The Historical Significance of the Battle Over Elizabeth Warren

Growing up in Europe in the 1970s and 1980s, there was much to be admired about the ways and means of American society. By and large, it represented modernity, while Europe still seemed like a backwater, with an overbearing state that protected established businesses and made things tough for innovators and entrepreneurs.

If anybody back then had forecast that one day the rights of consumers would become a big dividing line across the Atlantic, and that it would be U.S. consumers who would end up with the short end of the stick, one would have elicited nothing but disbelief.

After all, not so long ago, U.S. leaders of both political stripes set up bodies such as the Environmental Protection Agency and grappled with difficult concepts like protecting privacy in the dawn of the age of electronic machines.

Europe, in contrast, was far from the driving force in terms of technology, regulatory foresight or courage that the United States proved to be. Europeans, for the most part, contented themselves with the role of being eager emulators of smart rules and regulations invented and shaped in America.

Fast forward a few decades — and look at how the world has changed. Granted, all of us are busier every day and have to cope with ever more existential challenges, from getting educated to getting (or keeping) a good job, saving for retirement, etc.

Under those circumstances, the role of government — and hence of the democratic process and parliament — has changed significantly. Since “we the people” are now the time-pressed sovereign, we expect parliamentary bodies and our elected governments to act to make our daily lives easier.

This should be all the more so when it comes to our inability to cope with what effectively are deceptive business practices. And on this front, call it the “obscure and treacherous world of fine print,” a real gulf has emerged across the Atlantic.

In countries like Germany and, under the aegis of the citizen/consumer-oriented European Commission, on an EU-wide level, citizens can count on the human right of not being duped by all sorts of businesses trying to trick them one way or another.

Human nature being what it is, there surely are mortgage fraudsters in Europe — just as there are in the United States.

And on both sides of the Atlantic Ocean, these brokers do succeed in tricking people into contracts they should not have signed. The key question is, what happens next? In Europe, by and large, those contracts will eventually be voided by the courts.

True, going through that process causes Europeans some personal agony, but in the end the consumer will be protected — and businesses will be punished, including in monetary terms, for resorting to fraudulent and/or deceptive practices.

As a general rule, in Europe if you bury vital conditions of a transaction in near-indecipherable small print, the assumption is that they are not valid — unless the main points were properly highlighted and bulleted. That way, a busy consumer can easily comprehend what’s at stake.

Not so in the United States. On occasion, I show friends, including some who are among the best legal talent in Washington, D.C., brochures containing new governing clauses for the credit cards or mutual funds many Americans have.

Time after time, without exception, these fine legal minds throw up their hands. Usually, they simply claim that they’re not an expert in the field. The words on those pages are so artfully crafted that they mean exactly nothing, even to lawyers.

The real-life consequence is that we all resign ourselves to the hope that we’ll never be faced with any of the consequences that are likely to be contained in all that dense text.

To me, as a European by birth, what is so hard to fathom about this situation is that it is Americans who have to operate on the basis of trusting these “authorities” — and do so rather blindly and with few lines of defense.

Mind you, that sentiment, and acceptance, of feeling helpless, exposed and without rights is supposed to be the law of the land in Europe. What’s changed? Over the past few decades, all these great American virtues — such as transparency, conflict of interest rules, checks and balances, and disclosure — were transported across the ocean to the old world.

It is no comfort to today’s Americans that European parliaments and governments, acting on behalf of the people, have grasped these instruments so whole-heartedly.

And American consumers? Paraphrasing the words Ronald Reagan used for his way of dealing with the Soviet Union, they have to trust, but are in no position to verify. And when push comes to shove, U.S. consumers usually end up defenseless in a sea of deliberately created legal obscurity.

All of this boils down to one simple, but crucial difference: In Europe, the burden of proof as to whether something is easily comprehensible — and therefore legally valid — has been reversed. At least when it comes to terms buried in routine small-print clauses, businesses have to prove that they stated their conditions clearly enough for a busy consumer to understand.

In the United States, a completely different logic applies. There, a fiction is essentially created that the consumer is a sovereign. He or she can enter into all sorts of transactions, including the purchase of a house for which that consumer has no prayer of affording the mortgage.

However, in the United States there is much less of an arsenal of defenses available to protect the duped consumer. In a seemingly noble fashion, he or she is credited with exercising “personal responsibility.”

That, in effect, is an artful maneuver that sounds empowering — when it is everything but. In reality, a paternalistic and moralizing burden is put on that consumer to pay up, no matter how unfair or deceptive the deal.

Under those circumstances, Europeans increasingly wonder whether the United States is really a consumer paradise — or a republic of the consumed.

That, at its core, is what the current battle over the Consumer Financial Protection Bureau is all about in the United States. The brainchild of Harvard professor Elizabeth Warren, the agency was established under the Dodd-Frank financial reform act and is charged with overseeing financial products like credit cards and mortgages to ensure that their terms are transparent and fair to consumers.

It is set to open its doors on July 21. However, House Republicans are pushing hard to scale back the bureau’s powers — and are intent on preventing Ms. Warren, a liberal icon and one of the country’s foremost experts on bankruptcy law, from heading the new agency.

What a shame, and an abandonment of America’s proudest traditions of having launched many of the basic insights and legal instruments that now provide effective protection to consumers in Europe and, increasingly, the world over.