Monitoring, Reporting, and Recalling Defective Financial Products

Abstract

In recent years, innovations in consumer financial protection have drawn heavily from the law governing the safety of tangible products. This short essay, prepared for a symposium entitled "Frontiers of Consumer Protection," extends this approach by evaluating whether the law governing post-sale product safety for tangible consumer products offers potential lessons for consumer financial protection. In particular, it considers the extent to which the law could require providers of consumer financial products to affirmatively monitor, report or correct regulatory problems with their products that come to light after sale. Such post-sale self-policing by financial firms could offer benefits similar to those that justify standard product recall law: the sellers of financial products may be best situated to identify unintended negative consequences of their products that come to light after sale and to minimize the resulting costs through proactive market interventions. The essay illustrates this approach by reconsidering the Consumer Financial Protection Bureau’s rules implementing the Dodd-Frank Act’s "ability to repay" requirement for mortgages. It also suggests that the analytical frame embedded in post-sale safety requirements offers potential lessons for a number of other consumer financial protection issues, such as disclosure requirements and prohibitions on impermissible discrimination.

Keywords: Product Recall, Ability to Repay, Suitability, Consumer Protection, Consumer Financial Protection Bureau