How the Financial CHOICE Act hurts Americans

Congress this week is considering the Choice Act, which would roll back regulations enacted after the 2007 financial crisis, particularly those designed by the Consumer Financial Protection Bureau (CFPB). Yet, the legislation goes even further and limits consumer access to information that could help them make better choices.

One of the hallmarks of conservative regulatory philosophy is that educated and empowered consumers are preferable to government bureaucrats, regulations, and prohibitions. Yet, the conservatives in the House of Representatives appears ready to pass the CHOICE Act this week and in the process legally prohibit publishing data the government collects on consumer complaints on financial services. This is a mistake and would cost consumers and businesses. It would also go against the universal values of fair markets and informed consumers.

One of the great benefits of the information age has been to transform how consumers shop for products and services. Google, YELP, and Angie’s List allow for consumers to quickly research how others have reviewed a purchase or experienced a service before making their own purchase decision. Information on these sites is not generally verified, but there is a certain trust in the “wisdom of crowds.” As a result, people are more informed when they make choices, and businesses have greater reputational incentives, which promotes a more efficient and effective free market.

A similar approach was taken by the Consumer Financial Protection Bureau (CFPB) in creating a consumer complaint portal for financial services. It has been very popular, through March, 2017 there had been over 1.1 million complaints filed. The CFPB verifies that the consumer has an actual relationship with the company, and passes along the complaint. The data is made public for consumers to see, researchers to use, and for the public use.

Individuals can also file complaints to try to right a wrong, such as when a credit bureau refuses to fix an error on a credit score. Credit reporting bureaus are notorious for mistakes, with as many as one in five consumers potentially having an error in their credit file.

Yet the three main credit bureaus (Equifax, Experian, and Trans Union) lack proper incentives to fix these errors, which is why it should come as no surprise that they are the three most complained about companies in the CFPB database. [Full disclosure: I once filed a complaint about an error in my credit file, which I had been unable to fix in direct contact with the company, but after I filed a report with CFPB it was quickly fixed.]

Improving the accuracy of credit reports is a powerful tool to improving economic efficiency and fairness, given that these companies’ credit files are often the basis of decisions on whether or not individuals are granted mortgages or businesses are granted loans.

Beyond helping individuals, this data can produce interesting and unusual insights for policymakers and businesses. For example, consumers were frequently complaining about checks they deposited via their mobile phone not clearing when they thought they would. It turns out that many banks would send consumers emails saying that their deposit had ‘been approved,’ which consumers were interpreting as meaning the money was available, but the banks only meant that the check was in the process of being cleared. As a result, consumers were over-drafting their accounts not because they were spending too much, but because they thought the funds were there (read this to understand why our payment system is so slow and causes these problems in the first place). This issue has come to light thanks to complaints to CFPB portal. Now banks can take the simple step to modify their language and make it clear to consumers that the funds are not yet available. If they don’t, regulators should consider requiring a better disclosure.

The legislation goes even further and limits consumer access to information that could help them make better choices.

The existing system isn’t perfect. The complaint portal could be improved by providing additional information regarding which complaints were more thoroughly investigated by the Bureau, and then the results of that investigation. Businesses that remedy complaints should be rewarded and those falsely accused vindicated. The more information the Bureau makes public, the better.

Informed consumers are likely to make the best choices. The debate about more or less financial regulation should not lose sight of this simple fact. Conservatives may oppose the CFPB for many reasons. But opposing the collection and dissemination of data that empowers individuals and businesses makes no sense for those who say they are for market-based solutions. Would any member of Congress campaign on a platform of outlawing Yelp, or promoting errors in credit scores? The right choice is to provide people with the information they need to make the right decision.