Balancing Act: Who governs credit

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Balancing Act Who governs credit?

• Damon Gibbons
• Head of Policy Partnerships

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What do we need to talk about?
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Consumer preferences behaviour

• Subject to bounded rationality, consumer biases
• Some moral hazard issues (fraud)
• Some opportunism possible (rate tarts)
• Considerable lender investment in shaping
  preferences and behaviour (financial education
  and advertising, responsible borrowing)

4
Regulation of interactions

• Consumer protection subject to regulatory
  competition (e.g. FSA objectives and principles)
• Dominated by competition constraint thinking
• Insolvency driven by prevention of moral hazard
• Lack of public interest regulation

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Lender preferences and behaviour

• Insolvency rules promote moral hazard
• Opportunism high (PPI, default charges)
• Low levels of involvement of consumers in
  corporate governance and CSR
• Particularly poor consumer involvement concerning
  responsible lending policies and decisions over
  access

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Rebalancing

• Greater consumer control over education, advice,
  and advertising
• Public interest considerations taken into
  account when framing rules concerning consumer/
  lender interactions and access obligations
• Greater consumer involvement in corporate
  governance structures and in CSR policy
  formulation and scrutiny