Your new best friend in the credit crisis
Consumer crusader Elizabeth Warren wants lenders to stop cheating you - and she has a way to get them to behave.
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| Elizabeth Warren can't keep you from abusing your credit cards, but she promises she can keep them from abusing you. |
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(Money Magazine) -- Your credit-card terms are usurious; your mortgage contract disguises the real cost of your home; and you need a magnifying glass to catch all the fees in your auto loan. As a result, you may be paying thousands more than you should for these products, says Harvard Law professor Elizabeth Warren.
She's long made it her job to shine a light on the worst practices of the financial services industry - before Congress, on the blog CreditSlips.org and in her bestseller, "The Two-Income Trap."
Now she's calling for a new watchdog agency to oversee financial products. And with support from at least one presidential contender, the idea is gaining some traction.
Question: You are proposing a Financial Product Safety Commission to protect consumers. How would it work?
Answer: It would function much like the Consumer Product Safety Commission, which protects buyers of goods. It would review contracts for things like mortgages, credit cards and insurance, making sure they're easily understood and modifying or eliminating terms that are dangerous. And it would promote effective, uniform disclosure to make it easier to compare products.
Q. Why do you think it's necessary?
A. Twenty-five years ago, financial products were strictly screened to make sure borrowers could repay and there was no such thing as double-cycle billing or $49 late fees. Today someone engaging in an ordinary transaction faces an unreadable contract and risks that are nearly impossible to assess. It's like sticking your hand down a dark hole and hoping nothing bites you.
Q. But if I didn't get seduced by a too-good-to-be-true mortgage and I pay my credit card in full, why should I care?
A. Some of what goes on is very sophisticated - you may not even realize you're paying more on your mortgage than you have to. Also, you can say, "Don't be a victim," but it's the government's job to keep predators in check.
Q. Hillary Clinton has put your idea on her agenda. But what happens if a Republican is elected?
A. At some point the demand will be loud enough that politicians will ignore it at their peril. Remember, Nixon was President when the CPSC was created.
Q. Until your idea is a reality, what can we do to protect ourselves?
A. Treat all financial products as dangerous until proved otherwise. Do not carry credit-card debt - none, never, no matter what - because credit-card contracts in particular are loaded with tricks and traps. And because unnecessary debt like that can make your family vulnerable to other bumps in the road.
I can't promise that a Financial Product Safety Commission will stop people from over-spending on credit cards, but it will help make sure your card isn't misusing you. 
