The Fisher Memorial Program was held on April 15, 2011 at the Spring Meeting of the ABA Business Law Section in Boston, MA.
The topic was: “The Paternalistic Approach to Consumer Finance: Does Government Know Best?”
The program looked at the role of government in protecting consumers and managing risks in the financial markets. Through a confluence of political and economic challenges, there has been a fundamental shift over the past year in consumer behaviors, resulting in the perceived need for increased regulation of the consumer financial industry. The underlying assumption is that the industry has failed in self-regulating and protecting consumers, requiring the oversight of an independent body – in this case the government – to limit abuses in the consumer economic sector. The program examined the benefits and risks associated with governmental regulation in the consumer finance market, its impact on the availability and cost of credit, potential unintended consequences and the implications of the new age of consumerism. Subtopics included:
- Should we regulate the availability of products – perhaps you need a certain credit score to qualify; are certain products inherently unfair, abusive and against public policy (e.g., payday lenders)?
- Is there merit in “crash testing” financial services products, providing ratings that alert consumers to risks, or requiring a “borrower’s license” to obtain certain financing products (e.g., you have demonstrated a level of sophistication that allows you to access more complicated financial products)?
- Is it critical to maximize consumer well-being and suitability; what is the responsibility of lenders?
- Can you really regulate consumer behaviors and why people behave so differently in terms of behavioral and consumer practice theory? Studies show that consumers behave in a pre-determined way, so that it is justifiable to set out certain options to maximum their self-interests.
- Credit scoring models and risk-based financing – what is really in the “black box” – does it really support discriminatory practices?Should good credits subsidize bad credits?
- Free market activity as opposed to regulatory oversight, or is there something in between?
- Is credit availability really a concern?Is limiting consumers’ options not a bad thing?
- Is there a role for non-governmental oversight in the form of independent oversight and review, potentially from trade associations, as a form of checks and balances?
- How far does this paternalistic approach extend, to the products themselves, the terms of the products, or interest rates?
- What is the impact of governmental regulation on the markets?
- Are we helping or hindering the economic recovery?
The moderator was Lawrence A. Young, Partner, Hughes Watters & Askanase LLP, Houston, TX.
The panelists were:
- Mallory Duncan, Senior Vice President and General Counsel, National Retail Federation, Washington, DC
- Kathleen Engel, Associate Dean for Intellectual Life and Professor of Law, Suffolk University Law School
- Mark J. Furletti, Ballard Spahr LLP, Philadelphia, PA
- Rickie C. Keys, Ph.D., Renewal Financial Services, LLC, Shreveport, LA
- William B. Solomon, Jr., Group Vice President and General Counsel, Ally Financial Inc., Detroit, MI
- Joel C. Winston, Associate Director, Division of Financial Practices, Federal Trade Commission, Washington, DC
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