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Director Kraninger's Speech at CFPB Symposium on Behavioral Economics

Good morning. I am excited to welcome everyone to today’s symposium on “Behavioral Economics and Consumer Financial Services Policy.”  I’d like to take a brief moment to thank all of our panelists for participating today. They will be further introduced at the start of each panel so I won’t go into details now except to say they are experts. I also want to thank our moderators, Melissa and Jason, as well as the members of the working group for all of their work developing today’s program.

Today is part of a broader symposia series that seeks to gather experts in a variety of different fields to tackle legal and policy issues facing the Bureau. We have a number of topics we plan to explore. A few of the topics—like the abusive acts or practices symposium we recently held and the symposium later this year on Section 1071 of the Dodd-Frank Act—deal with statutory provisions enacted by Congress and focus on the various issues the Bureau must deal with when interpreting statutes.

Some of the other topics, though, touch on the broader issue of how the Bureau approaches consumer protection policy in general. Next year’s symposium on cost-benefit analysis falls into that category; so does today’s focus on behavioral economics. 

Before turning to our first panel, I want to offer a few observations on how the Bureau crafts its consumer protection policies. Most fundamentally, the Bureau is guided by the objectives Congress set forth in our statute: ensuring that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive. So, in its rulemaking, the Bureau seeks, consistent with its legal authorities, to articulate clear rules of the road for regulated entities that promote competition, increase transparency, and preserve fair markets for consumer financial products and services.     

First and foremost, the Bureau promulgates regulations to implement statutes, and we of course promulgate the rules Congress directs us to promulgate.  

In other circumstances, though, the Bureau has the discretion to create rules in a new space.  If we have this sort of discretion, the Bureau should focus on regulating for the prevention of consumer harm. The Bureau must approach this work judiciously cognizant of unintended consequences.  To effectively achieve intended policy outcomes, agencies should be able to articulate good reasons for what they do, and those reasons should rest on solid evidence. This includes whether the benefits of the proposed action justify the costs.  Indeed, to formulate good policy a substantive analysis and estimation of costs and benefits—both direct and indirect — must be conducted.  

This transparent process informs the public of the underlying reasons for both proposed and final regulations.  

And it can both help identify practices that warrant regulatory action and lessen the chances that the Bureau 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. And, we need to offer a remedy carefully tailored to address that failure. Markets often are imperfect. It is often said, wisely, that we should not let the search for the perfect be the enemy of the good. But the Bureau should only address market imperfections if it is clear that intervention would improve the status quo.  

It is also generally well understood—and there is overwhelming evidence that demonstrates this – that markets allocate resources more efficiently than government agencies.  

That is why the presumption should be in favor of the market and the onus should be on government to demonstrate it can improve the status quo. For consumer protection policy specifically, the Bureau generally seeks to empower consumers to make the best decisions for themselves.  

And in developing such policies we start from the presumption that with timely and understandable information, consumers will be empowered to make decisions in their best interests.

Today’s symposium explores whether behavioral economics can offer insights on practices in the markets we regulate. In recent years, the field of behavioral economics has offered criticisms of standard economic models. And the field of behavioral law and economics has attempted to apply behavioral economics to legal and policymaking issues.  

This symposium will provide an opportunity for academics and policy makers to discuss the use of behavioral economics and psychology in consumer protection.  

It will explore the merits of, and drawbacks to, the application of behavioral economics within a regulatory environment.  

I am looking forward to today’s symposium and the opportunity to hear from experts on these issues.  Broadly speaking, my hope is that the symposia series will serve as a launching pad for further economic and empirical research in the consumer protection space.  

We have a great need to understand how consumers evaluate the information they receive about consumer financial services. We must understand what makes consumers tick so that we can use our supervision, enforcement, regulation, and education tools to be the best consumer protection agency we can be.  

Fortunately, we have great panelists here today with us to share their research, experience, and thoughts to help us understand consumers and consumer protection policy even better. I look forward to an enlightening and spirited exchange of views.  

Thank you.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit