Given its discretion to create rules for consumer protection in a new space outside of what Congress allows, the federal consumer financial protection agency should approach that responsibility “judiciously cognizant of unintended consequences,” the director of the agency said Thursday.
Opening the agency’s second in a series of symposia – this one on whether behavioral economics can offer insights on practices in the markets the Consumer Financial Protection Bureau (CFPB) regulates – Director Kathleen Kraninger said agencies such as the bureau should be able to articulate good reasons for what they do to achieve intended policy outcomes. “And those reasons should rest on solid evidence,” she told the group.
Outlining her philosophy for the agency, Kraninger said the actions of the agency should result in benefits that justify the costs of the action. “Indeed, to formulate good policy a substantive analysis and estimation of costs and benefits – both direct and indirect – must be conducted,” she said. “This transparent process informs the public of the underlying reasons for both proposed and final regulations.”
Kraninger said that approach can help identify practices that warrant regulatory action and lessen the chances that CFPB prohibits or restricts business practices that benefit consumers or competition.
“It cannot be stressed enough that to develop sound policy in these cases we need a demonstration – and not just an assertion – of a market failure,” she asserted. “And, we need to offer a remedy carefully tailored to address that failure.”
She pronounced that markets often are imperfect – but that the bureau should only address market imperfections if it is clear that intervention would improve the status quo.
In other comments, Kraninger hinted at two future sessions of the symposia series: one later this year on Section 1071 of the Dodd-Frank Act (which requires that the CFPB centralize the collection of small business lending data and to make that data public, and new data – including the race and gender of the small business owner – to be reported), and a session next year on cost-benefit analysis of agency actions.
Director Kraninger’s Speech at CFPB Symposium on Behavioral Economics