Cities as a Source of Consumers' Financial Empowerment
| Citation | Vol. 34 No. 2 |
| Publication year | 2018 |
Cities as a Source of Consumers' Financial Empowerment
Susan Block-Lieb
Cities have been overlooked as a source of consumer protection.1 It is easy to see why. Cities are a poor place to situate consumer protection regulation, especially "top down" efforts to "command and control" lending decisions. This is especially true when lending occurs through national markets. As between federal, state and municipal regulators, and regulatory enforcement agents, cities come third in a field of three.
Although some municipalities may be authorized to regulate,2 their regulatory jurisdiction is fragile because it is subject to reversal on two fronts: federal laws can pre-empt cities' efforts to legislate, but so too can state law block municipal regulation.3 Moreover, regulation should only occur after extensive fact finding and opportunities for commentary are completed. Cities may not be well equipped to engage in the foundational work necessary as a precursor to regulation.4
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Nor are cities likely to excel at the enforcement of federal or state consumer protection law.5 Although city actors can commence litigation to enforce these laws, few cities create positions like New York City's Public Advocate,6 San Francisco City Attorney's Office Affirmative Litigation Unit,7 and Miami's Office of City Attorney.8 Cities often employ lawyers, to be sure, but generally these municipal lawyers defend suits brought against the city rather than initiate suits looking to protect the interests of the cities' consumer residents. Cities' standing to litigate to recover for damage to local communities—and so to the municipal tax base—is clearer now after the Supreme Court's recent case in Bank of America v. City of Miami.9 But cities' standing to bring suit has been
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narrowly cabined by the Court.10 As a result, cities' abilities to protect residents through litigation remain limited.11
Cities should, nonetheless, be understood as an important source of consumer protection, especially as to efforts to protect consumers by "empowering" them. When cities protect through empowerment, they are neither regulating nor litigating.12 Consumer empowerment might take the form of debt advice or education initiatives. Empowerment might also occur by enabling consumers to register complaints about lenders or other financial service providers' conduct. It might involve financial inclusion initiatives to encourage banks and other institutions to provide financial services that are affordable and convenient to consumer residents, and non-predatory.
Debt advice initiatives focus on strategies for resolving consumers' problems of access to information, comprehension, learning, and self-awareness.13 Financial inclusion programs encourage banks and other financial actors to locate conventional financial services in previously underserved neighborhoods so underserved communities can more easily access them.14 Complaint registers and mediation programs offer consumers low-cost options for dispute resolution.15 Together, these sorts of empowerment initiatives assist in resolving a range of credit market failures by enhancing consumers' abilities
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to make financial decisions rather than restricting lenders' conduct in lending markets.16
This is not to say, by any means, that empowerment strategies should be viewed as the most important form of consumer financial protection. Regulation and regulatory enforcement can be far more effective at resolving failures in consumer credit markets than are programs designed to enable consumers' self-help strategies. Empowerment strategies can, however, provide useful supplemental options in the consumer protection toolbox. And when empowerment options are relied on, cities are an especially good place to locate this sort of consumer protection because empowerment initiatives involve "bottom up" strategies of consumer engagement.
I support these claims in roughly three steps. Part I describes various efforts to enhance consumer financial empowerment, including initiatives to (i) provide debt advice to consumers, (ii) enhance consumers' financial inclusion, and (iii) enable consumers to register complaints about financial services and possibly to mediate those disputes. It also explores some of the limitations of each of these strategies for consumer financial protection. Part II, next, explains why cities can perform these particular sorts of consumer financial protection initiatives—that is, empowerment initiatives—better than other levels of government. This explanation is focused on cities' concentrated proximity to consumers, their existing infrastructures, and their uniquely pragmatic methods of work. Part III concludes by emphasizing the payoffs and limitations of emphasizing cities' expertise in providing empowerment initiatives to resident consumers.
This section describes three sorts of consumer financial empowerment initiatives:17 (i) debt advice; (ii) financial inclusion projects; and (iii) complaint collection, which is sometimes combined with mediation. Each of these initiatives aims to address some failure in the market for consumer credit. These market failures involve problems of access along three different fault lines:
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access to information; access to conventional financial services; access to justice.
Empowerment initiatives try to provide consumers with do-it-yourself tools for tackling problems of access on their own. But remedies of consumer self-help are difficult to implement: first, consumers are a diffuse group and thus difficult to reach; moreover, consumers may be slow to implement the strategies offered to them. Critics often fault empowerment initiatives as less likely than regulation to alter behavior and resolve market failures. These criticisms are also discussed.
A. Debt Advice
Consumer borrowers often lack access to the information they need to make good financial decisions. Mandatory disclosure regulation aims to reduce informational asymmetries in financial decision-making. Disclosure mandates, like those found in the Truth in Lending Act, can help,18 but disclosure mandates presume that consumer borrowers can access, comprehend, and actualize the information contained in them.19
In other words, mandatory disclosure regimes are premised on the leap of faith that access to information should be equated with learning.20 In the same way that no one believes that a college education should consist of issuing a library card to incoming students and no more, many view disclosure mandates as a good starting point for answering consumers' questions about loans, credit cards, payments and other financial transactions, but no more.21 Personal finance
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is not as complicated as abstract algebra or organic chemistry, but it may be hard for individuals to pick up on their own. Few want to share their personal financial details with others, making friends and family a poor source of advice.22 Consumers may still have questions after mandatory disclosures are made available to them.
To help in getting answers, some cities offer debt advice programs to their residents, whether one-on-one counseling or group educational initiatives. Cities might mandate or offer financial education in their public schools.23 Public libraries might host adult-ed classes and other opportunities for learning.24 Cities might also offer financial counseling in face-to-face settings.25 Whether it is offered on a one-on-one basis (counseling or coaching) or in a group setting (education), debt advice seeks to expand individuals' understanding and appreciation of complex consumer finance transactions.
In some settings, debt advice is mandatory.26 Public school systems may require their students to learn about financial topics.27 Before accessing federal bankruptcy jurisdiction, individual debtors have to demonstrate that they have participated in a "briefing" from an "approved nonprofit budget and credit
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counseling agency;"28 they also have to complete a separate "personal financial management" course as a condition of obtaining a discharge at the conclusion of their bankruptcy case.29 Housing counseling may be required: when certain first-time homebuyers look to finance their purchase with a "high-cost" mortgage; when some elderly homeowners look to refinance their retirement with a "reverse" mortgage.30
If consumers voluntarily seek to obtain either counseling or education on financial topics they may find a paucity of providers, although to some degree this is changing. Some employers offer financial counseling—usually but not always focused on investing and insurance decisions—as a benefit to their employees.31 Financial counseling is also offered by the armed forces to military personnel.32 Increasingly, cities offer financial counseling and courses to their residents, sometimes modeled on New York City's Office of Financial Empowerment.33
Debt advice initiatives are surprisingly controversial. It may be unsurprising that mandatory counseling and mandatory education is controversial since at least some of the individuals subject to the mandate may view the requirement as unnecessary, expensive, and ineffective.34 Mandatory anything is controversial in the United States. Voluntary financial counseling and education initiatives are also controversial, however.
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To some, the most controversial aspect of credit counseling, debt settlement, budget planning, and similar efforts is that historically some of this debt advice has been extended either through non-profit entities hiding their for-profit backing and predilections, or for-profit entities engaging in predatory advice giving.35 Moreover, financial literacy and financial wellness initiatives may be expensive, especially when considering the dynamic nature of the consumer lending markets and the need for consumer...
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