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Ethan Cohen-Cole
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I wanted to thank the editors of Credit Slips for giving me the opportunity to air my opinions this week. I'm a regular reader of this blog and it's an honor to be a contributor as well. Ethan Continue reading
Posted Nov 19, 2010 at Credit Slips
The Washington Post yesterday wrote : "State attorneys general and the country's biggest lenders are negotiating to create a nationwide fund to compensate borrowers who can prove they lost their home in an improper foreclosure" The fund is being compared... Continue reading
Posted Nov 18, 2010 at Credit Slips
Hillary- I refer to section 1021c and 1022b2B (though I'm aware that the legislative process led to 1022b2B being included because of concerns that consumer protection would reduce profits, it opens the door to the reverse). Also, 1031c is awfully broad. My regulatory suggestion in the original piece is to curtail specific products. My comment above about capital is simply to point out that there are alternatives - not to suggest that the BCFP can or should impose them.
Thanks for the question: My interpretation is that perfect/complete information is still insufficient for some products. (I'm careful about wording here because 'risky' to a finance professor means ALL products!) The reason I make this point is the systemic risk portion. Products that have some potential to contribute to systemic risk transfer economic gain either to the bank or the consumer at the expense of society. I think of this as each sub-prime loan made cost the tax-payer $x. In some cases the borrower gained, in others the bank, in others the real-estate agents, etc. These need explicit regulation. That regulation could 1. prohibit the product 2. impose higher capital burden on the bank (an insurance mechanism against the systemic risk) 3. impose costs on the borrower or bank (something like a Tobin tax) My general point is that explaining it to the consumer does not prevent systemic risk.
Thanks for your comments - this is a topic that always generates strong opinions. * limiting credit card debt is bad? Well, only if it is differentially limited. One could make a similar argument about access to mortgages, insurance, etc. * My comment on disparate treatment is based on the notion that the original underwriting differed based on location, not the ex-post amount of credit available. * 15 years and no evidence: I'm curious, did you not observe the use of a race variable or didn't observe the use of location-based measures at all?
A paper that I wrote while an employee of the Federal Reserve System a couple years back documents the presence of ‘redlining’ in the issue of credit cards. Credit Slips picked it up here (link). (To ensure there are no... Continue reading
Posted Nov 16, 2010 at Credit Slips
A firm which few know of – Clayton holdings—will likely soon be at the center of a wide variety of lawsuits and individual complaints. Clayton’s job was to validate the innards of mortgage backed securities (MBS) when made available for... Continue reading
Posted Nov 16, 2010 at Credit Slips
In my last posting, I discussed the tradeoffs of regulation on the consumer side, and the extent to which disclosure would be sufficient to resolve consumer protection issues. Here, I pose a simple problem to illustrate why principles based regulation... Continue reading
Posted Nov 15, 2010 at Credit Slips
Elizabeth Warren’s appointment as special advisor to the president was widely hailed as an achievement for consumer advocates. Professor Warren has long been a strong advocate of the middle class and famously compared financial products to flaming toasters. The creation... Continue reading
Posted Nov 15, 2010 at Credit Slips
The foreclosure mess has raised new tough questions. We once again seem back to distributional issues. If a foreclosure is in question for a homeowner that has not been paying and a bank that has no good proof of its... Continue reading
Posted Nov 15, 2010 at Credit Slips
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The 'signature' in the card name typically refers to how the interchange fees are billed. There are a few 'tiers' according to which a merchant pays for a credit transaction. The cheapest is the so-called qualified rate. These are signature (the physical act, not the type of card), verified (card in hand, not on internet) for standard cards. Mid-tier are mid-qualified. Signature or reward cards fall into this category. Unqualified is based on non-swipe transactions, failure to process with 48 hours, etc. So - not surprised that the bank swapped you into a signature card! Perhaps you should call and ask if your rewards were upgraded to reflect their increased revenues?
Toggle Commented Nov 12, 2010 on What's in Our Wallets? at Credit Slips
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Nov 12, 2010