Toward a general model of consumer empowerment and welfare in financial markets with an application to mortgage servicers

Policy makers and consumer advocates suggest that mortgage servicers are prone to mistakes and predatory practices that negatively impact consumer financial well-being. Using this industry as a case study, a general model of consumer empowerment and welfare is developed integrating theoretical concepts related to market structure, firm orientation, and consumer information processing. The model illuminates the most distinctive characteristics of mortgage servicing: high switching costs faced by consumers and mortgage servicers' inability to negotiate with some borrowers. Additionally, the model posits that the most common remedy in the financial services industry, information disclosure, is unlikely to directly improve consumer welfare.