Do consumers need a new regulatory agency to protect them in the financial marketplace?

George Mason Professor of Law, Todd Zywicki, spoke to an initially sanguine audience at the Blogger’s Briefing Tuesday on his glum fiscal findings. Upon hearing about the government’s current attempt, and epic failure, to revitalize the American economy the tone of the room was noticeably more disconcerted.

Zywicki explained that the original proposal for a Consumer Financial Protection Agency was disastrous because it expanded government, increased spending, and was actually out of sync with consumer needs. While the current proposal for the CFPA is a slightly better model, it still has a few kinks, Zywicki claims.

For one thing, the risk-based consumer incentives are still unclear. However, placing it within the Federal Reserve as opposed to setting it up as a stand alone entity is an improvement, Zywicki argues.

Congress is slowly realizing that the people do have a greater understanding of the goings-on in Washington, which is probably why they are reshaping the structure of consumer incentives, he argues. The problem is that the Congress and bureaucrats are still legislating with respect to what they think are consumer incentives, not actually with the consumer’s best interest in mind, he argues.

The legislative and economic climate is so unstable that the fiscal state does not have room to shift toward the better. Until the market is directed by the consumers and banks are let do their jobs, until there is a cap on the regulatory state, enterprise will not prosper.

Zywicki recently testified at a hearing on why the lending state is essentially nonexistent and deduced that banks are not lending because they have no foresight on who will be in a position to make good on their loans. That is, the extensive regulatory legislations that are constantly changing in turn create an uncertain state of affairs for businesses and individuals. Thus, until there is some stability through deregulation banks will not know to whom they can lend, nor will they lend.

The people, and the Congress, need to learn to value collateral, Zywicki advises. The apparent disconnect between legislative policies, bureaucratic ideas of good consumer incentives, and actual consumer friendly incentives should be the focal point in redemptive financial services reforms.

 

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