Document Type

Article

Publication Date

2019

Abstract

The financial crisis exposed major faultlines in banking and financial markets more broadly. Policymakers responded with far-reaching regulation that created a new agency—the CFPB—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 presents the first empirical examination of the successes and failures of the consumer finance reform agenda. Specifically, I marshal data from every zip code and bank in the United States to test the efficacy of three of the most significant post-crisis reforms: in the debit, credit, and overdraft markets.

The results of my analysis 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 push us to reevaluate our (mis)conceptions about the efficacy of regulation.

The empirical evidence leads me to novel 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 pay higher prices than their higher-income counterparts. Regulators should address this inequity. Finally, profit-maximizing banks will always discourage regulation by promising its 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

Publication Title

Columbia Law Review

Publication Citation

119 Colum. L. Rev. 1519 (forthcoming 2019)

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