After the Great Recession: Regulating Financial Services for Low- and Middle-Income Communities
Washington and Lee Law Review, Vol. 69, 2012
22 Pages Posted: 22 Mar 2012
Date Written: March 21, 2012
This paper, prepared as a speech at Washington and Lee Law School, discusses regulatory strategies for lending to LMI households after the Great Recession. It argues that the CFPB's emphasis on behavioral economics is likely to lead it astray, especially if it relies on assumptions drawn from experience with middle-class behavior to interfere with the choices made by LMI households that face a different set of opportunities than the middle-class households more familiar to regulators. More generally, the paper suggests that most of the financial distress faced by LMI households is a result of broader social and institutional problems, and that relatively little of it is caused by defects in the financial products available to those households. Thus, strategies that limit the financial products available to those households are more likely to exacerbate their difficulties than ease them.
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