John Y. Campbell
HARVARD UNIVERSITY. Professor of Economics. Research focuses on finance and macroeconomics, specifically fixed-income securities, equity valuation, portfolio choice, and household finance.
Consumer Financial Protection: In Need of Protection
Financial Regulation

Consumer Financial Protection: In Need of Protection

The Issue:

The Consumer Financial Protection Bureau (CFPB) was established in the wake of the Great Recession by the 2010 Dodd-Frank Act to protect consumers from “unfair, deceptive, or abusive acts and practices” of financial service providers. It writes rules, supervises banks and non-bank financial institutions, conducts research on consumer use of financial services, and maintains a public consumer complaint database. Opponents charge that it lacks accountability, that it publicizes unverified complaints against financial institutions, and that it promulgates rules without regard to costs, reducing the availability of financial services. Several bills have been introduced this month by Congressional Republicans that would curtail or eliminate the CFPB.

The Facts:

  • Many people are ill equipped to make financial decisions in today’s complex financial system: 28 percent of men and 44 percent of women cannot correctly answer more than two out of five basic finance questions –a lower score than can be achieved by guessing randomly (see chart). Yet many feel confident of their abilities so they may not seek help even if they need it.
  • The CFPB researches consumer patterns, such as repeated borrowing at high interest rates from banks and payday lenders, to inform its rulemaking and the legislative process in Congress and the states. With over 700,000 complaints, its consumer complaint database also provides insight into existing and emerging issues.
  • In its short existence, the CFPB has issued a relatively small number of major new rules through a deliberate process that required it to consider the cost of its rules relative to their benefits. None of the rules currently in effect are plausibly responsible for major changes in the availability of household credit.