What’s in Your Wallet (and What Should the Law Do About it?)

In traditional markets, firms can charge prices that are significantly elevated relative to their costs only if there is a market failure. However, this is not true in a two-sided market (like Amazon, Uber, and Mastercard), where firms often subsidize one side of the market and generate revenue from the other. This means consideration of one side of the market in isolation is problematic. The Court embraced this view in Ohio v. American Express, requiring that anticompetitive harm on one side of a two-sided market be weighed against benefits on the other side.Legal scholars denounce this decision, which, practically, will make it much more difficult to wield antitrust as a tool to rein in two-sided markets. This inability is concerning as two-sided markets are growing in importance. Furthermore, the pricing structures used by platforms can be regressive, with those least well-off subsidizing their affluent and financially-sophisticated counterparts.In this Article, I argue that consumer protection, rather than antitrust, is best suited to tame two-sided markets. Consumer protection authority allows for intervention on the grounds that platform users create unavoidable externalities for all consumers. The Consumer Financial Protection Bureau (CFPB) has broad power to curtail “unfair, abusive, and deceptive practices.” This authority can be used to restrict practices that decrease consumer welfare, like the anti-steering rules at issue in Ohio v. American Express

The Salience Theory of Consumer Financial Regulation

Prior to the financial crisis, banks’ fee income was their fastest-growing source of revenue. This revenue was often generated through nefarious bank practices (e.g., ordering overdraft transactions for maximal fees). The crisis focused popular attention on the extent to which current regulatory tools failed consumers in these markets, and policymakers responded: A new Consumer Financial Protection Bureau was tasked with monitoring consumer finance products, and some of the earliest post-crisis financial reforms sought to lower consumer costs. This Article is the first to empirically evaluate the success of the consumer finance reform agenda by considering three recent price regulations: a decrease in merchant interchange costs, a cap on credit card penalty fees and interest-rate hikes, and a change to the policy default rule that limited banks’ overdraft revenue. The varied efficacies of these interventions suggest several insights for policymakers. First, price regulation of non-salient prices (such as late fees or overdraft charges) is desirable. This is true even in a perfectly competitive world, because the existence of shrouded prices can lead to excessive demand for consumer financial products; cause consumers to expend tremendous energy to avoid hidden fees; and result in cross-subsidy of sophisticated consumers, who incorporate these prices into their decision-making, by unsophisticated customers, who do not. In an imperfectly competitive world, regulations that target non-salient prices can also decrease overall consumer costs. A substitute for price regulation is the use of behavioral tools, such as shocks to consumer attention, to encourage consumers to take non-salient prices into account. Such simple, timely disclosure is a choice-preserving alternative to banning expensive consumer finance products

Making Consumer Finance Work

The financial crisis exposed major faultlines in banking and financial markets more broadly. Policymakers responded with far-reaching regulation that created a new agency—the CFPB—and changed the structure and function of these markets. Consumer advocates cheered reforms as welfare-enhancing, while the financial sector declared that consumers would be harmed by interventions. With a decade of data now available, this Article presents the first empirical examination of the successes and failures of the consumer finance reform agenda. Specifically, I marshal data from every zip code and bank in the United States to test the efficacy of three of the most significant post-crisis reforms: in the debit, credit, and overdraft markets. The results of my analysis are surprising. Despite cosmetic similarities, these reforms had very different outcomes. Two (changes in the credit and overdraft markets) increase consumer welfare, while the other (in the debit market) decreases it. These findings run counter to prior work by prominent legal scholars and push us to reevaluate our (mis)conceptions about the efficacy of regulation. The empirical evidence leads me to novel insights for regulatory design. First, banks regularly levy hidden fees on consumers, obscuring the true cost of financial products. Regulators should restrict such practices. Second, consumer finance markets are regressive: low-income customers pay higher prices than their higher-income counterparts. Regulators should address this inequity. Finally, profit-maximizing banks will always discourage regulation by promising its costs will be passed through to consumers. Regulators should not be overly swayed by their dire warnings

Private Equity Value Creation in Finance: Evidence from Life Insurance

This paper studies how private equity buyouts create value in the insurance industry, where decentralized regulation creates opportunities for aggressive tax and capital management. Using novel data on 57 large private equity deals in the insurance industry, we show that buyouts create value by decreasing insurers\u27 tax liabilities; and by reaching-for-yield: PE firms tilt their subsidiaries\u27 bond portfolios toward junk bonds while avoiding corresponding capital charges. Previous work on affiliated or shadow reinsurance and capital management misses the important role that private equity buyouts play as recent drivers of these phenomenon. The trend we document is of growing importance in the private equity industry, with insurance accounting for close to a tenth of all PE deals from 2010-2014

