The sad truth is that many financial marketers don't want prospective home buyers and mortgage holders to understand the downsides of their transactions -- that interest rates can go up without notice, that buyers are taking on too much debt, that housing values don't always go up.
Ditech's latest campaign, "People are smart," is meant to assuage the financial community as much as consumers. Ditech knows full well that people aren't smart when it comes to financial matters, but the slogan makes everyone involved feel better.
Back in 1995, Federal Trade Commission Chairman Robert Pitofsky called on the ad industry to help educate the public about financial fraud. At a briefing at the American Advertising Federation, Mr. Pitofsky said he was generally satisfied with the state of most national advertising, but he expressed concern about fraudulent financial schemes, noting they don't prey solely on "poor, vulnerable types."
Mr. Pitofsky gave notice that a crackdown on such scams was a top priority, and he asked advertising people to "help us craft interesting and attractive" educational pieces on financial matters.
"There is an epidemic of investment fraud in this country," he said. "How do we get the message out? What good does it do to write the most beautiful brochures in the world if they just sit on the shelves?"
AAF President Wally Snyder said at the meeting that the industry would respond "in a heartbeat." Such an effort is not only the right thing to do, but "it protects our customers." Wally, who was an FTC staffer in the early '70s when Mr. Pitofsky was director of the FTC's Bureau of Consumer Protection, said at the time he would put together a task force of experts to sit down with the commission "to design effective communication formats."
The problem -- then and now -- goes way beyond the housing meltdown. It involves boiler-room stock tactics and credit-card-interest-rate manipulations. The excesses are much more of an epidemic now than in 1995. They have the potential to bring the worldwide economy crashing down.
Nothing much happened to address Mr. Pitofsky's concerns 12 years ago. Although Wally doesn't recall "the exact context of the problem" then, he told me the initiative "ought to go someplace now. If we didn't do it then, we should do it now."
"It's becoming pretty darn clear that we've got to accept this problem and bring ethical considerations -- not just legal -- to bear." If not, Wally said, it will turn into a full-blown "crisis for young people who get over their heads right away and never recover."
I said to Wally that the financial sector has some very powerful companies who get a lot of their profits by glossing over the downsides of their investments. What incentive do they have to blow the whistle on themselves? He said food companies came under similar scrutiny over the childhood-obesity issue, and they've gone way beyond what's required to address the situation. "Even consumer groups have said what the food companies have done is impressive."
In the 1995 meeting, Mr. Pitofsky said the Ad Council could play an important role to help educate consumers about financial risks. Beyond that, the industry needs to enlist a governmental partner with a stake in the game, and Wally said the FTC might be a logical one. And, of course, all the major financial-community players would have to sign on, as did Kellogg, Kraft and others with the food-marketing initiative.
That's going to be the tough part. Financial firms have gotten rich talking around the nasty details of their recommendations, but now they're obfuscating on exceedingly thin ice.