The Consumer Financial Protection Agency: Sorting the Critiques

Summary
The proposal to create a new agency to police consumer financial products has been the subject of much debate Dr. Bar-Gill sorts out and evaluates the different critiques levied against the proposed CFPA Act, in light of the underlying case for a new agency charged with the regulation of Consumer Financial Products (CFPs).

On June 30, 2009, the Obama Administration delivered to Congress the draft Consumer Financial Protection Agency (CFPA) Act of 2009. On July 8, House Financial Services Committee Chairman Barney Frank unveiled the Consumer Financial Protection Agency Act of 2009 (HR 3126), which shares key features with the President’s proposal. The proposal to create a new agency to police consumer financial products has been the subject of much debate. My goal, in this article, is to sort out and evaluate the different critiques levied against the proposed CFPA Act, in light of the underlying case for a new agency charged with the regulation of Consumer Financial Products (CFPs). To that end I begin by recounting the arguments for a CFPA. I then examine the critiques of the CFPA Act, reframed as challenges or counterarguments to the arguments for a CFPA. I conclude that there is broad agreement on the need for institutional reform, which would include a CFPA. At the same time, there is much disagreement about what mandate and authority the CFPA should have. I end with an optimistic note, suggesting that even a CFPA with less power than envisioned in the proposed Act could do much good. Specifically, I argue that a presumably less controversial section of the proposed CFPA Act – the section establishing a consumer right to access information – could promote efficiency and consumer welfare in the market for CFPs.

A. The Case for a CFPA

I begin by recounting the main reasons for the creation of a new federal agency with the mandate and authority to police consumer financial products. [1] A new agency is needed because (1) market forces fail to maximize welfare in important CFP markets, and (2) the current regulatory structure that was supposed to deal with this market failure has proved inadequate. I discuss these two elements in turn.

1. Market Failure

The proposed CFPA Act is a solution to a problem – excessively risky CFPs, or, more accurately, CFPs that impose underappreciated risks on consumers. The claim is that market forces have not worked to constrain CFP risks. This claim is based on theoretical arguments about the limits of market discipline in the CFP context. More importantly, the claim is supported by empirical evidence that many consumers do not make informed, welfare-maximizing choices in CFP markets.

Starting with theory. Markets work well when consumers are rational and well-informed. Acquiring information, however, is costly, and thus consumers in all markets, not only in CFP markets, are imperfectly informed. Moreover, there is reason to believe that consumers have even less information in CFP markets. The main difference between CFPs and physical products, like toasters or lawnmowers, is that CFPs are mere contracts and as such can be changed quickly and at a low cost, even after the product has been sold and “delivered” to the consumer. For example, a credit card issuer can change its product simply by mailing a bill-stuffer “change-of-terms” notice.

This malleability of CFPs reduces consumers’ incentives to become informed. Why spend time reading credit card contracts and comparing among contracts offered by different issuers if these contracts can be easily changed? The malleability of CFPs also reduces the efficacy of information intermediaries, like Consumer Reports. The large number of ever-changing contracts makes it more costly for Consumer Reports to collect, analyze, and report timely information on CFPs. Finally, the malleability of CFPs reduces the incentives of responsible sellers to offer safer CFPs. A seller that offers an improved but more expensive product must invest money in convincing consumers that the higher price is worth it. The problem is that after the responsible seller convinces consumers to switch to the better product, other sellers will try to imitate the improved product and compete away the responsible seller’s profits. Unable to recoup her investment in educating consumers, the responsible seller might decide not to offer the improved product in the first place. This problem is less acute in the market for physical products, because it takes more time for the copying sellers to replicate the improved product. The responsible seller thus enjoys a first-mover advantage that allows her to recoup her investment in consumer education. In the CFP market, on the other hand, copying sellers can quickly amend their contracts, to mimic the responsible seller’s contract, thus eliminating the prospect of a meaningful first-mover advantage.

