Making Consumer Finance Work

78 Pages Posted: 5 Feb 2019 Last revised: 29 Nov 2019

See all articles by Natasha Sarin

Natasha Sarin

University of Pennsylvania Carey Law School

Date Written: 2019


The financial crisis exposed major fault lines in banking and financial markets more broadly. Policymakers responded with far-reaching regulation that created a new agency—the Consumer Financial Protection Bureau—and changed the structure and function of these markets.

Consumer advocates cheered reforms as welfare enhancing, while the financial sector declared that consumers would be harmed by interventions. With a decade of data now available, this Article examines the successes and failures of the consumer finance reform agenda. Specifically, it marshals data from every zip code and bank in the United States to test the efficacy of three of the most significant postcrisis reforms: in the debit, credit, and overdraft markets.

The results are surprising. Despite cosmetic similarities, these reforms had very different outcomes. Two (changes in the credit and overdraft markets) increase consumer welfare, while the other (in the debit market) decreases it. These findings run counter to prior work by prominent legal scholars and encourage reevaluation of our (mis)conceptions about the efficacy of regulation.

The evidence leads to several insights for regulatory design. First, banks regularly levy hidden fees on consumers, obscuring the true cost of financial products. Regulators should restrict such practices. Second, consumer finance markets are regressive: Low-income customers often pay higher prices than their higher-income counterparts. Regulators should address this inequity. Finally, banks tend to discourage regulation by promising their costs will be passed through to consumers. Regulators should not be overly swayed by their dire warnings.

Keywords: regulatory intervention, salience, price regulation, cross-subsidization, consumer protection, banks, banking, finance, Durbin Amendment, CARD Act, consumer costs, non-salient prices, payment networks, Great Recession

JEL Classification: K2, G2

Suggested Citation

Sarin, Natasha, Making Consumer Finance Work (2019). Columbia Law Review, Vol. 119, p. 119, 2019, U of Penn, Inst for Law & Econ Research Paper No. 19-07, Available at SSRN:

Natasha Sarin (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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