econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 25 November 2017

Consumer Protection Laws And Regulations: Cost And Benefit Trade-offs

from the St Louis Fed

-- this post authored by Julie Stackhouse

Consumer financial protection has been in the spotlight recently, with the well-publicized decision by Congress to overturn a regulation that had been finalized by the Consumer Financial Protection Bureau in July.

The rule would have prevented financial firms from requiring customers to use the arbitration process to resolve disputes, rather than participate in class-action lawsuits. Congressional action on this so-called “mandatory arbitration clause" has been touted by some as a victory for banks and a loss for consumers.

New consumer laws and regulations tend to provoke controversy. On the one hand, consumer protections are important to minimize egregious behavior by financial firms when they deal with consumers who may not fully understand a credit or deposit product or realize their legal rights.

On the other hand, new regulations - including consumer protection rules - usually have consequences for the availability or cost of these products. For that reason, financial institutions often express concern with the advent of new regulations.

Impact of Consumer Financial Regulations

Calculating the benefits and costs of consumer financial regulations - or any regulations, for that matter - is not easy. Financial institutions do not routinely report expense data that tie directly into the implementation of individual regulations, although survey data make it clear that the cost of regulatory compliance hits the smallest financial institutions the hardest, as seen in the table below.

Compliance Expenses as a Percentage of Noninterest Expenses
U.S. Community Banks, 2014-2016
Asset Size201420152016
Less Than $100 Million7.67%11.77%10.44%
$100 Million to $250 Million5.55%8.12%7.85%
$250 Million to $500 Million4.91%7.02%7.20%
$500 Million to $1 Billion3.78%5.83%5.64%
$1 Billion to $10 Billion2.54%6.03%5.98%
SOURCE: Author's calculations based on data presented at the 2017 Community Banking Research and Policy Conference
Federal Reserve Bank of St. Louis

Institutions also do not report whether they have stopped offering a product or service to some or all consumers or businesses because of an increase in compliance costs. Likewise, there is no definitive way to quantify the cost or inconvenience to consumers or businesses when a financial product is discontinued by a local institution or pricing is adjusted to reflect inherent compliance costs.

Importance of Education and Incentives

Even with protections, regulation alone may not be enough to prevent consumers from reaching beyond their means, especially when emergencies occur. A combination of financial education throughout school-age years and incentives to save from a very early age may well hold the greatest promise for “financial capability," or your ability to act on financial knowledge and a product offering. Albeit aspirational, the idea of financially capable consumers offers an alternative to growing regulation.

Follow the Series

This post is part of a series titled “Supervising Our Nation’s Financial Institutions." The series, written by Julie Stackhouse, executive vice president and officer-in-charge of supervision at the St. Louis Federal Reserve, is expected to appear at least once each month throughout 2017.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2017/november/consumer-protection-laws-regulations-cost-benefit-tradeoffs

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved