Here is an interesting excerpt from an interview with Elizabeth Warren, Esq.
FC: I understand that at one point you pursued an entrepreneurial path to reform the consumer financial products market.
EW: The short version is that I studied the economics of the middle class and I began to see that credit products were becoming increasingly dangerous. Families didn't know how much they were spending on credit and comparison among the products was practically impossible because of all the incomprehensible fine print. It wasn't the products that were priced the best that survived. Instead, the ones that were most loaded with tricks and traps provided the most revenue.
So I thought at first that my academic research will be enough. I will publish a law review article and surely the world will change–that didn't happen. So I wrote a couple of popular books about it–The Two Income Trap and All Your Worth. But it still didn't change the world.
The PEW Charitable Trust then got in touch with me and asked what ideas I was working on. And I told them: I'd like to build a private, market-based solution. I want to build an Underwriter's Laboratory to certify credit cards.
The whole idea behind the current model is, "I will hold something shiny in front of your eye, 3.9% financing, and the way I'm going to make money is on tricks and traps that I've buried in the fine print: $29 there, $49 there, triple interest rate, double cycle billing, over and over and over … ."
So the idea was to take an independent group that will say here's a clean, clear industry credit card. It was called the Clean Card. So Pew said, we love this. They took me out to San Francisco to meet with the head of a very fancy bank consulting group. We put together a proposal and many of the executives we met with just loved it.
They loved it at the first meeting and at the second meeting. It was almost as if you could see the CEOs thinking, "I'll have my picture on the cover of Business Week for transforming this market."
They were saying, "We want to be part of this! We want to be the first movers, we want to be America's Credit Card." Then we come back for the 3rd meeting after the numbers guys have taken a closer look, and they say, "We can't do this." As one VP put it, if people really understood how much a credit card cost, they wouldn't use it and the bank would lose too much market share.
And one of the issuers took me aside and said, "We get that our business model is unsustainable over the long haul, but no one of us can jump first. We all have to move together. If we all move together, we'll be fine competitively, but if one of us moves and we lose market share, then the ones who issue the dirty cards will control this market." So it was literally on the plane on the way home from the meeting with the issuer that I realized how broken the market is and started thinking about a new agency in Washington.