ASHER MEIR 58.
(photo credit: Courtesy)
Last week, I wrote about recent resources provided by lenders to help borrowers
manage their finances and stay out of trouble. The generous explanation was that
this is a service to the consumer.
When you buy a camera, the salesperson
explains how to use it properly; when you take out a loan, the bank explains how
to use that properly, too.
The less generous explanation is that it is a
kind of disclaimer to deflect responsibility.
Some medicines recommend a
dosage way below what most people find useful; if you have a problem, they can
say, “We told you so.” Similarly, the bank recommends lending practices that
many households ignore, but if they are accused of predatory lending, they can
say they informed borrowers of the hazards.
Do lenders urge customers to
take more credit than is in their interest? If so, is this practice any
different, or any more blameworthy, than other merchants who try to encourage
consumers to buy their product, or use easy credit as an inducement to encourage
sales? I recently spoke to a former bank manager who thinks so. He says bank
managers today are like drug dealers, making their living by encouraging
compulsive and excessive borrowing.
But others could claim that banks are
doing more than ever to encourage responsible borrowing.
I would adopt an
approach to this question that is both ethical and economic.
would acknowledge that salesmanship has a role in improving welfare. Sometimes
people need to be educated as to how a new product can really help
The great advertising pioneer Bruce Barton wrote in the 1920s:
“Elias Howe invented the sewing machine, but it nearly rusted away before
American women could be persuaded to use it. With their sewing finished so
quickly, what would they ever do with their spare time? Howe had vision, and had
made his vision come true, but he could not sell!” However, I would equally
acknowledge that sellers have their interests first in mind, and they often can
lead consumers to do things that are against their best interest.
distinguishes education from hucksterism? I think it is the ability of the
consumer to rationally evaluate the seller’s message.
With the right
information, the average 19th-century housewife was wellequipped to decide how
much time a sewing machine would save her and to evaluate whether it was worth
By contrast, much research suggests that teenagers are not
well-equipped to rationally evaluate the lifetime cost of developing a smoking
habit, or of getting a tattoo, so here it is appropriate to impose greater
education obligations on the sellers.
What about credit? The costs of a
loan can be unforeseen and extend over a long period of time – less perhaps than
that of a tobacco habit or a tattoo, but longer than for a sewing machine. So
the ability of the consumer to evaluate its potential negative impact will be
less than for that of many other “products.”
In my opinion, that
justifies a greater ethical, and perhaps legal, burden on lenders to educate
their customers than that placed on the direct sellers of consumer
Lenders are not comparable to drug dealers; they sell a useful
product that can be used judiciously to increase living standards. But the
product they are selling, credit, does have the potential for long-term and
poorly foreseen consequences for consumers. This puts an extra burden on lenders
to ensure that the borrower is a truly educated and
well-informed.[email protected] Asher Meir is research director at
the Business Ethics Center of Jerusalem, an independent institute in the
Jerusalem College of Technology (Machon Lev).