Moving from theory to evidence. The prevalence of imperfect information and imperfect rationality in CFP markets has been demonstrated by numerous studies. There are three types of evidence: First, survey studies have shown that consumers do not comprehend basic financial concepts and do not understand, or are entirely unaware of, key terms in their CFP contracts. Second, a series of studies have documented mistakes that consumers make in product choice. When a consumer, faced with a choice among multiple CFPs, chooses the wrong product, i.e., not the product that maximizes the consumer’s welfare, then the CFP market cannot operate efficiently. Finally, various design features of CFP contracts, like double-cycle billing and certain payment allocation methods in credit card contracts, are difficult to explain if consumers are perfectly informed and perfectly rational. The prevalence of these design features suggests that sellers of CFPs are designing their products in response to the imperfectly informed and imperfectly rational demand that they face.[2]

2. Regulatory Failure

Some argue that markets work well and regulation is not needed. These free-market enthusiasts would do away with any regulation of CFPs and with any regulator charged with policing CFPs. Most policymakers and commentators, however, agree that some regulatory intervention in the CFP market is required. But CFP markets are already regulated. The case for a CFPA must, therefore, rest on a claim that the current regulatory structure is inadequate. And this claim should go beyond the common assertions that the current system failed to prevent the home mortgage crisis and the recession that followed. The antecedents of the financial crisis are many, and the causal links between each of them, including the financial regulatory structure, and the crisis are still being investigated. Rather, I will highlight particular structural deficits and specific failings of the current system.

The first structural deficit is the multiplicity of regulators. At the federal level, CFPs are currently regulated by five banking agencies – the Federal Reserve Board (Fed), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) – and by the Federal Trade Commission (FTC). In addition, State authorities also regulate certain lenders and certain CFPs.

This is one case where more is not merrier. Overlapping jurisdictions lead to conflicting rules. Overlapping jurisdictions may also lead to regulatory gaps, for example, when one regulator fails to act by relying on a second regulator with overlapping authority and the second regulator also fails to act by relying on the first regulator. More importantly, the financial crisis revealed a major gap in the regulation of CFPs offered by non-depository financial institutions.[3]

In addition, the multiplicity of regulators leads to a race-to-the-bottom, with regulators competing among themselves by offering increasingly lax rules. The race-to-the-bottom is a product of two factors. The first factor is budgetary: a significant portion of the regulators’ budgets comes from fees assessed on regulated banks. A regulator with more banks under its jurisdiction enjoys more revenues and more influence. The second factor is bank mobility. The current regulatory scheme allows banks to pick their regulator by choosing where to incorporate and what kind of charter to adopt (state vs. federal, bank vs. savings association vs. credit union, member of the Federal Reserve System or not). When banks can pick their regulator and regulators have an incentive to be picked, it is not surprising that regulators offer a regulatory product that is attractive to banks, i.e., lax rules. Several high-profile moves by banks from one regulator to another are consistent with the race-to-the-bottom hypothesis.[4]

The second structural deficit is the mismatch between authority and motivation among the multiple regulators. Focusing on the federal level, the banking agencies had the authority to police CFPs, as evidenced by the recent, and belated, regulations, promulgated by the Fed, but they had little motivation to vigorously protect consumers. Consumer protection was simply not their central mission; safety and soundness was. On the other hand, the FTC, for which consumer protection is the main mission, was stripped of the authority to regulate banks. The result: Regulators with authority to police CFPs lack the motivation to do so and the regulator with motivation to protect consumers lacks authority over important CFP sellers.[5]

The multiple regulators problem and the mismatch problem created a regulatory environment where CFPs were not adequately scrutinized. Consumer financial products, and the potential risks they impose, simply did not receive sufficient regulatory attention. The Fed and the OCC received numerous warnings about the risks of CFPs – from credit cards to mortgages – but no action was taken until after the financial crisis erupted and much public and political pressure was felt.[6]

B. Critiques of the Proposed CFPA Act

The critiques of the CFPA Act can be divided into two categories, mirroring the two underlying reasons for a CFPA. In the first camp of critics are those that question the very existence of a market failure. They question not only the need for a CFPA, but the need for any regulation of CFP. In the second camp are those who recognize the need for regulation but argue that the regulatory scheme set forth in the CFPA Act is flawed. These critics reject or downplay the shortcomings of the current regulatory scheme, specifically the multiple regulators problem and the mismatch problem, to which the proposed CFPA Act responds. I discuss these two sets of critiques in turn. For each set of critiques, I start with the stronger version of the critique and end with the weaker, more plausible version.

