Three Problematic Truths About the Consumer Financial Protection Agency Act of 2009
Joshua D. Wright
Federal Trade Commission; George Mason University School of Law
Todd J. Zywicki
George Mason University School of Law; PERC - Property and Environment Research Center
September 15, 2009
Lombard Street, Vol. 1, No. 12, September 14, 2009
George Mason Law & Economics Research Paper No. 09-48
The creation of a new Consumer Financial Protection Agency (“CFPA”) is a very bad idea and should be rejected. The proposal is not salvageable and cannot be improved in substance or in form. The foundational premise of the CFPA is that a failure of consumer protection, and specifically irrational consumer behavior in lending markets, was a meaningful cause of the financial crisis and that the CFPA would have or could have averted the crisis or lessened its effects. To the contrary, there is no evidence that consumer ignorance or irrationality was a substantial cause of the crisis or that the existence of a CFPA could have prevented the problems that occurred. The CFPA is likely to do more harm than good for consumers. In this article, we highlight three fundamentally problematic truths about the CFPA: (1) The CFPA is premised on a flawed understanding of the financial crisis, (2) the CFPA will have significant unintended consequences, including but not limited to reducing competition, consumer choice, and availability of credit to consumers for productive uses; and (3) the CFPA creates a powerful bureaucracy with undefined scope, risking expensive and wasteful regulatory overlap at both the federal and state levels without any evidence of its own expertise in the core areas it is designed to regulate.
Number of Pages in PDF File: 27
Keywords: Barack Obama, behavioral economics, credit cards, Elizabeth Warren, Federal Trade Commission, Financial Regulatory Reform, Michael Barr, new paternalism, Oren Bar-Gill, plain vanilla, regulation, White Paper
JEL Classification: D18, E50, E58, G18, G24, G28, G38, K22, K23, L44, L51, R38Accepted Paper Series
Date posted: September 18, 2009
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