Vanilla Iced

Sep 26, 2009 by

Vanilla soft serve copy

I love plain vanilla ice cream.  Love it.  My favorite is the soft serve vanilla at Carvel’s.  The rest of my family doesn’t understand my vanilla compulsion.  My husband is a ice-cream omnivore.  My oldest daughter favors the fruity sherbets, and my youngest has already demonstrated a strong disposition towards anything that includes chocolate.

I am simple, uncomplicated.  And to me, it is the simple, and uncomplicated repetition of vanilla that draws me to it again, and again, and again.  I know what I’m paying for, and I know what I’ll get.

So needless to say, that I took it as a personal affront this week when my favorite comedian-politician, Barney Frank,announced that the House has revised the administration’s proposal for a new consumer financial protection agency by removing the requirement that banks and other financial services companies offer “plain vanilla products”, like 30-year fixed mortgages and low-interest, low-fee credit cards.  My favorite comedian-secretary, Timothy Geithner, came around quickly, announcing the administration’s acquiescence in the deletion.

On what planet does it make sense that I could walk into any ice cream store tomorrow and find out that vanilla is no longer available?

The libertarians out there would argue that this is an unfair comparison.  That the removal of this provision is not so much eliminating the availability of the plain vanilla financial product as preventing unnecessary governmental INTRUSION through the FORCING of financial companies to offer such products.

There is this attractive, and *quaint*, idea that the financial services industry is competitive.  That because financial companies compete for my dollars and yours, they must offer the best product to us or risk the loss of our dollars.  This may (or may not) be true in other industries, where our dollars are given up in exchange for goods and products.  But think about where the financial services, especially right this moment, make their money: FEESPENALTY CHARGES, and any one of the multitude of different “hidden” costs that are now attached to many financial products.  Under this incentive structure, it is always good business to tack on as many fees and charges as possible, and then hide them well.

After all, if it was true that a bank would absolutely positively offer plain vanilla products in order to attract customers, why exactly are they quaking at the boots over the requirement that they offer such products?  I hardly think that the ice cream industry would be up in arms if they were required to provide vanilla in their shops – they might find such regulation a mite irritating and vaguely incomprehensible (why require something that all shops already have), but I hardly think that it would be the first target in a 600 page long list of potential regulations that includes, among other things, regulating derivatives.

How is it anti-competitive to make it possible for the average finance-illiterate person to walk into a bank and leave with a credit card where he knows exactly what his interest is, what the fees are (and what they are for), and what the penalties for late payment are?  Oh, unless by anti-competitive they mean, “not giving the banks the best possible conditions to make the most money possible.”

The banks argue that the better approach would be more “disclosure” and more “transparency”.  As my friend at Interfluidity explains:

One of the great errors in modern policy is to confuse disclosure with information. It is not the case, currently, that banks secretly take your money without itemizing the charge on some statement. (Sometimes when they take your money they call it “service fee” or something equally nondescriptive, and it’d be nice if that practice went away.) Rather, banks intentionally define contracts in such a way that the cost to many customers of understanding and competitively shopping all the dimensions of the product seems higher than the cost of terminating the search and signing the dotted line. More detailed disclosure doesn’t eliminate, and can sometimes exacerbate, the real information costs customers face…. You might think there’d be a market for ostentatious simplicity, and there might be. But no bank’s lawyers would sign off on a single page, 12 point text, no-extratextual-incorporation-or-unilateral-modification contracts. When routine contracts get more complex than that, it’s just gibberish competing with gibberish for people who have lives.

Disclosure is simply not good enough.  We need the vanilla.

See more eulogies herehere and here.

Kady is an attorney and even she can’t be bothered to read the legalese.  She blogs at Wonkess.

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