Sea Changes in Consumer Financial Protection: Stronger Bureau and Stronger Laws
37 Pages Posted: 7 Dec 2012
Date Written: December 6, 2012
After the financial crisis of 2008, Congress responded by enacting new laws that changed the direction and theoretical underpinning of consumer protection in the financial sector. The Consumer Financial Protection Agency, formed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is a new and stronger agency for consumers. Two pieces of legislation, the Mortgage Reform and Anti-Predatory Lending Act (Title XIV of Dodd-Frank), and the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) of 2009, are stronger laws ensuring the safety of consumer financial products. These new legislative and regulatory developments mark a shift from the rational consumer theory that underlay the great disclosure statutes of the late 1960’s and early 1970’s, such as the Truth in Lending Act, and toward the rising influence of behavioral economics as a guiding force in consumer protection. This article examines the new agency and the new laws, explains how they differ from the prior governmental structure and precepts, compares and contrasts rational consumer theory and behavioral economics theory, demonstrates how the new developments are a reflection of the modern theory, and then analyzes the advantages and disadvantages of this new approach.
Keywords: CFPB, FTC, Consumer Financial Protection, consumer, behavioral economics, Rational Consumer Choice, Dodd-Frank Act, Credit CARD Act, Truth in Lending, Mortgage Reform Act
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