The Inequality Under-Belly of “Sound” Consumer Finance

By Federal Financial Analytics

In remarks on Tuesday, Karen Petrou will lay out two reasons why post-crisis financial regulation makes America less equal: rules are is aligned with real-world business incentives and capital standards unduly penalize equality-critical lending.  Basing her views on Federal Reserve research, Petrou focuses on the Durbin Amendment, qualified-mortgage standards, small-dollar/short-term lending, and subprime mortgages. 

In each case, she shows how well-intentioned rules make life harder for low-and-moderate income households and, in several cases, increase financial-stability risk in ways sure to prove even more costly for those least able to afford it. 

Solutions include legislation to add a federal guarantee or other incentives to realign business incentives with sound equality-enhancing financial products.  Karen also reiterates her call for new “Equality Banks,” building on prior work to outline several chartering options with a lot of power to offer innovative products such as start-up small business financing.

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