Organizing Economists at the CFPB

Josh Wright —  13 May 2011

With the recent announcement of Sendhil Mullainathan as the Assistant Director for Research at the Consumer Financial Protection Bureau (WSJ profile here), while one turns to the question of how economic input will be incorporated into agency decision-making.

Luke Froeb makes a nice point about the organization of economists in administrative agencies:

The FTC, which enforces identical consumer protection laws, is organized along functional lines, with attorneys and economists each writing memos to a bipartisan Commission. By design, this results in conflict between the economists and attorneys, which allows benefit-cost analysis done by economists to be heard at the highest levels of the organizations.

Watch the organizational design of the new agency. I suspect it will put economists, if it has them at all, under the supervision of attorneys to reduce their influence, as was done during the FTC early years.

For those more interested in how Mullainathan’s economic views will translate to policy, the correct place to start is in his October 2008 piece (co-authored with Michael Barr and Eldar Shafir) on Behaviorally Informed Financial Services Regulation, which includes discussions of at least ten policy ideas, including:

  • Full information disclosure to debias home mortgage borrowers.
  • A new standard for truth in lending.
  • A “sticky” opt-out home mortgage system.
  • Restructuring the relationship between brokers and borrowers.
  • Using framing and salience to improve credit card disclosures.
  • An opt-out payment plan for credit cards.
  • An opt-out credit card.
  • Regulating of credit card late fees.
  • A tax credit for banks offering safe and affordable accounts.
  • An opt-out bank account for tax refunds.

I also believe, but not with great confidence, that this particular paper was the first to propose the well-known “plain vanilla” requirement.