1. The Market for CFPs Is Doing Just Fine on Its Own

It is reassuring that this rather extreme position is not commonly held. Still, some commentators seem to argue that CFP markets are doing just fine. For example, Thomas Brown and Lacey Plache have argued, in a recent Lombard Street article, that evidence of consumer mistakes in credit card choice and use is “weak to non-existent.”[7] Brown and Plache recognize that behavioral economics has shown that individuals are not the perfectly rational decisionmakers posited by neo-classical economics. But they argue that behavioral economics “[has] not yet shown that consumers fail to make rational decisions regarding their use of revolving credit.” [8] This broad statement is perplexing in light of the evidence of consumer mistakes in CFP markets, including in the credit card market, that I have noted above. Even if Brown and Plache disagree with the methodology and analysis of all of the reported studies, transparency would require them to acknowledge the studies and discuss their limitations, rather than dismissing them offhand (or even refusing to acknowledge their existence).

The belief that “the market is doing just fine on its own” was also implicit in actions taken by the OCC in the Lockyer case, [9] although admittedly these actions were taken before the financial crisis hit and the OCC’s position may have changed. In 2002, the California legislature passed a law requiring credit card companies to reveal how long a customer would have to make minimum payments on a card before the balance would be paid in full and how much interest the customer would pay in the meantime. [10] The California statute reflected a conclusion that credit cards impose underappreciated risks. After the law was enacted, banks sued to enjoin enforcement. The OCC intervened—on the side of the banks. The OCC took the position that only the OCC could impose such disclosure requirements on the banks. And the district court agreed. [11] The question was a question of preemption – federal law preempting state law. More precisely, it was the absence of federal law that preempted state law, since the OCC did not propose competing regulations. The OCC’s position was that there was no problem – that the market produced the optimal level of risk and that consumers understood the risk that the market produced.

This position proved untenable. Congress followed the example set by the California legislature and required a similar disclosure. [12] The Fed has gone a step further – offering, on its website, calculators that allow individual consumers to figure out the time it would take them to fully repay their debt, given the size of their monthly payment, and the total interest they will end up paying.[13]

To be fair, there is a more plausible version of the claim that “the market is doing just fine on its own.” This version recognizes that the CFP market, like most other markets, suffers from certain imperfections, but that the welfare costs of these imperfections are outweighed by the costs of regulatory intervention to fix the imperfections.[14] In fact, I believe that most opponents of regulation would sign-off on an even milder version of the claim that “the market is doing just fine on its own.” This milder version accepts basic disclosure mandates as helpful facilitators of market forces. So regulatory intervention is ok, as long as it is limited to minimally intrusive disclosure mandates. I would guess that even the Comptroller of the Currency and Brown and Plache accept this milder version of the claim that “the market is doing just fine on its own.”[15]

If I am right, then there is broad agreement that some kind of regulatory intervention is needed, and the “only” questions are who should regulate and what kind of regulation should be preferred. I now turn to critiques of the CFPA Act that focus on these questions.

2. The Current Regulatory System Is Doing Fine without a CFPA

Again, I believe that, in light of the financial crisis, few adhere to the claim that the current regulatory system is doing a good job. Still, there are many voices that seek to minimize the scope of reform and, specifically, to limit the role of the CFPA.

The position of the American Bankers Association is that the CFPA’s authority should be limited to non-banks. [16] The OCC, the OTS, and the FDIC adopted a similar, though less extreme, position, arguing that the CFPA can have broad rulemaking authority, but that its enforcement powers should be limited to non-banks. [17] These positions are based on the view that the main failing of the current regulatory system is the enforcement gap with respect to non-depository institutions. As argued above, while important, this gap is not the only problem with the current system. The multiple regulators problem and the mismatch problem prevented effective consumer protection regulation of banks by banking agencies.

Nevertheless, the argument that enforcement authority should remain with the banking regulators deserves consideration. If the proposed CFPA promulgates strong consumer protection regulations, it may be efficient for the OCC, OTS, and FDIC to enforce these regulations with respect to their member banks, as long as there are mechanisms in place to ensure uniform and strict enforcement.

The Fed adopted an even more extreme position, opposing the shift of even rulemaking authority to the CFPA (from the Fed). [18] In his testimony before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke noted that “[i]n the last three years, the Federal Reserve has adopted strong consumer protection measures in the mortgage and credit card areas.”[19] But many of these regulations were adopted after the financial crisis hit, when the Fed was under intense pressure to act. As Secretary Geithner told Congress: “it is very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do.”[20] Even Chairman Bernanke’s fellow bank supervisors conceded that the rulemaking record under the current system is less than impressive. [21]

Secretary Geithner told Congress that the bank regulators are “[defending] the traditional prerogative of their agencies,” and that their opposition to different components of the proposed CFPA Act “should be viewed through that prism.” [22] A less political, more substantive, account would explain the reluctance to deviate from the status quo as the result of a failure to fully appreciate the structural weaknesses of the current regulatory scheme.

