FREE CHOICE IN A FREE MARKET: "... The single best policy to protect American consumers and to foster financial inclusion is to ensure that people have the ability to make their own choices in free markets.".

Author:Johnson, Brian

LET'S START with basic definitions: the phrases "financial inclusion" and "consumer protection" can mean different things to different people in different contexts.

For purposes of this article, financial inclusion is "the availability and equality of opportunities to access financial services." Because consumers are best off if they choose the financial services that they believe are right for them, this definition implies the absence of conditions that impede the ability of consumers to make such choices.

Most clearly, if providers of financial services prohibit or limit consumer product choices due to discrimination, based on race or other unlawful factors, it undermines financial inclusion. Consumers also can be excluded from financial services for a variety of other reasons. Some, for instance, may live too far from a brick-and-mortar bank branch or other financial service provider to purchase the services they want. Others may have no credit file or a thin credit file at consumer reporting agencies, which may preclude them from obtaining loans they otherwise would receive.

Now, I think the empirical research is clear, and we all would agree that financial inclusion is positive for consumers. It facilitates income mobility, wealth-building, and consumer welfare. So, the task before us is to consider how best we collectively can promote financial inclusion in light of rapid technological change.

One of the most-obvious examples of such change is the near-ubiquity of Internet access and cell phones. According to Pew Research, for instance, 77% of U.S. adults now own smartphones, including a full two-thirds of adults earning less than $30,000 per year. Instant connectivity breaks down geographical divides and is a driver of a vibrant new mobile banking and FinTech ecosystem.

Another example of change that holds promise is the ability of financial services providers to employ machine learning or AI to determine creditworthiness better, streamline the loan process, and generally improve the customer experience for the borrower. Like all new technology, innovations can present potential risks, but expanding financial choice and opportunity, coupled with increased market competition, undoubtedly benefit consumers and should be encouraged. Indeed, economist William Nordhaus famously found that, on average, consumers capture roughly 96% of the social returns from technological advances.

Now, I realize that it is fashionable these days to refer to innovation as a new and distinct concept, but it really has been, and always will be, the main catalyst of the market system. Change and innovation are what drive market activity. Absent barriers to entry, firms that fail to satisfy constantly changing consumer preferences typically lose customers to competitors and, if they lose too many customers, they fail. Entrepreneurs are driven by market opportunities to anticipate and satisfy consumer demands.

It therefore is important to note that the free market system itself is the greatest, most-powerful force on Earth for improving the financial lives of our citizens. Simply put, if one cares about the poor and financially vulnerable among us, and wants to promote financial inclusion, he or she should be a champion of our free enterprise system. If you think I am overselling the power of free and...

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