The Broken Consumer Credit Market

A century ago, anyone with a bathtub and some chemicals could mix and sell drugs - and claim fantastic cures.  These "innovators" raked in profits by skillfully marketing lousy products because customers were poorly equipped to tell the difference between effective and ineffective treatments.  In the decades following, the Food and Drug Administration developed some basic rules about safety and disclosure, and everything changed.  Companies had greater incentives to invest in research and to develop safer, more effective drugs.  Eliminating bad remedies made room for creating good ones.

Nearly every product sold in America today has passed basic safety regulations well in advance of being put on store shelves.  A focused and adaptable regulatory structure for drugs, food, cars, appliances, and other physical products has created a vibrant market in which cutting edge innovations are aimed toward attracting new consumers.  By contrast, credit products are regulated by a bloated, ineffective concoction of federal and state laws that have failed to adapt to changing markets.  Costs have risen, and innovation has produced incomprehensible terms and sharp practices that have left families at the mercy of those who write the contracts.

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Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard University and the Chair of the TARP Congressional Oversight Panel.  She has written eight books and more than a hundred scholarly articles dealing with credit and economic stress, and she first developed the idea for a Consumer Financial Protection Agency and has been one of its leading activists.  Time named her one of the 100 Most Influential People in the World in May 2009, and the Boston Globe named her "Bostonian of the Year" in December 2009.

The views expressed in this paper are those of the author and do not necessarily reflect the positions of the Roosevelt Institute, its officers, or its directors.