Sen. Richard Durbin (D-Ill.) recently introduced legislation to regulate how credit-card transactions are routed that, if passed, would hinder competition between credit-card issuers, reduce benefits for consumers, and impede fraud detection and prevention.

Read the full piece here.

We learned this week that July 4’s average global temperature of 62.92 degrees Fahrenheit was the world’s hottest day since at least 1979, when the U.S. National Centers for Environmental Prediction began keeping records, and potentially the hottest in about 125,000 years.

And yet, in a world in which even ExxonMobil concedes the reality of climate change and touts that it is “playing a leading role in the transition to a lower-emission future,” it appears that insurance “consumer advocates” constitute the group most steadfast in their refusal to come to grips with what adapting to a warmer planet inevitably entails.

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Democratic lawmakers like Illinois Sen. Dick Durbin and the Justice Department’s Antitrust Division want to impose new rules for credit-card transactions that would reduce competition, harm consumers and crush small banks.

Abstract

This article sets out a philosophy for money in this new digital age. Specifically, we propose two descriptive and two prescriptive theories relating to cryptocurrency.

On the descriptive side, we first introduce a novel classification scheme to categorize cryptocurrencies. Distinct terms like “central bank digital currency” and “cryptocurrency” are often interchanged, so a precise typology is necessary in setting the parameters of debates over monetary policy. Secondly, the article explains the ideological roots of private digital currency and specifically focuses on the impact of the Austrian School of Economics on Satoshi Nakamoto, the creator of bitcoin.

On the prescriptive side, we argue that governments’ plans for central bank digital currencies are neither novel nor good policy. The reality is that most of today’s central bank currencies are already digital, and any attempts to disintermediate the banking system—that is, to allow individuals to hold accounts directly with the central bank (and not private banks)—will result in a dangerous temptation for governments to micromanage the finances of their citizens.

Our second policy conclusion is a positive one. We recommend that central banks in developing nations adopt private, decentralized digital currencies or fixed money supplies to encourage foreign investment and increase the economic well-being and stability of their citizens.

Sen. Richard Durbin (D-Ill.) earlier this month introduced legislation that aims to manufacture competition in the routing of credit-card transactions. If enacted, the measure would require that merchants be able to choose from at least two networks when processing most credit-card transactions.

Read the full piece here.

Abstract

Student loan servicers are the face of the U.S. student loan system, and they are not well-liked. Using the Consumer Financial Protection Bureau’s (the CFPB) consumer complaint database, we study borrower perceptions of the student loan system. We qualitatively analyzed a sample of complaint narratives drawn from every student loan complaint ever filed with the CFPB. Our analysis of these complaint narratives reveals clear patterns of discontent in four primary areas: 1) a mismatch between ability to repay and repayment options, including problems with forbearance, deferments, the public service loan forgiveness program, income-driven repayment plans, and loan cancellation options; 2) customer service, including sudden and unexplained changes in payment obligations, 3) inappropriate payment processing, such as misapplying payments; and 4) unauthorized loans or outright scams. The first issue was, by far, the most common. Our results high-light areas where better regulation, whether through contract with the government, ex ante supervision by regulators, or ex post lawsuits in court, has the potential to improve the function of the student loan ecosystem.

The traditional Boy Scout oath was that each scout should “do his duty.” Unfortunately, in the bankruptcy case dealing with the fallout from the horrendous sexual abuse scandal, the bankruptcy court failed to do its duty. Instead of looking out for those who were victimized, the case has turned into another feeding frenzy by class action lawyers. To rectify this miscarriage of justice, appeals courts should take a second look.

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Chairman Hickenlooper, Ranking Member Blackburn, and Members of the Committee:

I am Todd Zywicki and it is a pleasure to appear before you today to testify on the topic of “Protecting Consumers from Junk Fees.” I am George Mason University Foundation Professor at Antonin Scalia Law School and Research Fellow of the Law & Economics Center. From 2020-2021 I served as the Chair of the CFPB’s Taskforce on Consumer Financial Law and from 2003-2004 I served as the Director of the Office of Policy Planning at the Federal Trade Commission. I am also co-author of Consumer Credit and the American Economy (Oxford 2014) and have written and spoken extensively on issues of consumer protection generally and consumer financial protection specifically. I appear voluntarily today in my personal capacity and do not speak on behalf or represent any other party.

I share the frustration that many consumers hold today regarding the proliferation of seemingly ubiquitous add-on fees that we experience constantly, from surcharges for using our credit cards at a merchant, to hotel “resort fees,” and others. And earlier this year I experienced exactly this frustration when I checked into a hotel on vacation and was assessed a mandatory $30 a day “resort fee” that was only disclosed in fine print on the last screen of a multi-page checkout process at an Internet hotel booking website.

Buying a ticket to concert has in fact become a tedious process of searching for a concert or sports ticket and then having to spend 10 minutes clicking through multiple pages before you can discover the real price and decide whether to go to the show.

So I also say, “Enough.”

But it is also important to stress that not all of these fees are “junk” fees. Many of these multi-part pricing schemes are economically efficient, in that they better match consumers with the product terms and attributes they value. Others are appropriate as means to protect some consumers from being forced to subsidize others’ choices or the higher costs that some consumers impose relative to others. For example, requiring upper-income jet-setters to pay foreign currency transaction fees hardly seems unfair to those who don’t travel abroad and presumably nobody has an issue with requiring payment of “add on” fees for additional toppings on a pizza. Requiring every vacation resort to be all-inclusive would force those who don’t drink alcohol to subsidize those who do. While some use of multi-part pricing today is likely welfare-reducing, multi-part pricing has become more frequent is because paying for the services you actually use over the long run can be more fair and efficient for other consumers, even if foreign travelers, partiers, and those who pay late on their credit cards might disagree.

As Howard Beales and I wrote recently:

The term “junk fees” defies easy definition. But it is imperative to distinguish ‘junk fees’ that are designed to extract rents and consumer surplus from consumers from efficient behavior-based fees. Welfare-reducing “junk” fees are most likely to emerge only under a relatively narrow set of market conditions — particularly those markets with few repeat customers where consumers are less likely to learn of the hidden fees, where consumers are effectively locked-in and unable to avoid paying the fee when it is imposed, or where such fees may be atypical and thus consumers are not alert to them.