Making Financial Markets Work for Consumers

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a new federal agency, the Consumer Financial Protection Bureau, to improve the functioning of consumer financial services markets. The Bureau is scheduled to open its doors in July 2011. Its first director will be responsible not only for setting the policy direction of the agency but also for establishing its organizational structure and management climate. In this open letter to the director, four professors-Campbell, of Harvard University; Jackson, of Harvard Law School; Madrian, of Harvard's Kennedy School of Government; and Tufano, formerly of Harvard Business School-offer advice on how to set priorities and craft policy responses. They suggest eight simple ways in which the new director can identify problems that deserve early attention: Look for high stakes. Prioritize problems that put large numbers of households at material financial risk. Look for confusion. Be concerned when consumers routinely misunderstand the terms of a financial product. Look for regret. Big financial decisions are often made so infrequently that consumers do not become adept at them. Look for folly. Some groups of people, for instance, routinely miss the opportunity to refinance their mortgages when interest rates drop significantly. Look for suckers. Some financial products generate a large chunk of their profits from a small fraction of customers. Look for rip-offs. If an expensive product survives in a very competitive market, it could mean that some consumers don't understand what they're buying. Look for opportunities. don't limit the focus to only problems-actively seek innovative products that will benefit consumers.