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The Effect of the Consumer Financial Protection Agency Act of 2009 on Consumer Credit

The Effect of the Consumer Financial Protection Agency Act of 2009 on Consumer Credit

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Published by: pymnts on Nov 09, 2009
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03/05/2013

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Electronic copy available at: http://ssrn.com/abstract=1483906
 
T
HE
E
FFECT OF THE
C
ONSUMER
F
INANCIAL
P
ROTECTION
A
GENCY
A
CTOF
2009
ON
C
ONSUMER
C
REDIT
 
David S. Evans,University College London;University of Chicago Law SchoolJoshua D. Wright,George Mason University School of Law
George Mason University Law and EconomicsResearch Paper Series
09-50
This paper can be downloaded without charge from the Social ScienceResearch Network athttp://ssrn.com/abstract_id=1483906 
 
Electronic copy available at: http://ssrn.com/abstract=1483906
Electronic copy available at: http://ssrn.com/abstract=1483906
 
Evans and Wright—Effect of CFPA on Credit Availability
1
 
The Effect of theConsumer Financial Protection Agency Act of 2009on Consumer Credit
David S. Evans and Joshua D. Wright
*
 
7 October 2009
Email:David S. Evans: devans@lecg.com  Joshua D. Wright: jwrightg@gmu.edu
*
Evans is Lecturer, University of Chicago Law School; Executive Director, Jevons Institute for Competition Law and Economics, andVisiting Professor, University College London; and Managing Director, LECG. Wright is Assistant Professor, George MasonUniversity Law School and Department of Economics. We would like to thank Lubomira Ivanova, Daniel Garcia Swartz and VanessaYanhua Zhang for helpful comments and suggestions and Ruslan Kochemirovskiy, Alina Marinova, of LECG, and Judd Stone of  Northwestern University School of Law, for exceptional research assistance. We are grateful to the American Bankers Association for financial support.
 
Electronic copy available at: http://ssrn.com/abstract=1483906
 
Evans and Wright—Effect of CFPA on Credit Availability
2
 
E
XECUTIVE
S
UMMARY
 The U.S. Department of the Treasury has submitted the Consumer FinancialProtection Agency Act of 2009 to Congress for the purpose of overhauling consumer financial regulation. This study has examined the likely effect of the Act on theavailability of credit to American consumers. To do so we have examined the legislationin detail to assess how it would alter current consumer protection regulation, reviewed therationales provided for the new legislation by those who designed its key features,considered why consumers borrow money and benefit from doing so, and reviewed thefactors behind the expansion of credit availability over the last thirty years.Based on our analysis we have concluded that the CFPA Act of 2009 would makeit harder and more expensive for consumers to borrow. Under plausible yet conservativeassumptions the CFPA would:
 
increase the interest rates consumers pay by at least 160 basis points;
 
reduce consumer borrowing by at least 2.1 percent; and,
 
reduce the net new jobs created in the economy by 4.3 percent.By reducing borrowing the Act would also reduce consumer spending that further drives job creation and economic growth. In addition to restricting the availability of credit over the long term, the CFPA Act of 2009 would also slow the recovery from the deeprecession the economy is now in by reducing borrowing, spending, and businessformation.The financial crisis has surfaced a number of serious consumer financial protection problems that were not dealt with adequately by federal regulators. Rather than proposingexpeditious and practical reforms that can deal with those problems, the TreasuryDepartment has put forward a proposal that would disrupt current regulatory agencyefforts to deal with these issues.A.
 
How the CFPA Act of 2009 Would Change Consumer Financial Laws andRegulationsThe Administration’s Consumer Financial Protection Agency Act of 2009 would:
 
Create a new powerful agency that would take over the responsibilities and possibly the staffs for consumer financial services regulation from six federalagencies.
 
Enable the new agency to design standard consumer financial products andrequire lenders to make these agency-designed products available to consumers before or at the same time as the lenders make their own financial productsavailable.
 
Enable the new agency to prohibit certain consumer financial products or services or specific product features, as well as control the pricing, marketing,and distribution of those products or services.

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