Ask yourself this: When was the last time you read all the fine print, the “full disclosure”? Throughout the years, the government has worked on behalf of consumers to make companies accountable by requiring them to disclose all those tiny details and hidden caveats to the products and services they sell. However, few of us read them in full for every product or service we buy, even when they accompany some of the most important purchases of our lives.
The proof is in the results. Those who took out subprime mortgages signed volumes of paper explaining just what those home buyers were getting themselves into, yet it didn’t stop the housing meltdown or the financial crisis that followed. So, too, with credit card debt. Yes, the banks and financial companies offering credit cards disclose all the hidden provisions and fees today, yet few people read them end to end. Just look at the rate of credit card debt as proof.
Disclosure instead of solutions
In short, the consumer is not fully served by full disclosure laws. While no one wants to be prevented from learning something vital about a good or service they are buying, full disclosure also doesn’t mean that consumers won’t be misled, even duped. By resorting to the adoption of full disclosure, policymakers are excused from having to address the real issue: namely, unfair practices.
For example, while consumers want to know whether their credit card’s interest rate is 26.5 or 30 percent, wouldn’t they be better served by having legislation that limits all interest rates to less exorbitant levels generally, of say less than 20 percent?
Disclosure as deceptive
Some have argued that full disclosure can actually be harmful to consumers. Contracts Expert Omri Ben-Shahar and University of Michigan Professor Carl Schneider argue, “Mandated disclosure is so indiscriminately used with such unrealistic expectations and such unhappy results, it should be presumptively barred.” Then, they contend, “legislatures, administrative agencies, and courts…[could] search harder for solutions actually tailored to problems.”
Also consider this by former Fed Chief Ben Bernanke, “Some aspects of increasingly complex products cannot be adequately understood or evaluated by most consumers.” Common examples of this might be medical decisions. For example, after New York began reporting cardiac mortality rates during surgery in its hospitals, Ohio’s Cleveland Clinic began to notice an upsurge in difficult heart cases coming in.
There is also the problem of “false reassurance,” in which consumers think they are being protected by disclosure. An experiment was conducted in which people were told (full disclosure) that the financial advisors assigned to them would suggest they guess too high about the number of coins in a jar. Yet, they still followed the bad advice of these advisors because they assumed the advisors would be more honest because of the full disclosure notification. (They weren’t, and obvious lessons in real life can be extrapolated about brokers and other financial planners.)
Ultimately, when making a purchase, caveat emptor rules the day. And while knowledge is power, full disclosure may be only a partial solution to the problem.