3. The CFPA Would Regulate Too Much

A different set of criticisms focuses not on the “who should regulate” question, but rather on the “how to regulate” question. Are market-facilitating disclosure mandates sufficient or should the CFPA have the power to supplant the market and determine what products would be offered? Indeed, much of the opposition to the proposed CFPA Act targets the provisions that would give the CFPA authority to require and regulate the offering of standard “Plain Vanilla” consumer financial products.

The concern is that these government-sponsored “Plain Vanilla” products would crowd out other products. [23] This is a valid concern. If a product that deviates from the CFPA-defined “Plain Vanilla” design is subject to substantial regulatory compliance costs, then financial institutions would be reluctant to offer Chocolate or even French Vanilla. This would entail a welfare cost, since not all consumers like “Plain Vanilla.” Congress should make sure that “Plain Vanilla” does not crowd-out Chocolate. But this can be done without discarding Plain Vanilla. Rather the CFPA Act, and the CFPA, should keep the regulatory burden on Chocolate sufficiently low.

4. Summary: The Who and the How

The claim that “the market is doing just fine on its own” is untenable, at least in its extreme form. We are thus left with two questions “who should regulate” and “how to regulate.” I have attempted to categorize the objections to the CFPA Act, distinguishing between the “who” question and the “how” question. While I believe that this distinction is helpful, I acknowledge that the two questions are linked. They are linked because different regulators, and different regulatory structures, would have different regulatory philosophies, different constraints, and different incentives that would influence their regulatory output. The Fed already has broad authority to impose strict consumer protection rules – an authority that is almost as broad as the authority that would be given to the CFPA under the proposed Act. While the Fed has used its authority sparingly, perhaps excessively so, at least until the financial crisis erupted, critics of the CFPA fear that the new agency will use its authority expansively. Congress, in structuring the CFPA and defining its powers, should be mindful of this valid concern.

C. Enhanced Disclosure: A Common Ground with Some Bite

There is much debate over the proper scope of authority for the proposed CFPA. I do not presume to resolve this debate here. Rather I wish to end by highlighting one section of the proposed CFPA Act that should be less controversial – the section establishing a consumer right to access information. This is, in essence, a mandatory disclosure section. And, as noted above, even hard-core free-market proponents, who have been critical of the proposed CFPA Act, generally support disclosure mandates. I wish to highlight this less controversial section not only because it is less controversial, but also because it can actually make a difference.[24]

The proposed CFPA Act gives the new agency the authority to issue broad disclosure mandates.[25] The disclosures envisioned by the proposed Act have three crucial components. First, they would apply to all sellers of the target CFP. Second, the disclosures go beyond information about product attributes, such as interest rates and fees, and specifically include information about how the individual consumer uses the product. As I argued elsewhere, consumer mistakes – mistakes that impede the efficient operation of CFP markets – are often mistakes about product-use information.[26]

Third, the CFPA would have power to require disclosures in electronic form, which is especially important for detailed information on how the individual consumer uses the CFP. I do not pretend that many consumers could actually digest this kind of information. But they would not need to. Consumers would transfer the information, in electronic form, to third-parties that could then provide consumers with advice about product choice. Such third parties, like BillShrink.com, already exist, but they currently rely on the partial and imperfect product-use information that consumers supply.[27] The advice would be much more valuable when it is based on the product-use information that sellers disclose. The new disclosures could promote efficiency and consumer welfare in the market for CFPs, while bypassing much of the controversy that the CFPA Act has stirred.

Conclusion

When Congress returns from its August recess, it will have to deal with the various critiques of the proposed CFPA Act. Some critiques challenge the very need for a new agency. Most other critiques are concerned about how the proposed CFPA will integrate into the larger regulatory scheme and about the scope of its powers. In sorting and analyzing the critiques, in light of the basic arguments for a CFPA, I hope to assist Congress in evaluating the merits of the different critiques, as well as their implications; while accepting some critiques implies abandoning the proposed CFPA Act, accepting others necessitates only minor adjustments to the proposed Act. Finally, I have tried to show that even stripped of its more controversial components, the CFPA Act could have a meaningful impact on consumer protection in financial product markets.

