Public Comment: Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z)
By Blake Taylor, Policy Analyst
This Consumer Financial Protection Bureau (CFPB or “Bureau”) proposed rule would extend various consumer protections to prepaid account products. Protections for traditional bank account and credit products now exist through Regulation E, which governs electronic funds transfers, and Regulation Z, which governs the use of consumer credit. However, prepaid accounts such as debit cards that can be pre-loaded with funds are currently unregulated. CFPB proposes to amend Regulation E and Regulation Z to apply existing and new protections to these relatively new financial products by imposing various information disclosure, limited liability, error resolution, and consumer credit requirements. Before proceeding, CFPB should gather more updated information on the prepaid debit card market about sellers and buyers of prepaid cards, as required by statute. As this proposal stands, it is likely to increase costs and may reduce access with little or no discernible benefits for card users.
By Korok Ray
In this working paper, Korok Ray proposes a microeconomic model of a bank that acts as a financial intermediary engaging in maturity transformation, borrowing short-term debt from a market of investors to fund a long term loan to a firm. The bank installs a manager who exerts costly effort to reduce the credit risk of the loan portfolio. Disclosing this credit risk to the market increases the manager’s incentives for risk management. The market rewards the manager’s early efforts to manage risk with a lower future cost of debt. When paid on bank equity, the manager is induced to better manage risk. Disclosure therefore helps resolve the moral hazard problem inside banks.
By Brian Mannix
Many participants, regulators, and observers of commodity and security markets have a sense that something in recent years has gone awry: that the explosive growth of high-frequency digital trading is somehow excessive, costly, unfair, and/or destabilizing. Several ideas for changing the rules have been discussed. Without a coherent explanation of exactly what is wrong, however, it can be very difficult to develop a promising remedy.
By Tara M. Sinclair & Kathryn Vessey
Claims about government regulation and its detrimental effects on job creation and economic growth are currently receiving substantial attention in the public sphere. Yet, conclusive evidence demonstrating this link between regulatory activity and macroeconomic
indicators remains elusive. This paper seeks to empirically examine these linkages, using the onbudget costs of regulation over time as a proxy for federal regulatory activity. Our analysis finds that the macroeconomic effects of regulatory agency budgets as a whole as well as of subcategories of regulatory spending are indistinguishable from no effect based on the data and statistical methods available. This finding is generally robust throughout our sensitivity analysis. We explore possible explanations for this finding, as well as why our results differ from other studies on the same subject. This report highlights throughout the numerous challenges associated with both accurately measuring regulatory activity and obtaining valid estimates of its effects on the macroeconomy. It also offers recommendations moving forward on how to keep the public conversation about regulation constructive and evidence-based.