Elizabeth Warren: Community banks also victims of deception

Elizabeth Warren says deceptive lending practices by large banks had another important victim besides consumers: Smaller community banks that couldn't compete with big banks that advertised one price but charged another.

Warren, an outspoken advocate for the financially stressed middle class, has long targeted the impact of bankers' "tricks and traps" that caused consumers to suffer as a 6 percent interest rate on a credit card or mortgage mushroomed to two, three, or five times that rate. But as she works to establish the new Consumer Financial Protection Bureau, she's identified a potential ally in the nation's small banks, which she says found themselves unable to compete with the mega-banks' needlessly complex and deceptive business models. In an op-ed for Politico, she writes:

The bankers I have talked with are not looking to Washington to solve their problems. But they are looking for a market that allows them to compete. They are looking for a regulatory structure that doesn’t require an army of lawyers, and a level playing field that lets customers see the true cost of a product -- so lenders do not need to compete against a phantom price.

Warren writes that she has been meeting regularly with community bankers, starting with some in her native Oklahoma, and has gained an increasing appreciation of their perspective:

Community banks and other small institutions build their businesses on long-term customer relationships. They worry a lot about dissatisfied customers and a tarnished hometown reputation. But the bankers I have talked with must compete with lenders who have been less reluctant to offer one price upfront and then re-price the product later on.

One Ohio banker forcefully explained that his bank didn’t believe in pricing tricks, but that he had to compete with lenders who do — and who sell products that often appear to be cheaper. From his perspective, real competition in the credit market is less about who makes the best product and more about who can hide costs from the customer until it is too late.

Time will tell whether Warren has identified an important new ally in her push for credit-market reform. But it's almost self-evident that the 30-page credit-card contracts and fancy pricing tricks on credit cards and mortgages required "an army of lawyers" to devise - and still helped bring down the U.S. and world economy. So maybe she's on to something important that will help reshape the future of American banking.