The Republican Consumer Financial Protection Plan

Last week, Simon criticized Jeb Hensarling’s article on the Republican approach to consumer financial protection, saying “the only tools they propose are those that have been tried and failed, repeatedly, in the recent past.” However, Simon couldn’t get a copy of the Republican plan at the time, so he asked for help. Sean West of the Eurasia Group helpfully tracked down the latest copies of the documents, which were in the public domain: section-by-section summary; draft bill.

And … there’s nothing there.

Here’s the summary version of the relevant section (Title 3, Section 311):

Creates an Office of Consumer Protection within the [Financial Institutions Regulator]. The Office of Consumer protection is responsible for all consumer protection rulemaking under the Consumer Credit Protection Act, and will coordinate with the other divisions of the FIR in enforcing consumer protection. Establishes a consumer complaint hotline for the timely referral and remedy of consumer complaints, regardless of charter type or regulatory structure. Requires the Office of Consumer Protection to use extensive consumer testing prior to the promulgation of new consumer protections. Requires a comprehensive review of consumer protection rules and regulations on a regular basis with reports to be issued to Congress based on inaction or action with regards to consumer protection standards.

Basically we get a hotline, a requirement that regulations have to be extensively tested, and periodic review.

Reading the draft bill, things get even weaker. 311(c) says rules of the Office of Consumer Protection (OCP) have to be approved by the board of directors of the Financial Institutions Regulator (FIR) – read John Dugan, Sheila Bair, etc. 311(e) mandates reviews, every seven (!) years, of disclosures … by the FIR itself. 311(g) requires, every seven years, a cost-benefit analysis of all consumer protection regulations to determine “if such regulation should remain the same or if such regulation should be revised.”

Cost-benefit analysis sounds good, but as I’ve previously written, this can have perverse effects when the costs are easily quantifiable but the benefits are difficult to quantify in monetary terms. A classic example is health – valuing the feeling of good health is notoriously difficult, although there are methodologies for it. Another classic example is tail risk, where you have to estimate the small probability of a very bad thing happening. Sound familiar?

Note also that the emphasis is on periodically pruning back regulation, rather than creating new regulations for new products and practices. In short, the effect if any of this plan would be to weaken consumer protection.

Now, this is not particularly surprising, nor is it particularly egregious behavior. The Republicans have zero chance of passing any bill that they author (although, for a party with forty senators, they have a surprising amount of influence on the Senate Finance Committee), so they are under no obligation to put forward responsible proposals to address real problems. And no one expects them to waste their time working on such proposals. But after Simon’s previous post, I thought we owed it to them to look at their “plan.”

By James Kwak

10 responses to “The Republican Consumer Financial Protection Plan

  1. You guys probably spent more time on the republican proposal than the republicans did.

  2. It sounds to me like the Republican proposal wants to protect consumers from onerous consumer protection regulations.

  3. What’s wrong with creating a hotline? They could also keep government spending on this initiative at a minimum by automatically routing incoming calls to the customer hotlines banks already have.

  4. Samuel Conner

    Another “Republican moment”

  5. Nice idea! And while you were waiting, you could listen to taped adverts for credit cards with complex repayment schemes and mortgages loaded up with hidden penalties and concealed charges…

  6. I keep hoping, perhaps against hope, that Republicans will wake up and offer the Nation somthing of substance on this and other issues. Then we could have a dialogue about what direction the country needs to go. Instead they keep retreading the same tires that have been on the car of their ideas since the 1960′s. Maybe if they cut the tread pattern right THIS TIME they will get it.

    That said, I am not at all sure the Democratic solutions are any better. See, I’m a federal employee (when I’m not blogging or doing other, more important things), and one of the biggest challenges in government is resisting the urge to create somthing new to deal with a long-simmering problem. Case in point – the banks won’t voluntarily abide by current regulations, so rather then staffing up the existing regualtors, and going after people aggressively within our current system, we’ll create yet another regulator. We won’t of course fix the underlying problem – that banks can regulator shop.

  7. Republicans’ platofrm is very straightforward – every American has the right to be screwed by big business, banksters, health insurance companies, …(insert your favorite unscrupulous bad-actor here) and they will fight until their last breath (or until the bad actors stop funding them) to defend this inalienable right of the American consumer.

  8. Yep, that’s our capitalism.

    It’s designed for the average guy to get it—good and hard

  9. The republicans didn’t spend any time on it. It was written by lobbyists.

  10. Hey “Bond Girl”,
    Observing your posts on this site the thought occurs to me: Whatever your current career is, your abilities are perfectly suited to be a lobbyist for the banking industry. It’s very lucrative. Think about it will you? Then call Phil Gramm.