#credit cards

My interview late last week with NPR’s Marketplace on the CFPB’s assault on credit-card fees sparked considerable comment mostly about how much people hate their credit-card fees.  What’s at stake here, though, is not one fee – it’s the impact of a paradigm shift in the construct of U.S. consumer-finance regulation.  If Rohit Chopra has his way – and he may well – consumer financial-protection standards will be transformed from reliance almost exclusively on disclosures into a federal construct of price-setting and product prohibitions.  Political ideology may dictate a preference between these paradigms, but a choice that enhances effective consumer protection isn’t that simple – disclosures have largely failed consumers, but nationalized consumer finance could crush consumer banks.

Historically, U.S. consumer-financial protection law depends on disclosure.  Indeed, transformational law were called the “truth-in” acts because Congress believed that making financial providers tell the truth would set consumers free from predatory practice.  Congress also understood that some practices were ill-governed by pages of ex ante paperwork or seemingly-comparable terms and thus set standards – when payments must be in hand – or provided express protections – $50 maximum charges for transactions that go astray.  However, with few exceptions mostly instituted in 2010 after the crash, Congress did not allow regulators to set prices or prohibit even egregiously predatory products.  Look for example at the Home Ownership Equity Protection Act, which principally required disclosures and did nothing to staunch high-risk mortgage finance and the crisis it fostered.

It’s thus understandable that Rohit …