Theoretical Research Of Financial Consumer Protection

With the prosperous development of the financial market, financial commodities and services have been the cornerstone in the past decades. Except for the traditional banking and securities services, consumers can enjoy convenience through the services of credit cards and internet financial services. We can say that financial commodities and services have penetrated into the daily life of consumers and became an indispensable part, which brings out a promising future.Unfortunately, the financial crisis originated from America in2007has rung a bell for the artificial prosperity. The crisis, which is thought to be the most devastating and widespread destruction after the Great Depression in the1930s, shakes the international financial market and makes the topic of the financial consumer protection to be the top priority. All financial authorities are aware that the ignorance for the financial consumer protection made it happen. It has been a general consensus that the financial consumer protection plays an important role as well as the discreet guard in the avoidance of financial crisis.In fact, the notion of financial consumer protection is not unique and it had been a hot topic together with the worldwide campaign of the protection of consumers in the1960s. Afterwards, the protection of financial consumers has been incorporated into the governmental financial authorities. The theory of "Twin Peaks" given by Michael Taylor (1995) puts the financial consumer protection to be one of the objectives together with the prudent supervision. Series of laws and regularities concerning the financial consumer protection have been put forward by the related authorities, which include all financial industries such as the banking, securities, insurance and non-banking systems. It is clear that a basic framework for the financial consumer protection has been built already.However, no matter the traditional protection of consumers or the specific financial one, both can not provide enough protection for the consumers. It is proved true by the unbalance between the financial consumers and the financial institutions. Many invasive trades have shaken the consumers'belief for the financial markets and destroy the steadiness of the financial systems. So, it is necessary to do some research on the protection of financial consumers and the following questions should be answered:Who should be protected during the financial consumption? Why the traditional and present protections fail in the financial market? What are the factors that harm the financial consumers? What are the potential threats? Why the present financial systems failed in the protection? How to build an effective framework and what should be taken into account?This dissertation aims to answer these questions and try to find the key answers from the facts, during which, more standard economic analysis will be applied in order to understand its disciplines. At last, I will give some effective suggestions according to the shortcomings of present financial authorities. These main contents are as follows:1,A literature review. I will summarize the present literature from three parts:the supplier, the demand-side and the authorities together with some articles from Chinese scholars. This part aims to summarize some useful ideas and techniques for the rest of my analysis.2,The theoretical framework of Financial Consumer Protection. Except for the advantages taken by the financial institutions from the monopolistic status, the powers, the informational and professional resources, some potential threats from the financial consumers also should take responsibility for the problems, such as the professional inadequacy and the cognitive deviations. Therefore, the implementation of the financial consumer protection should aims to break the financial monopoly, eliminate the information asymmetry, reduce the influence of interest groups and improve the professional competence of financial consumers through financial education.3,Financial monopolies and Financial Consumer Protection. Financial monopoly is widespread nowadays. Combined with previous research results, I proved that China's overall financial monopoly situation is more pronounced than developed countries. Financial monopoly inhibits competition in the market enable financial institutions to carry out monopoly high prices, unreasonable charges and other market abuses. What's more, it causes difficulties for the consumers' right-safeguarding.4,Information and the financial consumer protection. I analyzed the reflections and reasons of the asymmetric information. The informational disclosure can avoid the problem of information asymmetry, but financial institutions do not have the incentive to disclose it, especially for the high-risk commodities. Hence, the regulatory authorities are responsible to force them to disclose the related information in order to give the biased protection to maximize the social profit.5,Generation of predatory finance and the damage to the interests of consumers. The predatory financial trade, which is based on the monopolistic status and informational advantage, is the main cause that harms the financial consumers'rights and harms the social welfare. In this circumstance, the regulatory authorities should protect consumer's rights through price regulation and the introduction of competition.6,The impact of the financial consumer cognitive biases on their own interests. Consumers tend to be over-dependent on the financial institutions because of the inadequate financial knowledge and the marketing, all of which make them be ignorant of the "principle-agent problem". Especially, the present incentive mechanism in financial market induces the institutions to sell over-risky commodities, which makes the consumers exposed to the high risk, although the consumers still rationalize their expected profit. Under such circumstances, the regulatory authorities should enhance the financial education to build up a healthy and professional consumption concept in order to protect the consumers' benefit. What's more, standard regulations should be put forward in order to control financial institutions'behavior.7,To provide a professional and efficient financial consumption system. Firstly, I pointed out the deficiency of the financial consumer protection system. Then I clarified a new protection system, which includes the objectives, the principles, the related law system, the authorities and its corresponding functions based on the theoretical analysis. At last, some disputing problems about the consumer-biased protection system would be discussed in order to avoid some possible obstacles and keep the protection a healthy environment.In summary, this dissertation aims to fine the problems from the reality and use economic tools to analyze them in order to give feasible suggestions to guide the financial consumer protection.