Penn Law School professor Natasha Sarin's research recently found that certain Obama-era consumer finance reforms were effective while others did not have a significant impact in the wake of the Great Recession.
The paper, titled "Making Consumer Finance Work," focused on several Obama-era policies, such as the establishment of the Consumer Finance Protection Bureau and passing the Credit Card Accountability, Responsibility, and Disclosure Act, which aimed to cease deceptive practices by the banks issuing the card. The research has been accepted to the Columbia Law Review.
For her research, Sarin gathered data on interchange rates for 120 industries in 40,000 zip codes, checking account fees for 58,000 bank branches, and regulatory reports for 4,800 bank holding companies in the country, the paper read. She found that the CARD Act and overdraft fee reform effectively reconciled the impact of the Recession.
However, the Durbin Amendment, which required the Federal Reserve to decrease fees retailers must pay to process debit cards, failed to perform as well. Sarin concluded that the amendment was ineffective as banks were able to regain the fees that were capped by the Amendment and merchants “failed to fully pass through their cost savings to consumers," she wrote in the paper.
Sarin identified three key takeaways for future government measures. She argued that banks try to exploit consumers with hidden fees when there is a lack of supervision, making consistent regulation important. She also claimed that low-income consumers spend a higher price on goods than high-income consumers, which exacerbates income inequality. Sarin also pointed out that banks try to discourage regulation by saying more oversight will lead to higher costs for consumers, and she urged regulators not to be deterred by this.
According to the Penn Law faculty website, Sarin’s research focuses on financial regulation. Her research topics include consumer finance and macroprudential risk management. She is teaching the seminar LAW 955: Consumer Financial Regulation this semester.
“I am hoping both that my research will inform my teaching, and that my teaching will inform my research,” said Sarin in an earlier Q&A posted on the Penn Law website. “I’m quite keen to be the kind of academic who’s able to take legal insights on different financial regulatory questions and integrate them into the kind of research that I do, and come with a knowledge of institutions and institutional detail that is often quite lacking in finance academia.”