Market-Reinforcing versus Market-Replacing Consumer Finance Regulation

Hester Peirce and Benjamin Klutsey, eds., Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, Mercatus Center at George Mason University, pp. 319-341, 2016

George Mason Law & Economics Research Paper No. 17-07

24 Pages Posted: 13 Feb 2017  

Todd J. Zywicki

George Mason University - Antonin Scalia Law School, Faculty; PERC - Property and Environment Research Center

Date Written: February 13, 2017

Abstract

The aftermath of the financial crisis has seen the formation of several new banking regulators and an onslaught of new financial regulation. In the area of consumer financial protection bureau these regulations have resuscitated the regulatory approach of prior eras, namely substantive regulation of the prices, terms, and products offered to consumers. But these regulations have also resulted in predictable unintended consequences — higher prices, reduced innovation, and exclusion of many consumers from mainstream financial products. This chapter drawn from the book Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, distinguishes between two types of regulatory approaches, “market-reinforcing” and “market-replacing” consumer finance regulation, and argues that consumer welfare would be improved by a regulatory strategy that makes markets work better instead of displacing them with command-and-control regulation.

Keywords: Consumer Finance, Consumer Protection, Consumer Financial Protection Bureau, Dodd-Frank, Credit Cards

JEL Classification: D18, G21, G28

Suggested Citation

Zywicki, Todd J., Market-Reinforcing versus Market-Replacing Consumer Finance Regulation (February 13, 2017). Hester Peirce and Benjamin Klutsey, eds., Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, Mercatus Center at George Mason University, pp. 319-341, 2016; George Mason Law & Economics Research Paper No. 17-07. Available at SSRN: https://ssrn.com/abstract=2916204

Todd J. Zywicki (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8091 (Phone)
703-993-8088 (Fax)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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