I’m calling this episode “Consulting the Source.” My guest would be the first to say he is not the source of our consumer financial protection rules -- that would be Congress. Still, no one has had more to do with translating law into regulatory form than Leonard Chanin.
When Leonard left the Consumer Financial Protection Bureau for his current position at the law firm Morrison & Foerster LLP, it was big news. American Banker wrote: “Morrison & Foerster can’t say it hired the attorney who wrote the CFPB’s rulebook. But it picked up the guy who started the job.”
Actually, Leonard has been involved in the crafting of pretty much all the consumer financial regulations since 1985. And for years he led the legal teams – first at the Fed and then at the CFPB – that wrote them. I consider him the single most expert person in the world on how to write consumer protection regulation in finance. His deep knowledge of the field and his great sense of humor led to a really fun and animated discussion about the challenges of financial regulation.
In fact, our conversation continued for nearly another hour after we turned off the microphone. I often find that, after the recorded part of the podcast, my guests go on to say things even more interesting. In Leonard’s case, he said something I’ve been thinking about ever since, and I got his permission to share it.
He said, “The only solution is to blow it all up. If we just take what we have and try to improve it, we will fail.”
Our regular listeners know I’m at Harvard this year writing a book about modernizing consumer financial protection for the innovation age. I think most people in the financial field agree that the system we have hasn’t worked well. And yet, the course we’re on is exactly the one Leonard says won’t work – taking what we have and just trying to improve it at the margins. The CFPB, of course, is adding vigor and rigor to the effort and having many impacts. Still, this is a good time to examine the basic questions of what works, and whether we could do better.
I met with Leonard in his office in Washington, and we explored it all. Can disclosure ever really be effective? What should we do about information overload? Is it impossible for regulations to be both simple, and clear, at the same time, or do we have to choose between those two goals? Should we rely more on principles-based regulations instead of detailed rules? When should the law just ban practices, instead of requiring them to be disclosed? Should we have a regulatory sandbox? Is it worth trying to do better, given the enormous costs the industry incurs every time the rules change? What could we do better now that people can get information instantly on their cell phones? Should government try to protect people from their own mistakes, or just prevent deception and let consumers make their choices?
I recently spoke at a conference where I said I think disclosure has largely failed as a consumer protection strategy in finance. Someone afterwards said to me that he thinks it was never meant to work – that it was just the industry’s strategy for preventing tougher regulation. I was involved in a lot of those early efforts, and as I say to Leonard in our talk, it seemed like a good idea at the time, to me. It seemed worth trying. But today, it’s time to think again. (For an interesting analysis of the ineffectiveness of disclosure, see this article by Temple University’s Hosea Harvey.
Leonard is currently Of Counsel in the Financial Services group at Morrison & Foerster LLP. He advises clients on issues relating to the Home Mortgage Disclosure Act, Truth in Lending Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Truth in Savings Act and Equal Credit Opportunity Act.
Before rejoining Morrison & Foerster, he was the Assistant Director of the Office of Regulations of the Consumer Financial Protection Bureau, heading the agency’s rule-making team of nearly 40 lawyers. He also provided legal opinions to Bureau supervisory and enforcement offices on federal consumer financial protection laws. Prior to that, he was Deputy Director of the Division of Consumer and Community Affairs at the Federal Reserve Board. His role there included providing legal opinions and policy recommendations to the Board and the Division on federal consumer financial services laws, negotiating rules and policies with the other federal banking agencies and providing legal views on enforcement actions against state member banks.
Leonard’s law degree is from Washington University School of Law in St. Louis, where he served on the board of the Washington University Law Review. He is a currently a fellow of the American College of Consumer Financial Services Lawyers.
So, please enjoy my conversation with Leonard Chanin.
And…try my new video series, Regulation Innovation!
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