The Impact of the Durbin Amendment on Banks, Merchants, and Consumers

After the Great Recession, new regulatory interventions were introduced to protect consumers and reduce the costs of financial products. Some voiced concern that direct price regulation was unlikely to help consumers, because banks offset losses in one domain by increasing the prices that they charge consumers for other products. This paper studies this issue using the Durbin Amendment, which decreased the interchange fees that banks are allowed to charge merchants for processing debit transactions. Merchant interchange fees, previously averaging 2 percent of transaction value, were capped at $0.22, decreasing bank revenue by$6.5 billion annually. The objective of Durbin was to increase consumer welfare. For consumers to benefit, banks needed to not offset Durbin losses and merchants needed to pass through savings to consumers. Instead, we find causal evidence that banks fully offset losses by charging higher fees for their products: For example, following Durbin, the provision of free checking accounts decreases by 40 percentage points. On the merchant side, we find that retailers pass-through savings most when debit usage is common and when competitive pressures are highest. However, we find little evidence of across-the-board consumer savings. Our analysis suggests that consumers are not helped by this interchange regulation

The Cost of Doing Business: Corporate Crime and Punishment Post-Crisis

For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement overdeters beneficial corporate activity or in the alternative, lets corporate criminals off too easily. This debate has recently expanded in its polarization: On the one hand, academics, judges, and politicians have excoriated the DOJ for failing to send guilty bankers to jail in the wake of the financial crisis; on the other, the DOJ has since relaxed policies aimed to secure individual lability and reduced the size of fines and number of prosecutions.A crucial and yet understudied piece of evidence in this conversation is how crime has responded to our enforcement regime. In the last few decades, the DOJ has embraced many law and economics enforcement tenents including entity liability over individual liability, fewer prosecutions and a greater number of settlements, and high fines over jail time. And several papers have documented these enforcement trends in detail. However, unlike every other type of crime, the government does not collect data about corporate crime levels. Therefore, we cannot tell how corporations are responding to these enforcement practices.In this paper, we take important first steps in determining how corporate crime, and financial institution crime in particular, is responding to the DOJ’s enforcement regime and its shifting priorities. Specifically, we proxy for financial crime using three novel sources: the Financial Crimes Enforcement Network (FinCEN) Suspicious Activity Reports (SARs), consumer complaints made to the Consumer Financial Protection Bureau (CFPB), and whistleblower complaints made to the Securities and Exchange Commission (SEC). Each source reveals a steep increase in complaints or reports indicative of financial institution misconduct. We also examine levels of public company recidivism, which are also on the rise. And we document a potential cause: recidivist companies are much larger than non-recidivist companies, but they receive smaller fines than non-recidivist companies (measured as a percentage of assets and revenue). In theory, high fines can supply adequate deterrence by themselves, but our results indicate that it might not be politically feasible to levy a sufficiently high fine to deter future incidents of corporate crime. Put differently, for large companies, criminal penalties may be just another cost of doing business — and quite a reasonable cost at that. We conclude by offering recommendations for enforcement agencies and policymakers. In particular, we observe that many of the assumptions inherent to classical law and economics theory are inacurrate with respect to white-collar crime. Fines large enough to deter malfeasance are large and potentially infinite — well outside the possibility set for policymakers. The DOJ should therefore consider other ways of securing deterrence, such as by increasing penalties against guilty individuals

Understanding the Revenue Potential of Tax Compliance Investment

In a July 2020 report, the Congressional Budget Office estimated that modest investments in the IRS would generate somewhere between $60 and$100 billion in additional revenue over a decade. This is qualitatively correct. But quantitatively, the revenue potential is much more significant than the CBO report suggests. We highlight five reasons for the CBO’s underestimation: 1) the scale of the investment in the IRS contemplated is modest and far short of sufficient even to return the IRS budget to 2011 levels; 2) the CBO contemplates a limited range of interventions, excluding entirely progress on information reporting and technological advancements; 3) the estimates assume rapidly diminishing returns to marginal increases in investment; 4) the estimates leave out the effect of increased enforcement on taxpayer decision-making; and 5) the use of the 10-year window means that the long-run benefits of increased enforcement are excluded. We discuss these issues, present an alternative calculation, and conclude that a commitment to restoring tax compliance efforts to historical levels could generate over $1 trillion in the next decade

