From a new paper by Eldar Shafir, Michael Barr, Sendhil Mullainathan. Some of the highlights are below. OK, so they aren’t all behavioral economists. Mullainathan is. Barr is a law professor and Shafir is a psychology professor.
1. Full information disclosure to debias home mortgage borrowers.
Useful information that Shafir, Barr, and Mullainathan have in mind includes disclosing the borrower’s credit score, and the borrower’s qualifications for the all of the lender’s mortgage products.
2. A new standard for truth in lending.
We propose that policy makers consider shifting away from sole reliance on a rules based, ex ante regulatory structure for disclosure embodied in (the Truth in Lending Act) and toward integration of an ex-post, standards-based disclosure requirement as well.
3. A “sticky” opt-out home mortgage system.
We propose that a default be established with increased liability exposure for deviations that harm consumers…In our model, lenders would be required to offer eligible borrowers a standard mortgage (or set of mortgages), such as a fixed rate, self-amortizing 30 year mortgage loan, according to reasonable underwriting standards.
4. Restructuring the relationship between brokers and borrowers.
An alternative approach to addressing the problem of market incentives to exploit behavioral biases would be to focus directly on restructuring brokers’ duties to borrowers and reforming compensation schemes that provide incentives to brokers to mislead borrowers. Mortgage brokers have dominated the subprime market.
5. Using framing and salience to improve credit card disclosures.
See something like RECAP, proposed in Nudge.
6. An opt-out payment plan for credit cards.
Consumers would be required automatically to make the payment necessary to pay off their existing balance over a relatively short period of time unless the customer affirmatively opted-out of such a payment plan and chose an alternative payment plan with a longer (or shorter) payment term.
7. An opt-out credit card.
Consumers would be offered credit cards that meet the definition of “safe.” They could opt for another kind of credit card, but only after meaningful disclosure. And credit card firms would face increased liability risk if the disclosure is found to have been unreasonable.
8. Regulation of credit card late fees.
Under our proposal, firms could deter consumers from paying late or going over their credit card limits with whatever fees they deemed appropriate, but the bulk of such fees would be placed in a public trust to be used for financial education and assistance to troubled borrowers…Firm incentives to over-charge for late payments and over-limit borrowing would be removed, while firms would retain incentives appropriately to deter these consumer failures.
9. A tax credit for banks offering safe and affordable accounts.
Market forces weaken or break down entirely with respect to encouraging saving for low income households. This is simply because the administrative costs of collecting small value deposits are high in relation to banks’ potential earnings on the relatively small amounts saved, unless the bank can charge high fees; with sufficiently high fees, however, it is not clear that utilizing a bank account makes economic sense for LMI households.
10. An opt-out bank account for tax refunds.
Low-income households without bank accounts would have their tax refunds automatically deposited into a new account, similar to something like the SAFE-T account that residents could draw on. (H&R Block offers a similar product.)
Watch a video about the paper, sponsored by the New America foundation, below: