Did You Read The Fine Print?

Why do we need fine print on contracts?

Seriously, it has become such a widespread hypocrisy with the various disclaimers we always get in fine print on pretty much any contract or other such agreement. In my domain, the banking world, this has been taken to such levels it is not even funny. The thing about them is that basically nobody reads them, and even if they did they would not understand them for the most part. Yet our legal experts oblige us to have these disclaimers because it has become the law, and should we omit them we are liable for some serious legal trouble that could become very costly.

Here is one that I was looking at today, taken from the term sheet of a structured product somebody was proposing to us this morning:

This document has been prepared for information and discussion purposes only. This indicative termsheet does not constitute an offer to sell or buy any security by Exane based on the indicative information set forth herein. Although no issuer is obligated to issue such securities or financial instruments based on the indicative information set forth herein. It is not construed as and does not form part of an offer, nor an invitation to offer, nor a solicitation to buy or sell such securities or financial instruments, or recommendation to enter into any transaction based on the indicative information set forth herein. You should take steps to ensure that you have made an independent assessment of the opportunity and the appropriateness of such transactions, securities or financial instruments in light of the legal, tax and accounting implications and of your own objectives and circumstances, including the possible risks and benefits of entering into such a transaction. These indicative terms and conditions have been relied on the assumption that such assessments will be made. This information is confidential and proprietary. It is accurate only in light of this proposed transaction and will not be disclosed to anybody (except to your professional advisors directly involved in this proposed transaction) without prior written approval from Exane Group.

Okay, so we have somebody trying to sell his product, and he sends this document to you. How are you to understand his action? For me, he is clearly suggesting that I invest in this structured product. However the disclaimer text is somehow telling me otherwise.

Now let’s say I end up investing a part of my hard earned savings in this, and then it tanks and I lose all my money. My normal and human reaction would be to get seriously pissed off at the guy who suggested that I buy the crap, and typical I will then turn to him to ask for some sort of compensation given how he had informed me that this was a very good investment. However, he will then point to the disclaimer and say that it was entirely my decision and basically he has nothing to do with it.

But, if I then take the case to court, I stand a very good chance of winning the case (at least here in Switzerland) because courts here now almost always side with the client against the big bad banks.

So, basically the law dictates that banks have these disclaimers on their documents to ensure that clients are not fooled into buying something they don’t really want, but then when the client still does the law then tells the banks that those disclaimers don’t really mean anything and you can’t expect somebody to actually read and understand them.

Which brings me then to my opening question, why do we need the fine print on contracts?