Financial consumer protection and economic growth

Abstract

Purpose The purpose of this paper is to examine the link between financial consumer protection (FCP) and economic growth. Design/methodology/approach The authors use cross-country data on 114 countries surveyed in the World Bank Global Survey on FCP and Financial Literacy (2013) and endogenous treatment regressions for the estimation. Findings The results indicate that FCP enhances economic growth through fair treatment, responsible lending, enforcement and dispute resolution and recourse regulations. The authors find no evidence to suggest that disclosure and compliance monitoring regulations have an effect on economic growth. Practical implications This study provides rich insight into the important question faced by policy makers, as to which FCP regulatory mechanisms to put in place to enhance economic growth. Originality/value This study provides current, cross-country empirical evidence on the debate as to whether FCP enhances economic growth.

Proposal and validation of a financial protection perception scale

“…The aftermath of the 2008 financial crisis highlighted the importance of ensuring financial protection for consumers of financial products (Akinbami, 2010; Kriese et al, 2019a), especially due to the increased exposure of households to financial risks (Bufe et al, 2022; Cho et al, 2017). Thus, this study aimed to create and validate a Financial Protection Perception Scale (FPPS), which aims to assess the perception of security of consumers of financial system services.…”

“…The perceived security for the consumer of financial services contributes to long‐term stability, efficiency, and transparency of the financial system, encouraging financial institutions to retain risks for which they are better equipped and prepared than consumers, in addition to subsidizing reductions in information asymmetries and power imbalances between users and providers of financial services (Kriese et al, 2019a; Melecky & Rutledge, 2011).…”

“…Despite the advances in the definition of financial protection, the literature is still incipient when it comes to the proposal of a measure to assess the level of financial protection provided by a country's financial system or to identify the perception of financial protection by its users. Former studies focusing on financial services consumer protection tend to focus on documenting regulatory practices, evaluating the effectiveness of the legislation or making policy recommendations, anti‐predatory lending laws, restrictions on creditor collection practices, and disclosure regulations aimed at improving consumer protection mechanisms (Ardic et al, 2011; Benmelech & Moskowitz, 2010; Cho & Park, 2021; Harvey & Nigro, 2004; Koch, 2015; Kriese et al, 2019a; Steinbuks & Elliehausen, 2014).…”

“…Around the world, countries are establishing regulatory frameworks, creating new legislation, and reformulating existing ones in order to increase consumer protection in the financial market (Kriese et al, 2019a). Multilateral international agencies, such as the OECD (2011), the World Bank (2012), and the Consumer Financial Protection Bureau (CFPB, 2016), also suggest a series of good practices regarding consumer financial protection.…”

“…Former studies focusing on financial services consumer protection tend to focus on documenting regulatory practices, evaluating the effectiveness of the legislation or making policy recommendations, anti-predatory lending laws, restrictions on creditor collection practices, and disclosure regulations aimed at improving consumer protection mechanisms (Ardic et al, 2011;Benmelech & Moskowitz, 2010;Cho & Park, 2021;Harvey & Nigro, 2004;Koch, 2015;Kriese et al, 2019a;Steinbuks & Elliehausen, 2014).…”