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The Regulation of Consumer Financial Products: An Introductory Essay with Four Case Studies

  • Campbell, John Y.

    (Harvard University)

  • Jackson, Howell E.

    (Harvard University)

  • Madrian, Brigitte C.

    (Harvard University)

  • Tufano, Peter

    (Harvard University)

The recent financial crisis has led many to question how well businesses deliver consumer financial services and how well regulatory institutions address problems in consumer financial markets. In response, the Obama administration proposed a new agency to oversee consumer financial services, and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act embraced the Administration's proposal by creating the Bureau of Consumer Financial Protection. Other regulatory reforms have been advanced, and in some cases adopted, in recent years, at both the federal and state level. In this paper, we provide an overview of consumer financial markets, detailing the purposes they serve, the extent to which they suffer from market failures or other deficiencies, and the structure of our current system of regulation. To illustrate our analytical framework, we present case studies on retirement savings, residential mortgages, payday lending, and mutual funds. We conclude with a series of observations on the limits of government intervention, suggestions about how to measure whether government intervention is successful, and potentially fruitful lines of future research and data collection.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp10-040.

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Date of creation: Sep 2010
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Handle: RePEc:ecl:harjfk:rwp10-040
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  1. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  2. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Harvard Institute of Economic Research Working Papers 2107, Harvard - Institute of Economic Research.
  3. Michael A. Stegman & Robert Faris, 2003. "Payday Lending: A Business Model that Encourages Chronic Borrowing," Economic Development Quarterly, , vol. 17(1), pages 8-32, February.
  4. Marianne Bertrand & Adair Morse, 2011. "Information Disclosure, Cognitive Biases, and Payday Borrowing," Journal of Finance, American Finance Association, vol. 66(6), pages 1865-1893, December.
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  7. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2008. "Fight or Flight? Portfolio Rebalancing by Individual Investors," NBER Working Papers 14177, National Bureau of Economic Research, Inc.
  8. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2006. "Cognitive Abilities and Portfolio Choice," CEPR Discussion Papers 5735, C.E.P.R. Discussion Papers.
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  10. Zinman, Jonathan, 2010. "Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 546-556, March.
  11. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, vol. 64(6), pages 2807-2849, December.
  12. Shawn A. Cole & John Thompson & Peter Tufano, 2008. "Where Does it Go? Spending by the Financially Constrained," Harvard Business School Working Papers 08-083, Harvard Business School, revised Apr 2008.
  13. Donald P. Morgan & Michael R. Strain, 2007. "Payday holiday: how households fare after payday credit bans," Staff Reports 309, Federal Reserve Bank of New York.
  14. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
  15. Kane, Edward J, 1981. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation," Journal of Finance, American Finance Association, vol. 36(2), pages 355-67, May.
  16. Ajay Khorana & Henri Servaes & Peter Tufano, 2009. "Mutual Fund Fees Around the World," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1279-1310, March.
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  24. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, David K. Levine.
  25. Wilson Bart J & Findlay David W. & Meehan James W. & Wellford Charissa & Schurter Karl, 2010. "An Experimental Analysis of the Demand for Payday Loans," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, October.
  26. Inderst, Roman & Ottaviani, Marco, 2009. "Misselling through agents," IMFS Working Paper Series 36, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
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