In a 1978 debate, a town hall debate no less, Milton Friedman addressed the issue of corporate greed and the profit motive. When asked whether it was wrong for a power company to turn off power to someone who fails to pay their bill given that the loss of power could result in someones death (apparently this happened in Ohio during the winter), Friedman turned the question on its head to point out the blame was in the wrong place. The power company can’t be blamed, if they stopped charging people then only those who voluntarily pay would bear the cost. And they would bear a much higher cost as carriers of everyone elses debts.
Watch the five minute Friedman clip here.
The same lesson can be applied in many of the consumer protection cases today. Do we blame predatory lenders for mortgages with high ARMs and excessive monthly payments? Do we blame financial institutions for charging high interest rates on credit to higher credit risks? Do we blame banks for overdraft fees and “fine print” charges? Do we blame the brokers and originators of complex derivative products? We’re trying to. That’s what the consumer protection agency proposal is for. We want to blame everyone but ourselves.
If products are too complicated for someone to understand, they should get help. There are private consumer advocate organizations out there. Or just go to bank that has less complicated rules. It’s a competitive advantage for banks after all.