Elizabeth Warren, special assistant to President Obama, said the fine print in some financial documents is "like shrubbery that muggers can hide in," but she hopes a newly formed federal agency will make the industry more consumer-friendly.
"Consumers ought to be able to compare three or four credit cards, three or four mortgages," she said.
Warren, who also serves as special adviser to the Secretary of the Treasury on the Consumer Financial Protection Bureau and is a law professor at Harvard University, delivered the annual Chellgren Lecture at the University of Kentucky on Monday night.
In an address titled "Debt, Credit and the Middle Class," Warren pointed to data indicating that, over more than three decades, the percentage of disposable income Americans put toward savings has decreased, while their debt has increased. Home values have grown, but so has mortgage debt, and home equity as a share of home value has declined.
All that, she said, has "made families more vulnerable."
At the same time, she said, consumer credit law became a "tangled" mass, enforced by seven different federal agencies and governed by 19 federal statutes.
Meanwhile, in the finance industry, "non-bank" companies such as mortgage brokers and payday lenders grew up in competition with banks.
In such an environment, she said, "the products themselves start to shift." For example, credit card companies, she said, implemented "front end-back end pricing," in which they lowered interest rates while adding fees and penalties consumers might not readily notice.
"You end up with a market that stops working," she said.
Warren said the Consumer Financial Protection Bureau, created by Congress last July, was formed with a vision of making pricing more clear and allowing consumers to better evaluate risk.
It brings the disparate authorities for regulating the consumer finance industry under one roof with a goal of smarter rules, better governance and more financial education for consumers.
"It can't fix it all, but it might be able to fix part of it," Warren said.