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Perhaps the Law should Protect Consumers from Themselves

Jan
26
2006

Caught asleep at the switch as the Internet bubble burst and late to the game in California’s Energy Crisis, California Attorney General Bill Lockyer, together with his colleagues from around the country, are making sure they appear to be ahead of the game as the housing bubble continues to bloat.
Earlier this week, Lockyer presided over a three-ring circus of Attorneys General from across the nation seeking to stick it to big business on behalf of homeowners in 49 states.
At the press conference in Lockyer’s Los Angeles offices announcing a settlement with Ameriquest Financial to end a three-year-long investigation, Wisconsin Attorney General Peg Lautenschlager declared a new role for State Attorneys General. The job of the AG, she said, was, “to create a corporate culture which respects protections for consumers.”
Actually, I thought the role of an Attorney General was to enforce the laws of a State – and in the case of Ameriquest, not one of the 49 Attorneys General suggested that a law was broken.
Rather, what was accused was that Ameriquest had a “corporate culture” which, in the words of Iowa Attorney General Tom Miller, was to “sell, sell, sell.” Sounds like Capitalism to me.
But looking at the specific charges of unethical behavior, I seems like it’s big business that needs to be protected from consumers, rather than the other way around.
Among the allegations was that Ameriquest allowed “stated-income loans.” That is, they trusted their consumers to tell them the truth about how much money that were making in order to qualify for a loan. A consumer seeking to qualify for a loan that was larger than his or her income would justify would simply state a higher income – essentially defrauding the company.
Likewise, consumers were allowed to get not-so-independent appraisals which inflated the value of their home, allowing them to borrow more money than they could otherwise. In some cases, branch officials were in on this, but so were the consumers.
In both these cases, it took two to tango—the consumer had to lie about their income or the value of their home – yet, according to the new culture of consumer protection, the consumer bears no responsibility.
Apparently, consumers are expected to abdicate all responsibility in the new regime of protection-by-Attorney-General. Ameriquest was also accused of, “upselling” their mortgages. Like a bartender that asks what vodka you’d like with your tonic without disclosing the price, local loan officers at the company would charge higher rates and points than those for which the consumer would otherwise qualify.
That’s certainly not a good business practice, if true, because the consumer would be able to get better terms from another lender. Any consumer who fell for it probably deserved what they had coming. Buying a home is the largest purchase most of us will make – wouldn’t it make sense to, you know, shop around, before signing papers?
Perhaps the consumer protections we really need will protect consumers from themselves.

Share  Posted by Scott Olin Schmidt at 2:45 PM | Permalink

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