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