Much of the literature on the Global Financial Crisis understandably focuses on contributors to that crisis, such as rampant deception within the American mortgage markets, or the creation of complex financial instruments based on misplaced assumptions about failure rates. In an article forthcoming in the Georgetown Law Journal, ‘Consumer Protection After the Global Financial Crisis,’ we examine how regulatory protagonists approached consumer protection the Crisis’ aftermath. Notably, our approach is to operationalize the study of a variety of policy shocks.
To set the stage, we review the introduction and philosophy of the Bureau of Consumer Financial Protection (CFPB), created as part of the Dodd-Frank Act of 2010. Then, we examine four topics of consumer protection oversight in the Crisis’ aftermath that have received less attention, at least in American scholarship. Each case study covers a common set of queries, including the parties who cared sufficiently about a given issue to try to shape policy, the evolving nature of the relevant policy agenda, key policy changes, and the forms in which those policies took shape—from an entirely new regulatory agency, to novel enforcement strategies, or a successful effort to deflect national policy reforms altogether.
The first of our case studies focuses on activities of the Federal Trade Commission (FTC). Notwithstanding the creation of the CFPB, we find that the FTC continued to worry about, and seek to address, fraud against consumers. Notably, though, it tended to focus on practices that arose in response to the Crisis rather than those that facilitated the Crisis.
Our second case study examines the legislative carveout for automobile dealers from CFPB authority. The carveout resulted from strong lobbying by car companies worried about a cratering sales environment, and found a receptive audience among legislators from both parties who shared that concern. Here, we observe that the carveout allowed the continuation and expansion of a significant amount of troubling auto lending activity, with potentially systemic consequences to come.
Loan servicer misbehavior, particularly in the form of ‘robosigning,’ or false representation of the authority to take a certain act and testifying to the underlying facts without the relevant information, is the focus of our third case study. Dodd-Frank did not explicitly address robosigning. But the CFPB, the new agency it created, could draw on its broad authority to address this newly arising problem. The issue has emerged not only with collateral-based loans, but with student loans as well. Because Dodd Frank gave the CFPB authority over student loan servicers (contrary to auto dealers noted above), the agency could pivot relatively quickly from troubling behavior in the mortgage context to similar behavior in the student loan context.
Our fourth study examines the rise and fall of Operation Choke Point. This interagency program was convened by the US Department of Justice. With the Crisis fresh in mind, the program attempted to curtail fraudulent activities by cutting off access to online payment mechanisms. This anti-fraud effort turned out to be particularly vulnerable to phase-out or termination by a change in presidential administration and political climate because its designers had invested little effort in building public awareness of, and support for, the program.
These case studies underscore the mutable policy outcomes that a crisis can generate, depending on such variables as clarity of institutional culture, the presence or absence of competing policy goals embraced by powerful stakeholders, and the nature of institutional leadership. The article concludes with other domestic and global policy contexts in which others could apply our approach. We encourage others to identify additional examples, especially ones that would offer comparative perspectives on policy responses to the Global Financial Crisis, or other analogous shocks.
Edward Balleisen is Vice Provost for Interdisciplinary Studies and Professor of History at Duke University.
Melissa B Jacoby is Graham Kenan Professor of Law at the University of North Carolina School of Law.