That's the title of my op-ed at FinReg21. Here are the first two paragraphs:
The economic crisis was caused in part by millions of borrowers taking out loans on which they later defaulted. Perhaps if the Obama administration’s proposed Consumer Financial Protection Agency (“CFPA”) had existed in time, things would have been different. The administration’s proposal would give the CFPA the power to ban unfair, deceptive, and abusive lending practices, as opposed to the laws in place at the time of the borrowing binge, which required lenders to disclose loan terms to borrowers and assumed—incorrectly, as it turned out—that that was all borrowers needed to make good decisions.
We are still studying why disclosures failed to warn borrowers off of the doomed loans. Until recently, mortgage originators were not obliged to show many borrowers their final loan terms until the closing. My research assistant, Sabihul Alam, and I recently conducted a survey of more than a hundred mortgage brokers in 26 states to discover how borrowers use those disclosures. The brokers, who collectively participated in over fifty thousand loan closings, were nearly unanimous in saying that borrowers never withdrew from a loan after reading the final disclosures at the closing, and never used those disclosures for their stated purpose of comparison shopping for loans. Our survey also indicates that many consumers spend a minute or less with the disclosures—even though a mortgage may be the largest, longest-term, and most complex obligation a consumer ever assumes. In other words, we cannot depend on these disclosures to keep consumers from entering into loans with toxic terms.
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