Consumer Protection

Consumer Protection


Adam C. Smith, Todd Zywicki | Mar 11, 2014
The Consumer Financial Protection Bureau (CFPB) is one of the most powerful and least accountable regulatory agencies in American history. Immune from budgetary oversight by Congress and headed by a single director whom the president cannot remove except under special circumstances, the agency wields unconstrained, vaguely defined powers to regulate virtually every consumer and small business credit product in America (Zywicki 2013a). In part, the CFPB has justified its ongoing intervention into financial credit markets based on a prior belief in the inability of consumers to competently weigh their decisions. This belief is founded on research conducted in the area of behavioral economics, which shows that people are prone to a variety of errors in their decision-making.
James K. Glassman, J. W. Verret | Apr 16, 2013
A rule enacted by the Securities and Exchange Commission in 2003 required institutions to adopt and disclose policies for proxy voting that were intended to minimize conflicts between the institutions’ interests and those of their shareholders. An SEC staff interpretation of that rule led to a result almost the opposite of the ruling’s intent. Institutions could easily protect themselves from legal liability by shifting responsibility to proxy advisory firms, which acquired increasing power over corporate governance, to the detriment of shareholders.
Todd Zywicki | Jan 15, 2013
This paper describes the current economic and regulatory landscape for prepaid cards. The market appears to be robustly competitive, as recent years have seen declining costs and increasing functionality as well as entry of major players such as American Express and several large banks. Nor is there any evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed the benefits to consumers. On the other hand, there are some regulations that might be enacted that could promote competition and consumer welfare in this rapidly evolving market.
Todd Zywicki, Robert Sarvis | Jan 14, 2013
Government regulators proposing restrictions on specific forms of consumer credit all too often ignore the reality of how and why consumers use credit. They also ignore lenders’ legitimate reasons for pricing their services as they do; consumers’ legitimate reasons for choosing the financing options they do; the risks consumers face when credit offerings are made unavailable to them; and the many consumers who use the particular forms of consumer credit responsibly and effectively.
Todd Zywicki | Oct 01, 2012
In “The Consumer Financial Protection Bureau: Savior or Menace?” Todd Zywicki provides a short history of the CFPB and of consumer credit regulation in America, including many of the lessons researchers have learned from decades of bureaucratic design. The CFPB’s structure, as Zywicki notes, ignores many of these lessons. The paper outlines several known problems that often plague bureaucratic organizations and explains how the CFPB will be particularly vulnerable to these failings unless it sees significant reform.
Thomas Stratmann, J. W. Verret | Jun 01, 2012
The field of corporate governance has long considered the costs of the separation of ownership from control in publicly traded corporations and the regulatory and market structures designed to limit those costs.

Testimony & Comments

Expert Commentary

Jan 15, 2014

Mr. Cordray told The Daily Show audience that the bureau is now turning its attention to the bank practice of "confusopoly"-subjecting consumers to lots of hefty, complex forms in order to make it tough for them to determine what price they will be paying. A lot of small bankers are suffering from CFPB confusopoly, in which the agency promulgates so many pages of new rules, enforcement actions, and guidance that small banks with thin compliance staffs cannot figure out which rules apply to them, let alone what they require. As one bank in our survey noted, "[a]ll the uncertainty and changing definitions, etc., related to qualified mortgages, mortgage banking requirements and so forth has made the business of serving customers by helping them become homeowners much more difficult, cumbersome, and time-consuming." While well-intentioned, and careful lenders busy themselves with "bringing things up to snuff" under the bureau's fuzzy standards, consumers whose financing needs are not getting met might be wondering which consumers Mr. Cordray's agency is protecting.
Jul 25, 2013

[A] representative of the Consumer Financial Protection Bureau testified before a subcommittee of the House Financial Services Committee about the CFPB’s use of Americans’ personal financial data. He reassured Congress that the CFPB “makes every effort to obtain market data in an efficient manner with an eye toward reducing the burden and cost on industry. The bureau also makes every effort to safeguard and protect the information that it does obtain.” In another ironic twist, on the very same day, I happened to receive a letter that makes such assurances sound a bit less comforting. The letter is from the Securities and Exchange Commission—my former employer—warning me that my personally identifiable information, along with that of some other SEC employees, has potentially been compromised.
Jul 21, 2013

With the Senate’s confirmation of Richard Cordray as director of the Consumer Financial Protection Bureau the agency’s authority to oversee lending practices, in limbo for the two years of its existence, has been affirmed.
Apr 23, 2013

Proxy season has begun, and it’s expected to be a hot one. More than half of publicly listed U.S. companies will hold annual meetings between now and the end of June. There will be votes on more than 200,000 questions, ranging from approving auditors to disclosing political contributions.
Jan 29, 2013

New mortgage rules released by the CFPB show why heightened oversight is necessary.
Dec 19, 2012

In a National Public Radio interview shortly before stepping down from the Securities and Exchange Commission last Friday, Chairman Mary Schapiro was asked about her greatest disappointment during her stint with the SEC. Ms. Schapiro responded that she wished that she had secured the ability for the commission to write its own budget without the input of Congress. Given the agency's track record, we should be happy that her wish did not come true.



| May 02, 2012
On WOR Radio's The John Gambling Show, J.W. Verret explains that, despite rhetoric about helping the little guy, Dodd-Frank actually benefits the wealthiest Americans.

Recent Events

The Mercatus Center at George Mason University continues its “Future of Finance” series of events with a timely event focused on the regulation of consumer credit products.

Media Clippings

Todd Zywicki | Oct 20, 2014
This excerpt originally appeared in the Washington Examiner.
Todd Zywicki | Jul 24, 2013
The commission’s “decision today is an unqualified disaster for consumers,” said Todd J. Zywicki, a professor at George Mason University School of Law.
Veronique de Rugy | Apr 26, 2012
Veronique de Rugy calls out cronyists.
Steven Horwitz | Apr 23, 2012
Steven Horowitz applies the parable of the broken traffic lights to the mortgage lending crisis.
| Mar 14, 2012
Antony Sanders says the results of the financial stress tests are a lot less scary than they seem.
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