Elizabeth Warren, the chair of a Congressional Oversight Panel monitoring the financial bailouts has some harsh words for credit card agreements and contracts between consumers and banks. She’s a professor at Harvard Law School who teaches contract law and confesses that even she can’t make out some of the fine print contained in today’s credit card agreements.
Gee, if a contracts professor at one of the most prestigious law schools in the country is scratching their head, what chance does the average consumer possibly have of understanding the obligations under the agreement? Let’s face it, it’s between zero and none.
Most people sign contracts because they feel they have to and that the terms are not negotiable. If you’ve ever financed the purchase of a house you know exactly what I mean. You’re confronted with a stack of papers at closing that must be signed. You don’t get to see them in advace.
The buyer typically relies on someone else’s representation of what all the closing documents mean and dutifully signs. Even if you make a feeble attempt to read it all, it’s highly unlikely any of the substantive legal terms will be changed (except for a numerical typo or the last minute need to hold some money in an escrow account.
We gloss over the fine print because our mind is elsewhere. We’re already looking beyond the paperwork. We’re anticipating the arrival of the moving truck, the appliance deliveries, the unpacking, and how to keep the kids and pets out from under foot. That’s the reality.
The difference between the average consumer and a business person is that the law views consumers as less sophisticated and as having less bargaining power. That why consumer protection laws exist as well as consumer watch dog government agencies.
Ms Warren’s Oversight Panel is part of that process. She’s been reported as saying that the fine print in contracts hides the things that really rake in the cash for banks, that numerous studies show how credit products are designed to obscure, and that today’s business model is about making money through tricks and traps.
Businesses don’t have the benefit of consumer protection laws. Businesses are viewed as sophisticated, even if they’re not. The law assumes you read the contract, even if you didn’t.
Like the eager new home owner, the tendency for managers and executives is to sign and get on with business. Reading a contract may sound like common sense. But it also means fighting human nature and looking at the bigger picture, because if you don’t know what the fine print says, you could be in for an ugly surprise.