If you believe that the only consequence of that should be a loss of reputation, as you claimed, then my point is correct.
As to your second point: No, claiming something is something it’s not should in order to charge a higher price should be illegal. It is cheating the poor or gullible by making them think that they’re getting something they are not in fact getting. I don’t think lying in that way should be legal. If you do, then I hope we never hear you complaining about a politician breaking a promise, changing their position, or hypocrisy, as you believe that lying is acceptable.
March 7th, 2008 at 12:34 pm
As an additional point, in the UK, it is illegal. If a company does not provide a clear explanation of all charges in their literature, not the contract itself, they are fined and open to lawsuits for miss-selling. So it’s clearly both possible and doesn’t completely destroy the economy.
March 7th, 2008 at 12:47 pm
As one with a deviated septum from a severely crushed nose from a high, inside fast-ball pitch in childhood, I resent the slur on mouth-breathers!
And ‘Caveat Emptor’ is the best, oldest (it’s in Latin because it’s ancient) advice ever to hit the street. It is good advice because of human nature. What’s wrong with human nature? Examine our laws, inquire into the reasons why those in our prisons are there and you’ll get a pretty good idea of what’s wrong with human nature. We are, by turns, trusting where we ought to be cautious — thus leaving us open to fraud by slick, smooth-talkers and signing documents that we only poorly understand — and overly cautious where we ought to be more trusting — leaving us fearful of flying, for example. We are, by turns, cruelly wicked and selfish — lying, cheating, stealing, torturing, and killing — and generous to a fault — opening ourselves to high taxation for welfare plans that institutionalized intergenerational fraud of the system, encouraged broken homes, high birth rates among those least able to afford children.
Bottom line, anyone who signs any document that he does not fully understand deserves what he gets.
Rolexes are NOT overpriced. They fetch exactly what lawful purchasers are willing to shell out for them. If they were overpriced, no one would buy them and Rolex would either reduce their prices or go out of business, as they ought to if they did not react appropriately to market conditions.
Anyone who claims to have been duped into buying a $2,000 Rolex for one tenth the price or less is culpable in the exchange. One of two things occurred: he thought he was taking advantage of someone who had fallen on hard times and buying a genuine Rolex (in which case, shame on him; he deserves what he got) or he knew he was buying stolen property (in which case, shame on him, he deserves to have been ripped off) or he knew he was buying a knock-off but bought it anyway to impress others with the lie that he could afford a genuine Rolex (in which case, shame on him for being a poseur). THREE things! One of three things occurred! I have remarkably little sympathy for him. Yes, we should have trademark protection laws; they are the thing that spurs innovation. Who the heck is going to risk capital and time expenditures to invent a better anything if someone else can just come along and rip off his design, place the actual inventor’s trade symbol on the rip-off item and then undersell the inventor so that the inventor will be unable to recoup his expenditures? Our society advances as quickly as it does for only one reason: our society has recognized that it is vitally important to protect the fruits of one’s labors from the predation of those who cut corners, making invention unprofitable.
I hope you were being facetious in that last paragraph, Manapp99.
March 7th, 2008 at 12:59 pm
Craig,
We’re not going to have that Monty Python discussion again, are we?
And, yes, I’m pretty sure manapp is being facetious. But I’m not giving him the benefit of the doubt just yet.
And you’re right, cavet emptor is brilliant advice. But it shouldn’t be the extent of consumer protection law, right?
March 7th, 2008 at 1:21 pm
I would like to say in defense of what happened to me that my credit card company used a vague statement in their contract to jack my credit card interest five percent.
I had never been late on any payments to any of my credit companies..I have always paid on time. But yes, the amount of credit I was carrying was higher than it used to be BECAUSE I am currently on workers compensation and attempting to live on five hundred bucks a month. I have managed to pay all my bills on time and within their guidelines.
When I tried to explain to both of the companies why my credit wasn’t being paid down as fast as it used to be, they didn’t give a shit. They used it against me even though I was not over limit on any of my credit cards.
It was ‘their’ determination that I was now a bad credit risk..simply because I was carrying higher balances on my cards, but I wasn’t over my limit on any of my cards!
It was an excuse to jack my rates to their advantage..nothing more. Congress held hearings on this practice and the credit card companies are lobbying hard and heavy to avoid being held accountable for their smarmy, although apparently legal, practices.
Why shouldn’t congress protect consumers from this kind of arbitrary bullshit? As long as I pay my bills on time, stay within my credit limits..what should give them the right to jack my interest rates through the roof?
March 7th, 2008 at 1:24 pm
The C. F. Martin guitar company found that they had a problem: they produced a high quality product that was found to have an extremely pleasing quality in performance and recordings. Therefore, their guitars became very desirable among those in the music business. Thus, demand among successful musicians raised the price of Martins out of the range of most amateur musicians. They could respond in a number of ways: change production techniques in ways that sped up production, thus relieving the demand-side upward pressure on the price of their most desirable guitars; produce lines of guitars using lower quality woods than in their traditional lines and production techniques to speed up production, thus, supplying the amateur guitarist with a lower-cost Martin; they could contract their name out to other manufacturers who were knocking out many more guitars of lower quality than Martin produced and allowing those other manufacturers to associate the Martin company name with their lower quality guitars.
Over the years, the Martin Co., used each of these techniques, satisfying the professional musician with the highest quality instruments with the sound that they prized and the amateur to own an instrument bearing the ‘Martin’ name or a name known to be associated with the Martin brand, but the instruments were of lower quality and produced a different, less desirable sound but one that many more people could afford.
You see, in this way, everyone was happy. The professional paid exorbitant prices for highest quality instruments with the sound that professionals prized while the amateur got lower quality instruments at an affordable price at the cost of lower quality sound but the Martin Company still profited from the accumulated labor of the innovative designs of generations of Martin craftsmen while satisfying market demands.
In my opinion, this is the way to solve the ‘overpriced’ product complaint; not by tolerating producers of low-quality products who slap a highly prized corporate logo on their lower quality product who then undersell the original..
March 7th, 2008 at 1:33 pm
Paul,
No. That shouldn’t be the extent of consumer protection law. There’s got to be consequences for fraud and deceit, otherwise you get roving companies that bilk customers in a place for a time, close only to move to another place under another name, thus ruining entire industries while getting fabulously rich off of their victims. It’s a part, too, of the whole having a realistic view of human nature.
March 7th, 2008 at 1:36 pm
Manapp, Craig: The main reason I did this post was the huge discrepancy between the laws that govern corporations and laws that govern the rest of us. I personally would have no problem with a mechanic who says he did the work but actually didn’t (like you said, he won’t get much repeat business), or somebody selling fake Rolexes on the street. But those acts are illegal, like it or not. I think the same legal standard — whatever that standard is — should apply equally to the predatory lender and the person selling Rolex and Gucci knockoffs.
BTW, Manapp — congrats to your son-in-law. You Go Guy! Sorry he was hassled for defending himself. I’ve heard other stories like that too, where somebody defends himself “too vigorously” and ends up getting sued or prosecuted. That sucks.
Dusty: Way to go with those credit card firms. If they pull a fast one, you can too. Several years ago we discontinued our cell phone service after 2 months. They told us there was a $300 early-cancellation fee. We never paid it. They spent at least 2 years howling and sobbing and threatening and groveling and then they finally gave up.
Paul: I think the UK has the right idea. It should be required for companies to fully disclose everything in their literature (and not in the fine print on page 37). But mostly, I just have a problem with the double standard being practiced in the U.S. I think sleaze is sleaze, whether it takes place in a plush office or on a street corner by some slippery character wearing shades.
March 7th, 2008 at 1:40 pm
Craig,
Not to worry you, or anything, but I think we pretty much agree on this one. Soon you will be assimilated into the Collective.
March 7th, 2008 at 4:08 pm
Paul,
The collective! NOOOOOOOOOOOOOO!
Must resist…
Where’s my copy of The Road to Serfdom?
March 7th, 2008 at 4:16 pm
And we can have any Monty Python conversation that you’d like. We could argue about dead parrots, sing about Lumberjacks, curing morose cats…anything silly thing at all!
March 7th, 2008 at 6:44 pm
[…] “Let the Buyer Beware” Predatory lenders have caused a record number of home mortgage foreclosures . Credit card firms are extorting millions of dollars in “penalties ” from customers who have never made a late payment or gone over their credit limit. Insurance companies are weaseling out of billions of dollars’ worth of claims, using the zaniest excuses imaginable. […] Technorati Tags: Economy, Credit Cards, Insurance […]
March 10th, 2008 at 10:20 am
http://www.nypost.com/php/pfriendly/print.php?url=http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm
March 10th, 2008 at 1:01 pm
THE REAL SCANDAL
By STAN LIEBOWITZ
February 5, 2008 — PERHAPS the greatest scandal of the mort gage crisis is that it is a direct result of an intentional loosening of underwriting standards - done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.
At the crisis’ core are loans that were made with virtually nonexistent underwriting standards - no verification of income or assets; little consideration of the applicant’s ability to make payments; no down payment.
Most people instinctively understand that such loans are likely to be unsound. But how did the heavily-regulated banking industry end up able to engage in such foolishness?
From the current hand-wringing, you’d think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards - at the behest of community groups and “progressive” political forces.
In the 1980s, groups such as the activists at ACORN began pushing charges of “redlining” - claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.
In fact, minority mortgage applications were rejected more frequently than other applications - but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.
Yet a “landmark” 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.
That study was tremendously flawed - a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.
Yet the political agenda triumphed - with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.
No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: “discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.”
Some of these “outdated” criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.
Sound crazy? You bet. Those “outdated” standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.
Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.
Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with “100 percent financing . . . no credit scores . . . undocumented income . . . even if you don’t report it on your tax returns.” Credit counseling is required, of course.
Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed “the most flexible underwriting criteria permitted.” That lender’s $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.
Who was that virtuous lender? Why - Countrywide, the nation’s largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.
In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.” He’s not bragging now.
For years, rising house prices hid the default problems since quick refinances were possible. But now that house prices have stopped rising, we can clearly see the damage caused by relaxed lending standards.
This damage was quite predictable: “After the warm and fuzzy glow of ‘flexible underwriting standards’ has worn off, we may discover that they are nothing more than standards that lead to bad loans . . . these policies will have done a disservice to their putative beneficiaries if . . . they are dispossessed from their homes.” I wrote that, with Ted Day, in a 1998 academic article.
Sadly, we were spitting into the wind.
These days, everyone claims to favor strong lending standards. What about all those self-righteous newspapers, politicians and regulators who were intent on loosening lending standards?
As you might expect, they are now self-righteously blaming those, such as Countrywide, who did what they were told.
Stan Liebowitz is the Ashbel Smith professor of Economics in the Business School at the University of Texas at Dallas.
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March 11th, 2008 at 1:29 pm
Lisa,
To save bandwidth, could you just link, or include a paragraph and link to the balance? Please don’t paste entire articles into the comment section.
Thanks!
March 12th, 2008 at 8:32 am
It kept rejecting the link sorry.
March 12th, 2008 at 9:04 am
Sometimes, when you post in a link without typing any comment to go with it, you get caught by the spam filters. I don’t know if this was the case here, but that does occur occasionally.