Electronic Bulletin, October 2009, No. 4

Electronic Bulletin
Public Affairs Section, U.S. Consulate General, Hong Kong
October 2009, No. 4

(The Electronic Bulletin is an information service published by the Public Affairs Section of the U.S. Consulate General and provided to subscribers by e-mail and fax. Except for the U.S. Government sites, the opinions expressed on the Internet sites listed here do not necessarily represent the views of the U.S. Government.)

Consumer Financial Protection: Advantages, Dangers and Should it be a New Agency?
Martin Neil Baily, Senior Fellow, Economic Studies
Pew Financial Reform Project, Briefing Paper #9
The Brookings Institution
September 30, 2009

The paper is available online. (PDF file)*

*(To view and print PDF files, please download the FREE Adobe Reader.)

Widespread consumer credit defaults help make it clear that improved consumer protection is needed. Had there been better protection prior to the financial crisis this would have ameliorated the severity of the crisis and might even have forestalled it.

However, there are dangers in a CFPA, dangers of over regulation and of stifling innovation. Proposals for blanket prohibitions and for compulsory provision of plain vanilla products are probably a step too far. The emphasis should be on improved transparency and on solving the market failure of inadequate information.

Many consumers lack knowledge and understanding in the financial area, so that disclosure alone is unlikely to be enough to solve the market failures in some areas. Even if it avoids ex ante prohibitions, the consumer protection agency should look for situations where companies are exploiting the lack of consumer knowledge. They should stop sharp practices and perhaps exact penalties on companies that have used them.

(Source: Copied from the report summary)

Subject: U.S. Economy