Lessons For Consumer Protection From The World Of Inclusive Capitalism
Lately I have been teaching courses with names such as "Global and Economic Justice" and "History, Impacts and Regulation of Consumer Credit" instead of "Bankruptcy," "Secured Transactions" and "Chapter 11 Reorganizations." So I have been reading different books and listening to different speakers. A lecture I attended recently by Xav Briggs here brought to my mind a couple of books that I use in one of my courses, “Borrow” and “Debtor Nation” both written by Louis Hyman. In many ways Hyman's books remind me of "Credit Card Nation" the outstanding and "ahead of its time" book by Robert Manning which I used extensively when I created my consumer credit course in 2002.
Part of the wisdom I find in each of these books is the caveat that you cannot understand consumer protection without understanding the nature of American capitalism or the drive for an above-market return. This was never clearer or more of a "blow to the side of the head" than during the frenzy in the early 2000's, and perhaps nothing demonstrates it more crassly than the rating agencies covering their eyes as they rated subprime securitizations allegedly in order to "keep the business."
Just as we consumers lost our bearings when we had the chance to buy homes or manufactured homes here we never thought we could afford, so investors, law firms, investment banks, mortgage brokers (just about everyone in the chain) lost their bearings as they bent to scoop up the gold nuggets and diamonds that lay on the ground before them for the taking.
My interpretation of Hyman's essential point is that American capitalism places unbearable pressure on all of those links of the business chain to reach and reach for the golden ring no matter how many people are hurt as they reach. The excruciating and far-reaching pain of the Crash has accelerated the inquiry into whether there might be a kind of capitalism that would fertilize and enable the market but still show a bit more care and concern for "everyone else."
In the world of work, "inclusive capitalism" here is creating productive waves worldwide, with a good U.S.example being the efforts to raise wages in the Fast Food Industry. One of its hallmarks is the sharing of profits more equitably between capital and labor. Reading about "inclusive capitalism" and "mean capitalism" has set me to musing about their application in the consumer finance arena. Robert Shiller offers up one specific example of what i mean.
"So my proposal is that in the future, mortgages should have a preplanned workout and it should be automatic. As home values fall, the principal should be reduced. Now, this is something that mortgage companies don’t particularly like because it sounds like they’ll lose a lot of money in that circumstance, but I argue that we can price that in." here
Here are some others: Can we develop and impose a rate of return on investments in auto securitization and an interest rate on the underlying loan that would be fair to both the investor and the consumer? Or calculate the amount of permitted overdraft fee on Debit Cards that would be fair to the debit card issuer and the cardholder?
Tracking how quickly consumer finance became the major profit center for financial institutions as well as for the investing public may obscure the point that a reasonable rate of return for both share -holders in financial institution and investors in securitizations is possible even if those returns are below the apparent rates during the run-up to the Crash. All of this is somewhat outside the usual framework of consumer protection and might require the co-operation of the CFPB with the SEC and other regulators.
As another example, several credit unions and other financial institutions are endeavoring to develop an alternative to Payday Lending which makes a sufficient profit for the lender and meets the needs of the borrowers without the poison of the current product or perhaps with a less toxic poison.
These are the kinds of pearls of wisdom that Inclusive Capitalism might empower. Food for thought??!!