The Federal Reserve Board's proposal to simplify Regulation Z disclosures for card accounts is an exercise in futility.
Nobody can simplify the excessive, convoluted requirements of the Truth-in-Lending Act, which are destined to become even more obtuse once Congress ends its investigations of industry practices and the subprime mortgage meltdown.
When you add the Truth-in-Lending Act's disclosure requirements to the reams of conditions in most card agreements — each of them always expanding and becoming more complex — simplification can only be a daydream.
Proof of the pudding is the amount of time the Fed will take to complete its quest.
For starters, it took the agency almost four decades to realize that something was wrong. Its current effort began over two years ago and probably won't finish for another three. By the time it gets around to simplifying all the other loan disclosures covered by the act, it will have consumed almost a decade.
This is crazy. And never mind that by the end of the decade new disclosure laws will make a mockery of its revisions.
The key reform of the Fed's proposal is to lengthen the so-called Schumer Box with more information and require it to be inserted in solicitations, card agreements, billing statements, etc. The result will be like what now occurs in the privacy realm: saturation disclosure.
If the privacy experience is any guide, the box won't work, because saturation conditions borrowers to look away. Does anybody read privacy notices anymore?
The use of a box is not a bad idea. But for it to serve consumer needs, it must not overdisclose. And most of its content must have immediate relevance.
Think of food labels. You want to read them to know what you're going to be eating at dinner. Ditto for cleaning instructions on clothes labels — they should be current, short, and easy to read.
The Fed's box does the opposite. It will be a long, cluttered addendum to documents that can run dozens of pages, and most of it will relate to far-off events that rarely apply to most cardholders.
That's not to say these events aren't important — only that they are so voluminous and ominous as to overwhelm most cardholders. The problem with the box is that it is totally about fees, adding and subtracting, equations, trigger points, etc.
Its fees easily rival those on the sticker for a new car, but with none of the attractions. Car fees are all about good things: options for comfort, safety, miles per gallon, style, etc. Bank card fees are a turnoff. They scold about how banks punish their customers for a litany of infractions.
In any event, because it begs attention and is selective about what's important, the box poses the risk that consumers will decide the excluded terms are less so and thus irrelevant.
That's terrible as a matter of contract law and consumer protection. And it's not curable with another disclosure warning consumers to read everything else. Doing that will suggest the box is deficient.
A mess like this is inevitable when the government becomes addicted to enacting disclosure laws to protect consumers.
The lawyers take over, and the disclosure ends up violating the cardinal rule of commercial simplification: brevity. Instead of clarifying, they make the reading excruciating.
That's where Congress and the Federal Reserve have taken us.
But banks are also to blame. It's amazing they haven't raised hell over disclosure abuse, which grievously buries their customers in confusion and expense.
Have they been reticent because the federal disclosure regime gives them the pretense of telling the truth while camouflaging bad practices? Down deep inside, do banks like the Truth-in-Lending Act because it accommodates egregious behavior, rather than prohibiting it?
Come to think of it, when was the last time Congress prohibited any retail banking practice? The states, of course, have tried to do it, but in recent years they seem to have given up, because of preemption defeats.
The failure of the Truth-in-Lending Act suggests that the Fed should give up on disclosure simplification. It should ask Congress to replace most of the act with a simple, national rule:
Retail credit documents must be truthful, written in plain language, and formatted to promote consumer understanding.
Creditors, not the government, would have to choose the words to accomplish these goals.
As such, the rule would prohibit government agencies from helping them with model forms, uniform words, or definitions. The Federal Reserve Board's past forays in this area have failed.
The federal government, states, and consumers would enforce the rule, but with a restriction against class actions, which to my knowledge have never simplified a document.
To those in shock at my bold proposal, I must ask, so what if it were to result in wide-ranging variety in millions of credit documents? It would still be better than the unfathomable, anti-consumer morass government lawyers have created.
The Federal Reserve Board should tell Congress that it's the Truth-in-Lending Act that belongs in a box — six feet under.
