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February 19, 2010 | federal legislation, industry, positive media coverage | Comments (0)What caused the financial crisis? Not complex loans according Professor Todd Zywicki of George Mason University. From the Wall Street Journal oped:
Regulatory reform that can improve competition and consumer choice in financial services is long overdue. But no new federal bureaucracy such as the Obama administration’s proposed Consumer Financial Protection Agency (CFPA) is needed to bring that about.
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So the problem isn’t consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well.
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Thus a lender’s elimination of universal default will have to be offset by higher interest rates or fees. To the extent that a CFPA makes access to credit cards less available, excluded borrowers will inevitably shift to more expensive alternatives such as payday lending or pawn shops. If the CFPA were to impose bans on efficient risk-based pricing by lenders in the name of vague claims about “fairness,” the likely result will be to increase overall risk and make the next financial crisis more likely.
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