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Linda E. Fisher

Publication Date

8-27-2023

Abstract

Consumer fraud is a civil violation of a remedial statute not requiring specific intent to deceive. Most consumer fraud statutes define violations as unconscionable, misleading, or deceptive practices irrespective of intent, in derogation of the principle of caveat emptor. They do not apply to business-to-business transactions. Trust plays a central role in business-to-consumer transactions. Because consumers are individuals, there is often an inherent inequality in consumer transactions. Sophisticated marketing techniques—especially target marketing that follows potential customers all over the internet—hound consumers’ online lives and manipulate purchasing decisions. The increasing monetization of almost everything exacerbates these effects. This transactionalism itself erodes trust because commercial trust is less robust than interpersonal trust.

“Consumers” are not a monolithic category and the effects of consumer fraud depend on one’s education, business sophistication, and ethnicity. The neoclassical model of a universal, rational, self-interested, decontextualized individual has numerous limitations, and we now know that rationality is bounded in any event—we are unable to incorporate all relevant information in our decision-making. Further, the neoclassical model does not accurately represent the financial situations and daily realities of most American consumers, who are working to middle class, struggling economically, and lacking in financial literacy.

This Essay applies this framework to the phenomenon of home lending fraud, which was the primary cause of the Great Recession and the worldwide financial meltdown of 2008. Home lending fraud of all sorts erodes trust in our system and country. Trust tends to be eroded more in consumers who do not realize the risks taken when entering into these transactions, which is disproportionally the case with lower income consumers. They are hit especially hard because they have fewer resources, and if they own a home, it is generally their only valuable asset. In this Essay, I focus particularly on the example of land contracts—rent-to-own arrangements often accompanied by predatory features—that have looted many millions of dollars of wealth from low- to moderate-income Americans.

The Essay finally turns to the post-Great Recession Dodd–Frank Act and its creation of the Consumer Financial Protection Bureau. The Bureau is the first federal agency with the sole mission to regulate consumer financial products. Dodd–Frank regulations and oversight have helped increase trust in consumer financial markets since the last financial crisis. Supervision of lending institutions—some of which were not previously subject to federal regulation—is a critical tool in resisting forces that continue to undermine trust in our system.

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