How do you tame predatory sales practices?

Posted on Tuesday, August 21, 2007 by Bryan Johnson

I have been outspoken about unscrupulous sales practices in the credit card processing industry. A comparable environment exists in the mortgage industry and the similarities between the two are many. Both industries have very complicated products and services (credit card processing is more complex). Sellers of both these services have a disproportionate knowledge advantage over buyers and often take advantage by extracting higher fees in sneaky ways. Both industries are very fragmented. And both have low barriers to entry allowing admittance to just about anyone who wants to be in the business.

So the question is: what is the best way to discourage such practices and protect consumers from falling prey? It's an issue that the credit card processing industry has just started talking about. Some within the industry have begun speaking out advocating that the industry better clean itself up before regulators have to engage. My take on that approach - good luck. With a sales environment so loosely controlled and transient, you'll never be able to play on your honor.

There is an article on the front page of the Wall Street Journal today Illinois Tries New Tack Against Predatory Loans. In it, Amy Merrick rehashes the current turmoil in the credit markets that is stemming from subprime lending, and one of its biggest causes, predatory sales practices.

The article focuses on what the state of Illinois is doing to combat predatory practices: government intervention. This is apparently a new and improved approach from the first go around of attempts where regulators threatened fines and penalties to deter bad behavior. Thirty states, including Illinois, have predatory lending laws that prevent certain practices.

However, when that proved inefficient in curbing bad behavior, the new solution the Illinois legislature is now advocating requires prospective borrowers to sit down for 1 to 2 hours with a counselor prior to completing a loan. I can see the logic in providing expertise to those who don't have it, but requiring?

It's an interesting topic and one which is very tricky. I don't see any sort of regulation or oversight happening anytime soon in the credit card processing industry. Businesses receive different treatment than consumers from regulatory bodies. So in the meantime, you are all on your own, without a credit counselor to help you with your next credit card processing purchase decision. Good luck with that.