* Professor of Law and Director of the Center for Law, Economics and Organization, NYUSchool of Law. I thank Dan Geldon, Clay Gillette, and Ricky Revesz for helpful comments and suggestions.

[1] This Section is based on Oren Bar-Gill and Elizabeth Warren, Making Credit Safer, 157 U. Penn. L. Rev. 1 (2008) [hereinafter “Making Credit Safer”].

[2] For a detailed survey of the evidence, see Making Credit Safer, supra note 1. It should be noted that some of the design features that I refer to as examples of sellers’ responses to imperfectly informed and imperfectly rational demand have been recently banned by the CARD Act of 2009.

[3] These problems were recognized by the Treasury as part of the impetus for the creation of the new agency. See Press Release, Administration’s Regulatory Reform Agenda Moves Forward: Legislation for Strengthening Consumer Protection Delivered To Capitol Hill, June 30, 2009 (available at http://www.treasury.gov/press/releases/tg189.htm) [hereinafter “Press Release”] (“The agency will help to simplify and reduce regulatory burdens in areas where current authorities overlap or conflict.”; “By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement….”) See also Michael Barr, Testimony before the Subcommittee on Commerce, Trade, and Consumer Protection (House Energy and Commerce Committee), Hearing on “The Proposed Consumer Financial Protection Agency: Implications for Consumers and FTC,” July 8, 2009 (available at http://energycommerce.house.gov/Press_111/20090708/testimony_barr.pdf ) (“We Need One Agency for One Marketplace with One Mission – to Protect Consumers – and the Authority to Achieve It.”)

[4] See Making Credit Safer, supra note 1, at 82 (describing the decisions by JPMorgan Chase, HSBC, and Bank of Montreal (Harris Trust) to convert from state to national charters). Another example is the move by Countrywide Financial from the OCC to the OTS. See also Richard A. Posner, “The President’s Blueprint for Reforming Financial Regulation: A Critique: Part II,” Lombard Street, Volume 1, Issue 9, August 3, 2009, at p. 25 (arguing that when regulatory agencies are funded by fees paid by the regulated firms, regulators will adopt “a softer regulatory touch” to attract firms). The race-to-the-bottom problem with respect to bank regulation is, in some ways, different and more severe than the famous race-to-the-bottom problem in corporate law. In the general corporate context, the concern is that managers will choose to incorporate in states with lax corporate law rules that benefit managers but hurt shareholders. In the bank regulation context, lax consumer protection may benefit both managers and shareholders of financial institutions. So, while shareholders of non-banks may try to stop managers from choosing lax corporate law, shareholders of financial institutions may well support management’s choice of a more lenient bank regulator.

[5] The mismatch problem was recognized by the Treasury as part of the impetus for the creation of the new agency. See Press Release, supra note 3 (“The current financial system spreads responsibility for consumer protection across multiple agencies, many of which are primarily focused on the prudential supervision of financial institutions, not consumers.”; “This agency will have only one mission – to protect consumers – and have the authority and accountability to make sure that consumer-protection regulations are written fairly and enforced vigorously.”)

Available at SSRN: http://ssrn.com/abstract=1137981

[6] See Making Credit Safer, supra note 1. Another possible reason for the regulatory inaction is that regulators, specifically the Fed and the OCC, believed that CFP markets were working well and that there was no need for regulation. The market failure question and the regulatory failure question, while distinct, are interdependent.

[7] Thomas P. Brown and Lacey L. Plache, “Credit Where Credit Is Due,” Lombard Street, Vol. 1, Issue 6, June 22, 2009. Available at www.finreg21.com/lombard-street/credit-where-credit-is-due

[8] Id.

[9] Am. Bankers Assn. v. Lockyer, 239 F. Supp. 2d 1000 (E.D. Cal 2002).

[10] Cal. Civ. Code § 1748.13.

[11] Am. Bankers Assn. v. Lockyer, 239 F. Supp. 2d 1000 (E.D. Cal 2002).

[12] See the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Sec. 1301. Of course, the fact that Congress voted to mandate disclosure does not prove that a market failure exists (sec. 1301 could be the result of interest group pressure, for example).

[13] See FRB, Credit Card Repayment Calculator (available at www.federalreserve.gov/ creditcardcalculator). Some issuers now voluntarily offer similar calculators on their websites, as a service to their customers. See CardFlash, Chase Pricing, November 20, 2007 (Chase introduced payment calculators).

