Wednesday, June 17, 2009

Consumer Protection Conference tomorrow

The ABA Consumer Protection conference starts tomorrow at Georgetown! Law students can attend free.

One last promo piece: Given President Obama's announcement of proposed legislation to regulate consumer financial products, Friday's panel on exactly that topic couldn't be more timely. Here's a bit of background on one of the panelists, my colleague Adam Levitin, to give you a preview:

Adam Levitin's work merges consumer protection and financial institution regulation into what might be called consumer finance. His work has focused on how competitive dynamics among financial institutions shape the financial products offered to consumers, often in negative ways. Levitin argues that consumer financial products have become increasingly complex in recent years. Some of this complexity has stemmed from new features that benefit consumers, but complexity has also stemmed from financial institutions' incentive to obfuscate products' cost so as to make high-margin products more competitive with low-margin products and to avoid the commoditization that should exist in an industry selling the ultimate fungible product: credit. The increasing complexity of financial products calls into question the disclosure paradigm that has been at the heart of consumer financial services regulation--can disclosure work with complex financial products? If not, as Levitin suggests, then we need to consider other regulatory approaches, such as substantive term bans or product standardization.

Levitin's work also touches on another type of competition in financial services and its impact on consumers--the competition for regulation--and the need to reorganize financial institution regulation from a consumer protection standpoint. In a forthcoming article in the Yale Journal on Regulation, Levitin argues that regulatory arbitrage is inevitable in current financial regulatory system that features multiple regulators for essentially equivalent institutions: financial institutions will seek out the most permissive regulator, and regulators have incentives to engage in laxer regulation to attract regulatees. This system has severe negative consequences for consumer protection, as financial institutions have sought out regulators that will require the least consumer protection and will intercede on their behalf against consumer protection legislation and litigation. Indeed, Levitin contends that the major deregulatory move in financial services has not been statutory, but through agency actions and inactions such as opinion letters and preemption rulings and litigation.

Levitin proposes a regulatory architecture response to the negative consequences of regulatory competition: reinvigorate the ability of states to engage in consumer protection in financial services. Levitin contends that state enforcement is not only more feasible currently than commonly recognized, but that it also has advantages over (and compatibility with) a single federal financial services protection consumer regulator.

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