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Tuesday, March 18, 2008


Jeff Sovern

Deepak, I'm not sure what Liz Warren is proposing, so I can't answer that question, but my suspicion is that if her proposal is similar, it will turn out that to the extent hers differs from mine, hers will be better.

As for the capture issue, that is a problem no matter how consumer credit transactions are regulated, especially if you have an administration that is determined to give the agency away. In any event, I'm not sure that capture fully explains the failure of the Fed, for example, to use its authority under HOEPA all these years; a focus on other problems and incomplete understanding strike me as other plausible explanations. Having an agency that has as its primary mission focusing on consumer credit increases the likelihood that the agency would recognize problems in advance rather than the current structure in which consumer credit is regulated by a hodgepodge of agencies with difused responsibilty and awareness of the consumer credit marketplace. What we've tried didn't work, so maybe a different structure would help.

I'm not sure that the CPSC really is the model but that may be because of my limited knowledge of the CPSC. Unless I'm wrong, the CPSC has very little power and only responds to consumer complaints or recalls initiated by companies on safety issues; that limited role strikes me as likely to facilitate capture.


To what extent is this the same as, or different from, the proposal that Liz Warren's been floating?

I agree that the current alphabet soup is bewildering and frustrating; the biggest problem with this, in my view, is that it leads to agency capture, federal preemption, and regulatory vacuums all over the place. But will a new agency fix the problem? The pressure to capture that agency and preempt everything in sight will be greater.

The model for all this, I suppose, is the CPSC. At a time when the CPSC is so hopelessly captured, why do we think that a similar agency for financial products wouldn't meet the same fate?

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