The concept is not new. It is familiar to almost everyone. A cost benefit analysis lays the foundation for deciding whether doing something is a good idea. The answer from the analysis gives the go-ahead or the stop-order. It answers the question whether something is worth doing. Is the cost of the action worth the benefit that will result?
Complaints about regulatory burden are so common that they seem like the American way of life. It isn't just the financial services industry that complains. Just ask about hospital compliance or restaurant compliance and you'll hear similar complaints.
But the financial services industry does seem to have more than its share.
There is something fundamentally wrong with the regulatory process that generates consumer protection. We look at the need. We never stop to evaluate the result - or predict whether the hoped-for result will occur. Instead we presume a benefit and don't fully count the cost.
We have accumulated more than 30 years of consumer protection regulation in the financial services arena. Truth in Lending and the Fair Housing Act took effect in the 1960's. Since then, a long list of more alphabet regulations have been put into place - all to protect the consumer. We should be in pretty good shape, given the amount of regulation and the level of compliance effort.But listen to consumers. They don't think so. In fact, consumer advocates would have us think that consumer financing problems have never been so bad. There are vicious predators out there. There are more unfair and deceptive practices than ever. Consumers don't have the information they need and consumer groups need more and more information to prove their case.
What is going on? Has anyone done a cost/benefit analysis? How much more regulation for consumer protection do we need?
Look at what we already have. Truth in Lending tells customers - through the still mysterious APR - the comparative cost of credit. It also tells consumers about key aspects of the credit deal, such as whether or not it is secured and whether there is a demand clause. Fair Credit Reporting tells customers how information about them was used and gives them the right to make sure that the information is correct. ECOA prohibits discrimination and gives consumers information to help evaluate whether they were treated fairly.
There are similar protections on the deposit and operations side, including Truth in Savings, Electronic Funds Transfers, and Expedited Funds Availability.
These laws - and others like them - all protect the consumer. They all give the consumer information. They also have something else in common: by ensuring consumer rights, the also impose consumer responsibilities. Some of these responsibilities are basic. For example, disclosures are useless unless the consumer reads them.
This is where the cost/benefit analysis comes in. How much cost is worth incurring before we consider the utility of the tools? Is there a point at which we should consider whether consumers find these tools useful? Is there a responsibility on the customer to read these materials?
The general consensus at the government's privacy conference last December was that the notices - based on government-written model language - are more confusing that helpful. The same could be said of Truth in Lending and other disclosures. So before we add more to the burden, we think it is time to evaluate what we have and to consider ways to make it more useful. It's time to concentrate on the benefit.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 1, 2/02
First published on 02/01/2002