Privatizing Financial Protection: Regulatory Feedback and the Politics of Financial Reform

Consumer credit is a crucial source of financial support for most Americans-part of what scholars dub the "credit-welfare state." Yet, borrowers have been reluctant to take political action to demand better consumer financial protection, even as subprime lending proliferates. This paper articulates a broad theory of regulatory feedback effects, proposing specific mechanisms through which regulatory policy making shapes consumers' politics. Drawing on the case of consumer financial protection, I argue that consumer credit regulations produce feedback effects that diminish political engagement by encouraging borrowers to blame and subsequently target market actors-including financial institutions and consumers themselves-for both systemic and individual problems with predatory lending. I analyze an original policy dataset, original survey of 1,500 borrowers, and two survey experiments to test this hypothesis. I find that borrowers' experiences with credit regulation diminish their political engagement, even for reforms they support, limiting the prospects for safeguarding Americans' financial security.