Richard Posner on the Consumer Financial Protection Agency Act

Treating Financial Consumers as Consenting Adults
Richard A. Posner
The Wall Street Journal
July 22, 2009

Will the epitaph of the Obama administration be “too much, too soon, too costly”? Among worrisome signs is its proposed Consumer Financial Protection Agency Act of 2009.

The agency would have regulatory authority over retail financial products such as mortgages and credit cards, with the aim, the bill says, of ensuring that consumers “have, understand, and can use the information they need to make responsible decisions.” But the agency will go beyond the conventional consumer-protection function of providing information. It also will design “standard” consumer financial products that will contain whatever “features or terms [are] defined by the Agency for the product or service.”

The seller of a mortgage or credit card, for example, will be required to offer the customer the agency-designed product. And according to the bill, the agency can forbid the seller to offer his own product if the offer would “cause substantial injury to consumers” that “is not reasonably avoidable by consumers and... is not outweighed by countervailing benefits to consumers or to competition.”

The administration wants oversight of consumer finance to be based on “actual data about how people make financial decisions,” according to a Treasury Department White Paper. It believes these data will show that consumers don’t make rational decisions because they can’t understand financial products. That is why the agency not only will design “plain vanilla” products that must be offered to prospective borrowers, but also will restrict the terms in the lenders’ own products. Consumers will be pushed—not quite coerced—to choose the product designed by the agency.


Richard A. Posner