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The Loany for the Loony: Looniest Consumer Finance Argument of the Year

posted by Adam Levitin

There are lots of silly or unsupported arguments made about consumer finance; too often commentators rely on their priors and read evidence through the light of their priors (here too). But sometimes you read a piece that just causes your jaw to drop with the stupidity ridiculousness of its argument.  I think we should recognize these loony arguments with an annually award that I'm proposing calling the Loanys (rhymes with Tonys, get it?).  The point of these nominations is not the ultimate policy merits of a position, but the strength of the particular argument made.  Thus, advocacy for or against a bad product is not itself grounds for a Loany nomination.  The argument itself has to be laughably bad, as in it doesn't even pass the straight face test.  CreditSlips contributors, including yours truly, are, of course, eligible for the Loanys.  

So without further ado, my Loany nominee is Achim Griese’s recent op-ed in the American Banker in opposition to overdraft regulation.  This was a piece with such a thin argument that I had to reread it a couple of times to make sure I wasn't missing something. So what was this Loany-worthy argument?  Here it is in a nutshell: 

There's no need to engage in substantive (i.e., price) regulation of overdraft fees because overdraft isn't one of the top complaints in the CFPB's complaint database.

Note that this is not an argument about how the CFPB should prioritize its resources. Nor is it an argument against overdraft regulation--Griesel is fine with disclosure regulation, just not substantive regulation. (Griesel doesn't seem to recognize, however, that if there's disclosure required under TILA or TISA there are other substantive requirements that go along with it.)  Instead, the argument is simply that we shouldn't regulate overdraft prices because there are fewer complaints about overdraft than about mortgages.

So why is this argument so ridiculous? First, it is a really unsophisticated reading of the complaint data.  Even if overdraft issues were equally prevalent as, say mortgage issues, one would expect fewer complaints to be filed about overdraft because of the dollar size of the problem and the nature of the product.  Overdraft is a small dollar problem.  A wrongful overdraft is $35 or maybe $40.  A wrongful foreclosure might involved a $200,000 property.  Which consumer do you think is more likely to complain?  Consumers with small dollar harms tend to just lump it, not least because consumers who are getting hit with overdraft fees are often scraping by with more pressing things to do than file a complaint with the CFPB, as the filing of a complaint does not trigger an investigation or remedy. 

Second, by the very nature of the product, many overdraft fees are never noticed. Some subset of overdrafts are because consumers aren't paying attention to account balances. It's unlikely that those consumers would ever file complaints because they've never noticed the problem.  

Third, there are plenty of complaints about overdraft in the CFPB database (Griesel never gives a firm number in the op-ed). Just because overdraft is a small percentage of complaints is not a reason to discount the absolute number of complaints.  Several thousand complaints isn't nothing, especially given the disincentives to complain. 

But these are all niggling details.  The real basis for the nomination is the ridiculous misuse of the data.  Even if Griese is right in reading the complaint data as indicating that there are fewer consumers with overdraft problems than mortgages, so what?  Even if overdraft isn’t the most pressing issue, that doesn’t mean it shouldn’t be addressed.  If one consumer is harmed by an unfair practice, isn't that one too many?  And what does complaint volume possibly have to do with the mode of regulation?

I'm all in favor of having a serious policy debate about overdraft fees.  But let's at least do it on the basis of evidence and serious arguments.  This one is so loony it deserves a Loany. 

Comments will stay open for other Loany nominations.



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