The efforts of seven regulators to introduce uniform, conspicuous plain-language standards for consumer financial disclosures are doomed to failure. The reason is simple: The lawyers are in charge.
The feds' goal is to amend a slew of regulations (Z, B, E, etc.) with input from anybody with an interest. They have asked for comments by Jan. 31.
Lawyers, of course, will dominate the process, perhaps in excess of 1,000 of them from the feds' staffs and those who will comment. And that raises a few questions:
Is it sensible to believe that a discordant chorus of 1,000 members of the bar can advance the cause of disclosure clarity?
Aren't lawyers authors of the mess the feds want to undo?
Isn't the real problem disclosure overload?
Let's look at some more numbers. Thirty years ago the documentation for basic loans, cards, and auto financing could fit on one or two pages, and mortgages could close with fewer than 10 pages in most places. Today the basics cover up to 20 pages and mortgages upward of 150.
Without radical pruning, in 10 years these numbers probably will double or triple, even with plain language. Is this consumer protection?
I have been an advocate of plain language since my days in law school in the 1960s. In the mid-'70s I wrote the first banking agreement in plain language and the first plain-language law in the United States. My efforts, I am sorry to say, had little impact in making consumer agreements easier to read.
Plain and simple, government suffocated the plain-language movement. Its lawyers did it over several decades by imposing on banks layer upon layer of complex, obtuse, and often contradictory disclosures.
Their domination of retail bank documents is so complete that almost nothing of consequence is left for business lawyers to put into plain language.
Government has made things so bad that it is hard to imagine its latest effort can change the status quo, even minimally. It is clear from the notices the feds published in the Federal Register that they do not intend to attack the actual problem, disclosure overload.
If the feds really want to help consumers shop for financial services, they should approach the task from a totally different perspective. They should talk to experts who know about consumer shopping and reading habits. They should ask:
What is the percentage of consumers who shop comparing fed disclosures? (My guess: a thin fraction of 1%.)
Which kinds of disclosure best capture the attention of consumers?
Is it simplicity that does the trick, or something else?
Who in the private and public sectors produce the best disclosures?
Are the documents the feds' would like consumers to compare available?
What does disclosure glut cost consumers and banks in paperwork, attorney usage, time, dispute resolution, and the like?
These and other questions will lead the regulators to what everybody else already knows - that their top-heavy disclosure regime has failed completely. Not only does it ensure that consumers will never read bank documents, it forces excessive dependence on lawyers.
To break that dependence so that real reform can happen, the feds must take bold action.
For starters, they should put nonlawyers in charge of the cleanup effort, set their sights exclusively on disclosure overload, and seek ideas from people who are more efficient with words than lawyers: journalists, teachers, composers, novelists, Madison Avenue, sign makers, even poets.
The unspeakable should happen: Lawyers should be kept out of the picture as long as possible.
In the meantime, the new team should note the following:
Other government agencies are good at plain language. The labeling of food, medicine, and clothing is a good example. The ingredients of a package of hot dogs, the side effects of an aspirin, and how to clean a cashmere sweater are regularly conveyed in a square inch or two. Signs we see everywhere do the same thing.
Plain language is useless without a relentless commitment to brevity. Turning 20 pages of disclosures into shorter, easier-to-read sentences that will add up to 30 pages is not what consumers need or want. Less is best.
Even in plain language, it is easier to hide bad information in a long document - one cluttered with government-required disclosures - than a short one.
Making disclosures uniformly more conspicuous is not a solution. It would be silly to believe that consumers will read a privacy statement or arbitration clause at the top of an agreement because it is in large, bold, or colored type or festooned with bullet points.
In the long run, uniformity is impossible. No matter what the feds hope to achieve through uniformity, Congress, the states, and judges will upset the plan every time a hot new issue suits their fancy.
Every new disclosure requirement diminishes prior disclosures and undermines other important provisions of contracts.
Requiring that many notices be conspicuous implies that the rest of a document is less important. That can be unfair and even unconstitutional. It can also be self-defeating; an excess of such notices, which arguably exists today, neutralizes their conspicuousness.
There is no good reason that basic loans can't fit on one page in a reasonable type size, and mortgages in not more than four. Don't let the lawyers bully you into thinking otherwise.
Disclosure overload befuddles consumers and banks every time they do business with each other. Plain-language disclosures are overdue by about 30 years.
Unfortunately, the current cleanup effort looks phony. If regulators again let lawyers dominate the process, why bother?
