No doubt, good regulation with a mix of fairness and sound guidance would be a good thing for the financial community. Furthermore, consumers should have an easy means of comparing financial products and services across various providers. The problem, as we in the industry know all too well, is that "good" regulation is never an outcome of the process. It is either too far-reaching, presenting a crushing cost of compliance (read SarBox), or too vague to make any sort of impact on process.
As congress gears up for regulatory considerations, let's all hope they take a deep breath, and consider these two key points before acting:
- Consumers should be held accountable for their decisions. I know I'm not the only person whose parents passed on the "if it's too good to be true..." pearl of wisdom. Consumers need to ask questions before leaping into something they do not understand. And if in thinking through this issue our public officials find that consumers just do not possess the knowledge necessary to make informed decisions about financial products, the answer is certainly not to dumb-down the products. Rather, it is to invest in the education consumers need to better support themselves financially.
- Risk exposure must be considered in the context of compliance. Many credit unions are still very risk-averse. They have basic checking and savings accounts, offer auto loans, and perhaps a credit card or two. Yet, in many cases they are subjected to the same level of compliance required of institutions offering on-site brokerage services, investment advice, mutual funds, and insurance. Any regulation should index for risk exposure, based on factors such as products offered, market served, geographic diversity, portfolio structure, etc.