[14] I take this to be the position of Professor Richard Epstein. See Richard A. Epstein, Behavioral Economics: Human Error and Market Corrections, Symposium: Homo Economicus, Homo Myopicus, and the Law and Economics of Consumer Choice, 73 U. Chi. L. Rev. 111 (2006). See also Statement of Edward L. Yingling, President of the American Bankers Association, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, July 14, 2009 (focusing on the regulatory burden that the CFPA would impose and arguing that this burden will be passed-on to consumers).

[15] See also Epstein, id (acknowledging that disclosure mandates can be useful); Richard A. Posner, “Treating Financial Consumers as Consenting Adults,” Wall Street Journal, July 23, 2009, p. A15 (expressing concern that the CFPA “would go beyond the conventional consumer-protection function of providing information.”)

[16] Statement of Edward L. Yingling, President of the American Bankers Association, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, July 14, 2009 (arguing that the main failure of the current system was with respect to non-banks and that’s where reform efforts should focus)

[17] Statement of John C. Dugan, Comptroller of the Currency, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, August 4, 2009 [hereinafter “Dugan Testimony”] (arguing that rulewriting authority with respect to consumer financial protection “could be centralized in the CFPA” and that “the CFPA could be focused on supervision and/or enforcement mechanisms that raise consumer protection compliance for nonbank financial providers to a similar level as exists for banks – but without diminishing the existing regime for bank compliance.”); Statement of John E. Bowman, Acting Director, Office of Thrift Supervision, regarding the Administration’s Financial Regulatory Reform Proposal, before the Committee on Financial Services, U.S. House of Representatives, July 24, 2009 (arguing that the CFPA can have general rulemaking authority but that the banking agencies should retain examination and supervision powers); Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Strengthening and Streamlining Prudential Bank Supervision before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, August 4, 2009 (“The CFPA would eliminate regulatory gaps between insured depository institutions and non-bank providers of financial products and services by establishing strong, consistent consumer protection standards across the board. It also would address another gap by giving the CFPA authority to examine non-bank financial service providers that are not currently examined by the federal banking agencies.”)

[18] See Statement of Ben. S Bernanke, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Financial Services, U.S. House of Representatives, July 24, 2009, pp. 15-16 (Bernanke pointed out the costs of moving rulewriting and enforcement authority from the Fed to the CFPA, arguing that consumer protection is complementary to prudential supervision.)

[19] Id.

[20] See Donna Rosato, “Bernanke and Geithner Clash Over Consumer Protection,” CNNMoney.com, July 29, 2009 (quoting from Secretary Geithner’s testimony).

[21] See, e.g., Dugan Testimony, supra note 17 (“: “The first gap relates to consumer protection rules themselves, which were written under a patchwork of authorities scattered among different agencies; [they]were in some cases not sufficiently robust or timely….””)

[22] See Donna Rosato, “Bernanke and Geithner Clash Over Consumer Protection,” CNNMoney.com, July 29, 2009 (quoting from Secretary Geithner’s testimony).

[23] See Statement of Edward L. Yingling, President of the American Bankers Association, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, July 14, 2009; Richard A. Posner, “Treating Financial Consumers as Consenting Adults,” Wall Street Journal, July 23, 2009, p. A15.

[24] While the Fed already has broad authority to mandate disclosure, the CFPA Act would give the new agency even broader authority. More importantly, the Fed was slow to exercise its authority, even with respect to disclosure mandates. For example, the Fed announced an overhaul of TILA regulations in December 2004. See Advance Notice of Proposed Rulemaking (ANPR), Federal Reserve System, 12 CFR Part 226 [Regulation Z; Docket No. R-1217] (available at www.federalreseve.gov/BoardDocs/press/bcreg/2004/20041203/attachment.pdf ). The new regulations were issued only in December 2008 after the financial crisis hit. See http://www.federalreserve.gov/newsevents/press/bcreg/20081218a.htm.

[25] See H.R. 3126, Sec. 138 and Section 1038 of the Treasury’s proposal.

[26] See Oren Bar-Gill, Seduction by Plastic, 98 NW. U. L. Rev. 1373 (2004); Oren Bar-Gill, The Law, Economics and Psychology of Subprime Mortgage Contracts, 94 Cornell L. Rev. 1073 (2009).

[27] Sellers also provide advice based on self-reported product-use information, but this advice is restricted to choice among the seller’s products. Third-parties help consumers choose among products offered by many different sellers.