Written on April 21, 2009
Financial regulators must strike a delicate balance between protecting consumers and not choking off credit, Federal Reserve Chairman Ben Bernanke said Friday.
"We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services," Bernanke said in a speech in Washington, D.C. "That said, the recent experience has shown some ways in whch financial innovation can misfire."
The speech largely focused on financial literacy and how consumers’ misunderstanding or lack of information about financial products can be harmful.
However, Bernanke also made it clear that while consumers have struggled over recent years, he didn’t want to create new rules so tough that it would threaten the credit markets.
"We should not attempt to impose restrictions on credit providers so onerous that they prevent the development and services in the future," Bernanke said.
Bernanke explained how credit cards, mortgage products and overdraft protection had helped expand access to borrowing for low- and moderate-income families quick faxless payday loan. But as the financial products grew more complicated they also ended up entrapping many consumers.
As an example, Bernanke noted that regulations had limited credit cards fees when cards first emerged. However, in recent years, even as fee structures grew more complex, consumers were hit with higher costs.
"[G]rowing complexity may increase the probability that even the most diligent consumers will not understand or notice key terms that affect a plan’s cost in important way," Bernanke said. "In some cases complexity simply serves to disguise practices that are unfair and deceptive."
Earlier in the week, Bernanke spoke at Morehouse College in Atlanta. He struck a professorial tone about the origins of the financial collapse and the Fed’s efforts to chip away at the credit freeze and spur financial activity.
Filed in: business.