A fascinating new paper out by Jean Braucher talks about the historical context of scamming and what history has taught us about why consumers are so easily scammed.
“Nineteenth century American literary masters Edgar Allen Poe, Herman Melville, and Mark Twain (with co-author Charles Dudley Warner) all examined scamming in their largely pre-regulatory time.
These authors made two prescient observations of continuing importance: scammers carefully study their marks to find weaknesses to exploit with tricks and traps, and scammers’ subjective states of mind are often unfathomable behind masks in which they pose as legitimate and trustworthy.
Furthermore, the moral hollowness of confidence men portrayed in 19th century literature provides a metaphor for contemporary businesses that exploit consumer misperceptions. The article argues that the humanities arrived much earlier at insights of behavioral economics recently used to develop consumer protection law, which now authorizes administrative regulation to prevent businesses from taking advantage of consumers’ lack of understanding. Literature thus provides a comparative perspective from which to evaluate and affirm the law’s new efforts to address scamming more effectively.”
The paper raises some very good points about why the CFPB is a game-changer when it comes to providing protection for consumers, especially in financial service products, including debt relief.
“The process of CFPB examination is penetrating and flexible. It involves looking at internal processes of consumer financial services businesses, including by gathering internal documents, such as those on training, pricing of products (especially new products), incentives for employees and third parties, internal control monitoring and auditing, and handling of consumer complaints, and also by having discussions with management about the adequacy of internal controls to avoid unfair, deceptive or abusive practices.
This sort of exhaustive review of internal documents, followed by discussions between regulators and creditors’ managers, gives ample opportunity for informal, preventative correction, with enforcement only necessary in the face of recalcitrance to fix abuse or to deter flagrant abuse so that businesses do not try to get away with taking advantage of consumer misperceptions until called on doing so.
In sum, with authority to regulate deception, unfairness, or abuse in consumer financial services, federal law now addresses a broad spectrum of credit practice scamming, from fraud to deception to abuse in the form of exploitation of lack of consumer understanding of costs and risks.
State consumer law may not be far behind in incorporating a behavioral economics approach, either through enactment of amendments to “Little FTC Acts” to add abusive practices or by expansive interpretation of existing state statutes addressing unfair or deceptive acts or practices to also reach abusive ones.”
And when it comes to the last five years of the debt relief industry, this quote is right on point, “From a utilitarian perspective focused on social welfare impact, self-deluding con men and exploitative businesses claiming to be legitimate can be at least as bad and perhaps worse than fraudsters, because they not only harm the consumers they cheat, often causing bigger losses, but they also debase consumer culture and societal integrity and undermine consumer confidence.”
Because the debt relief industry has done nothing to stop or hold back deceptive debt relief companies it has led to a regulatory, legislative, and consumer erosion of confidence in the entire industry.
If you enjoy this kind of subject, you should read the entire paper, here.
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