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C. Boyden Gray and John Shu offer a very helpful discussion on this issue in an article in Engage.  Here is the abstract:

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank” or “the Act”) into law on July 21, 2010. The massive and complex Act is reportedly the result of many compromises. Dodd-Frank’s intent, according to its title page, is “[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

Of particular interest to me was this portion of the discussion of the Bureau of Consumer Financial Protection (BCFP):

One of the BCFP’s stated objectives is to protect consumers “from unfair, deceptive, or abusive acts and practices and from discrimination.”75 The BCFP may halt a company or service provider from “committing or engaging in an unfair, deceptive, or abusive act or practice” with respect to offering or transacting in a consumer financial product or service.76 In fact, Dodd-Frank makes it unlawful for consumer financial product companies or service providers to “engage in any unfair, deceptive, or abusive act or practice.”77 The Act extends this liability to any entity that “knowingly or recklessly provide[d] substantial assistance” to the offender.78

clearly defi ne vague terms such as “unfair,” “deceptive,” “abusive,” and “discrimination.” BCFP is vested with the sole discretion to decide what those terms mean and how they are applied to consumer financial products and services and the consumer financial industry.79 For example, Dodd- Frank defines an act or practice as “abusive” if it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service,” or if it takes “unreasonable advantage” of a consumer’s “lack of understanding” of the “material risks, costs, or conditions of the product or service” or a consumer’s “inability” to protect his own interests “in selecting or using a consumer financial product or service.”80 Given that each and every consumer has different abilities to understand a term, condition, material risk, and cost; and each and every consumer has varying levels of ability—or desire—to protect his own interests, the Act’s standard can readily be caricatured as “we know it when we see it.”

Moreover, the Act does not seem to include the concepts of deception or fraud with respect to the term “abusive,” which would mean that the BCFP could still declare illegal products and services whose terms, conditions, risks and costs are fully disclosed, so long as the BCFP labels them “abusive.” Moreover, the BCFP’s charter
is so vast that its power could be characterized as including the practical authority to re-write consumer financial protection laws if it chooses to do so. Accordingly, it is reasonable to argue that Congress must do the re-writing, not an agency that escapes
meaningful oversight.

Those challenging Dodd-Frank will maintain that Congress structured the BCFP in such a way that it unconstitutionally escapes both Article I and Article II oversight. The key is that the Act houses the BCFP within the Federal Reserve, thereby placing one protected entity (the BCFP) within another (the Fed).81

The article provides a good summary of the provisions of Dodd-Frank as well.

At the excellent Core Economics blog, Andreas Ortman discusses an Australian policy debate involving the Review of the Governance, Efficiency, Structure and Operation of Australia’s Superannuation System (also known as the Cooper Review), and more specifically, retirement savings and the superannuation system.  The Cooper Review drafters contend that the behavioral economics literature strongly supports a mandated default option (MySuper).

Read the full piece here.

Tiffany Joslyn provides a useful summary of the criminal provisions of the Dodd-Frank Act at the Federalist Society National Federal Initiatives Project.  One of the things Joslyn points out is that the Act includes new criminal consumer protection liability…

Read the full piece here. 

Few academic publications have had as much direct public influence on the law as the 2008 article by my NYU colleague Oren Bar-Gill and then Harvard Law Professor Elizabeth Warren.  In “Making Credit Safer,” they seek to combine two strands of academic thought in support of one great cause—more regulation of financial markets.  They start with the central claim of behavioral economics that sophisticated entrepreneurs are able to take advantage of the systematic foibles of ordinary people, by rigging their products in ways that work systematically to their own advantage.  By plying ordinary individuals will carefully packaged payment contracts, firms can undercut the central postulate of rational choice economics that all voluntary transactions produce mutual gains for the parties.  In its stead we get the wreckage of families and fortunes brought about by unscrupulous bankers in search of a buck.  Warren and Bar-Gill repeatedly talk about the importance of empirical evidence.  Her own work, however, is exceptionally shoddy, as Todd Zywicki has recently pointed out in the Wall Street Journal.

Read the full piece here. 

The idea that the regularity of behavioral departures from full rationality justifies regulatory intervention has rarely gained more credence than in the context of consumer finance.  The Credit CARD Act of 2009 rests on nothing so much as the supposition that cardholder decisions about spending and repayment reflect systematic misapprehension of the likely patterns of future behavior.  And given Elizabeth Warren’s prior writings with Oren Bar-Gill, we can expect the new CFPB to rely heavily on such regulation.

Read the full piece here. 

The problem with behavioral law and economics (and its behavioral economics cousin) is not that it has nothing interesting to say, but rather that the interesting things it has to say do not mean what its proponents think they mean.  It is one thing to claim that people are less rational than we thought.  It even one thing to claim that people are systematically less rational than we thought, in predictable and important ways.  But it is entirely another to presume that the implication of this is a larger scope for government regulation to protect the market and market actors from the depredations of this irrationality.

Read the full piece here. 

The Obama administration has promised that the Federal Reserve’s new Consumer Financial Protection Bureau will be independent from politics, a model of regulatory expertise grounded in sound data and economics. Naming Harvard Law Prof. Elizabeth Warren as de facto agency head undermines both goals.

Read the full piece here. 

Todd mentions Elizabeth Warren’s “kick off” speech for the CFPB, in which she accepts the new “President and Special Advisor to the Secretary of the Treasury” gig, and tells us what the new Bureau is all about…

Read the full piece here. 

In a recent NY Times column largely devoted to improving soccer in various ways and how those methods might be used to improve financial regulation as well, behavioral economist and Nudge author Richard Thaler writes the following about the Consumer Financial Protection Bureau…

Read the full piece here.