Consumer Law

American Banker Piece on Truth in Lending

By Jeff Sovern

by Jeff Sovern

The American Banker ran a piece I wrote in their Viewpoints section today titled "Borrowers Must Understand Their Obligations" (the American Banker's content is available only to subscribers but they offer a free two-week trial subscription if you want to read the piece).  The essay argues that Truth in Lending failed to convey to too many consumers what their payment obligations would be, thereby leading consumers to take out loans they didn't understand they would not be able to repay.  Here's how it ends:

What should we do? Policymakers have already begun revising disclosure forms to increase the likelihood that those who can learn from written disclosures will be able to determine whether a particular loan is right for them. This process should continue. But we should also recognize that some consumers are unlikely to learn from written disclosures and adopt measures that will communicate to them what they need to know. Such borrowers may need a disinterested counselor - not a mortgage broker who will profit if the loan is made - to walk them through loan terms and explain what they need to know. Perhaps we should administer tests to loan applicants to see whether they understand their loan terms; those who fail should not be permitted to borrow unless a neutral counselor certifies that they understand the terms. And it may be that some loan terms should be outlawed because they are too confusing. We need to install additional checks on lending, and one way to do this is to insure that borrowers understand their loan obligations.

Full post as published by CL&P Blog on May 13, 2009 (boomark / email).