Higher Quality Research Needed at CFPB and Other Agencies, Experts Tell Consumers’ Research

Consumer protection agencies, including the Consumer Financial Protection Bureau (CFPB), are too hasty in their research and reigniting quality research is essential for maximizing consumer welfare in the financial markets, experts told Consumers’ Research during its April 9 webinar “How the CFPB’s Taskforce on Federal Consumer Financial Law Will Benefit Consumers.”

Speaking to moderator Brian Knight of the Mercatus Center at George Mason University, panelists Todd J. Zywicki and Tom Miller, Jr. stressed that agencies often think they know what problems are when addressing consumer needs and end up rushing to solutions.

“We want a mosaic of replicable research. These days it seems like we have an urgency to just get things done, but the question is, what are the right things to do?” Miller posed. Miller is a Professor of Finance and inaugural holder of the Jack R. Lee Chair in Financial Institutions and Consumer Finance at Mississippi State University.

Zywicki, a GMU law professor and a Senior Fellow of the Cato Institute’s Center for Monetary and Financial Alternatives, believes there are various ways in which higher-quality research can be conducted by an agency, like the Federal Trade Commission’s workshops and colloquiums. The CFPB, however, is lacking in this area.

“Agencies assume they know what the problem is and what the solution must be and end up putting the cart before the horse,” he said. “What the CFPB does is assume a problem is in the nature of consumer protection.”

Near the end of former CFPB Director Kathy Kraninger’s term, the agency published a comprehensive report from the Taskforce on Federal Consumer Financial Law, a capstone to her tenure as Bureau Director.

Created in January of 2020 and chaired by  Zywicki, the Taskforce examined ways to harmonize and modernize federal consumer financial laws. Kraninger gave the Taskforce a year to submit a report of their findings and recommendations. However, at the confirmation hearing for Rohit Chopra, U.S. President Joe Biden’s pick to succeed Kraninger, the report went entirely unmentioned.

“Agencies are missing a roadmap, and I think this Taskforce report will be used as a roadmap for the future,” Miller said. “They have a tremendous opportunity right now to use this to reach out to the academic research community.”

Among several areas explored in the event, consumer financial literacy and education were heavily emphasized by both panelists. Zywicki stressed the need for quality literacy due to the constant innovation seen in financial markets.

“The world is changing so rapidly that having a strong foundation of consumer literacy is needed to assess opportunities,” he said. “There is little evidence to show historical financial education has been helpful.”

Zywicki added that there has been growing bipartisan support for improved consumer education.

Miller stressed the need to empower consumers about investing and investment education.

“Getting in the habit of investing early is important. I tell my students all the time that once they get a job to start saving, that to me is something that the CFPB can push more,” Miller explained.

Both Miller and Zywicki said that disclosure clarification was necessary for consumers to get past cumbersome jargon and consider what matters in their day-to-day lives.

“Do I read them [disclosures] on downloading software? I haven’t done that since 1980!” Miller said with a laugh.

“Government disclosures are not the only way consumers get information about products,” Zywicki added. “What you really want to do is regulate unfair consumer conditions.”

All told, an ambitious plan for research is needed to aid consumers in the best way possible.

“By and large, consumer finance has not been a vibrant area for research for several decades,” said Zywicki. “It’s unfortunate its resurgence was just a subsidiary for behavioral economics.”

“I really hope this is just the beginning of a conversation,” Miller said.

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