The Deregulation Deception

President Donald Trump and members of his Administration repeatedly asserted that they had delivered substantial deregulation that fueled positive trends in the U.S. economy prior to the COVID pandemic. Drawing on an original analysis of data on federal regulation from across the Trump Administration’s four years, we show that the Trump Administration actually accomplished much less by way of deregulation than it repeatedly claimed—and much less than many commentators and scholars have believed. In addition, and also contrary to the Administration’s claims, overall economic trends in the pre-pandemic Trump years tended simply to follow economic trends that began years earlier. Why the Trump Administration failed to deliver on its deregulatory goals, notwithstanding the power that U.S. Presidents can exert over the regulatory state, may seem puzzling. The explanation cannot rest merely with the widely held ossification theory that regulatory procedures and judicial review impede attempts to make regulatory change, for the Trump Administration completed many more significant regulatory actions than it did deregulatory ones. We suggest that substantial deregulation is more challenging to achieve than it might seem, demanding strong managerial competencies on the part of a political administration. Furthermore, political leaders do not need to accomplish major deregulation to make it seem as if they have done so. The Trump Administration’s ability to exploit even modest deregulatory actions for symbolic effect provides a case study of a political strategy that we call the deregulation deception—and to which the regulatory state anywhere in the world can be vulnerable. What matters most to some political leaders will be the creation of a perception of dramatic deregulatory change that can be used to claim credit for positive economic trends, just as claims of excessive regulation can be used by politicians to shift blame during periods of economic distress

Factors associated with the opposition to COVID-19 vaccination certificates: A multi-country observational study from Asia.

BACKGROUND: There are ongoing calls to harmonise and increase the use of COVID-19 vaccination certificates (CVCs) in Asia. Identifying groups in Asian societies who oppose CVCs and understanding their reasons can help formulate an effective CVCs policy in the region. However, no formal studies have explored this issue in Asia. METHOD: The COVID-19 Vaccination Policy Research and Decision-Support Initiative in Asia (CORESIA) was established to address policy questions related to CVCs. An online cross-sectional survey was conducted from June to October 2021 in nine Asian countries. Multivariable logistical regression analyses were performed to identify potential opposers of CVCs. RESULTS: Six groups were identified as potential opposers of CVCs: (i) unvaccinated (Odd Ratio (OR): 2.01, 95% Confidence Interval (CI): 1.65-2.46); vaccine hesitant and those without access to COVID-19 vaccines; (ii) those not wanting existing NPIs to continue (OR: 2.97, 95% CI: 2.51-3.53); (iii) those with low level of trust in governments (OR: 1.25, 95% CI: 1.02-2.52); (iv) those without travel plans (OR: 1.58, 95% CI: 1.31-1.90); (v) those expecting no financial gains from CVCs (OR: 2.35, 95% CI: 1.98-2.78); and (vi) those disagreeing to use CVCs for employment, education, events, hospitality, and domestic travel. CONCLUSIONS: Addressing recurring public health bottlenecks such as vaccine hesitancy and equitable access, adherence to policies, public trust, and changing the narrative from 'societal-benefit' to 'personal-benefit' may be necessary and may help increase wider adoption of CVCs in Asia

Extrinsically derived TNF is primarily responsible for limiting antiviral CD8+ T cell response magnitude.

TNF is a pro-inflammatory cytokine produced by both lymphoid and non-lymphoid cells. As a consequence of the widespread expression of its receptors (TNFR1 and 2), TNF plays a role in many important biological processes. In the context of influenza A virus (IAV) infection, TNF has variably been implicated in mediating immunopathology as well as suppression of the immune response. Although a number of cell types are able to produce TNF, the ability of CD8+ T cells to produce TNF following viral infection is a hallmark of their effector function. As such, the regulation and role of CD8+ T cell-derived TNF following viral infection is of great interest. Here, we show that the biphasic production of TNF by CD8+ T cells following in vitro stimulation corresponds to distinct patterns of epigenetic modifications. Further, we show that a global loss of TNF during IAV infection results in an augmentation of the peripheral virus-specific CD8+ T cell response. Subsequent adoptive transfer experiments demonstrated that this attenuation of the CD8+ T cell response was largely, but not exclusively, conferred by extrinsic TNF, with intrinsically-derived TNF making only modest contributions. In conclusion, TNF exerts an immunoregulatory role on CD8+ T cell responses following IAV infection, an effect that is largely mediated by extrinsically-derived TNF