Analyzing the Role for a Consumer Financial Protection Agency

Networks Financial Institute Policy Brief 2009-PB-13, December 2009

23 Pages Posted: 20 Dec 2009  

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Date Written: December 1, 2009

Abstract

In the debate over the proposed establishment of a new Consumer Financial Protection Agency, much attention has been given to discussion of whether consumers are irrational or incompetent and therefore need paternalistic regulators to look after them, and whether inadequate consumer protection regulation was a contributor to the financial crisis. Arguments over these questions are misplaced. Consumer protection regulation is commonplace in financial markets, and is essential even where consumers are fully rational and financial crises are distant. The potential role for a CFPA should first be examined based on consideration of the benefits and shortcomings of current consumer protection regulation, and how a dedicated consumer protection regulator would be likely to change things. Specific details of proposed legislation that affect the structure and authority of a CFPA should be evaluated separately rather than being used to determine whether such an agency is a good idea or a bad one. Consideration of the general principles for and against establishment of an independent CFPA may help to illuminate the strengths and weaknesses of specific legislative proposals.

Keywords: banking, regulation, consumer protection, consumer financial protection agency

JEL Classification: G28, K23

Suggested Citation

Tennyson, Sharon L., Analyzing the Role for a Consumer Financial Protection Agency (December 1, 2009). Networks Financial Institute Policy Brief 2009-PB-13, December 2009. Available at SSRN: https://ssrn.com/abstract=1525603 or http://dx.doi.org/10.2139/ssrn.1525603

Sharon L. Tennyson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

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