The Analysis of Benefits in Consumer Protection Regulation

Abstract

Over the past decade, cost-benefit analysis in the field of financial regulation (“financial CBA”) has emerged as a topic of intense public interest. In reviewing rulemakings under the Administrative Procedure Act, courts have demanded greater rigor in the financial CBA that regulators provide in support of new regulations. Industry experts and other analysts have repeatedly questioned the adequacy of agency assessments of costs and benefits. And legal academics have engaged in a robust dialogue over the merits of financial CBA and the value of alternative institutional structures for overseeing financial CBA.

This Article adds to the expanding literature on financial CBA by offering a detailed study of how regulatory agencies actually undertake benefit analysis in promulgating new regulations involving matters of consumer finance and other analogous areas of consumer protection. After a brief literature review, the Article proposes a taxonomy for categorizing benefit analysis in the area of consumer financial regulation. This taxonomy reflects traditional market failures, cognitive limitations of consumers, as well as several other beneficial outcomes commonly associated with regulations designed to protect consumers. Taking the taxonomy as a framework, the Article then reports on a detailed survey of seventy-two consumer protection regulations adopted in recent years, and presents an overview of the range and quality of benefit analysis that government officials actually undertook in the surveyed regulations. The Article next provides a more detailed discussion of twenty “exemplars” of benefit analysis drawn from regulations in the sample and focusing on the strengths and weaknesses of what might be considered state-of-the-art benefit analysis in consumer protection regulation in the years immediately following the enactment of the Dodd-Frank Act. The Article concludes with a discussion of potential lines of academic research and institutional reform that might assist financial regulators in conducting more complete benefit analysis for consumer protection regulation in the future.

Keywords: Cost Benefit Analysis, Consumer Protection, Financial Regulation, Consumer Financial Protection Bureau,Administrative Law

JEL Classification: A11, D11, D12, D18, D40, D61, G02, G18, G20, G28, K22, K23