randall s kroszner : protecting consumers in the credit marketplace speech by mr randall s kroszner, member of the board of governors of the us federal reserve system, at the federal reserve bank of cleveland community development policy summit, cleveland, ohio, 11 june 2008. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * i am delighted to be here today to help open this important conference. i thank my hosts, president pianalto and her staff at the federal reserve bank of cleveland, for the invitation. this year's conference explores a confluence of consumer - related finance issues in the context of the current difficulties in the mortgage markets. in my remarks today, i would like to discuss the key role of consumer credit in our economy and describe how information disclosure and protecting consumers can work to facilitate and promote the efficient functioning of markets for such credit. 1 good information is essential to achieving well - functioning markets. consumers, equipped with the right information at the right time, can make the choices most appropriate to their individual circumstances and desires. for consumers to make the most meaningful use of the relevant information, such information should be accessible and understandable. in turn, businesses rely on consumers through their choices to signal their desires and preferences in order to produce the products that consumers want. if consumers are not well informed, it is difficult for them to be effective in conveying to businesses what they most want and in rewarding those businesses that do produce such products. good information in a marketplace thus not only empowers consumers to make better choices but also helps competition work more effectively to provide the products consumers most desire. there are challenges in ensuring that the appropriate information is provided to help markets function efficiently. product suppliers may not always provide needed information or present it in a format that enables meaningful comparison across competing products. consumers must also have the financial skills to evaluate the information effectively. however, even in the presence of good information, practices can emerge that offer little benefit to consumers and, in some cases, may cause harm. in such cases, improved disclosure alone may be insufficient to address these issues. rules can establish standards that promote increased certainty and restrain abusive practices. at the same time, such rules need to be implemented in a careful and informed manner so that the potential benefits of such rules are not offset by unintended consequences or the imposition of unnecessary costs. the challenge to policymakers is to

strike the right balance – that is, to find ways to empower and protect consumers without diminishing access to credit and hindering future innovation. with these principles in mind, i will briefly describe some of the key steps that the federal reserve is undertaking to strike this balance in the area of consumer regulation to protect consumers and provide them with the information they need, and when they need it, to make sound decisions. credit and the economy credit is the lifeblood of the american economy. whether it is to finance an education, purchase an automobile or home, or simply bridge short - term differences in the timing between our income and expenses, virtually all of us rely on credit at various points in our defined here, consumer credit includes both mortgage loans and other types of loans extended to consumers. lives. accordingly, choosing the right type of credit with the most appropriate terms and conditions is important to each of us. the federal reserve has an important role to play in this regard, as it has been given a mandate by the congress to help ensure that the costs and terms of credit use are both transparent and understandable and to protect consumers from unfair and deceptive lending acts and practices. in our role as a supervisor of banking institutions, the federal reserve also seeks to ensure that lending is undertaken in a safe and sound manner. credit is not only important to each of us as individuals ; it also plays a central role in the working of our economy. today's economy relies on consumer spending as an engine of growth – it accounts for about 70 percent of the gross domestic product. credit is an important underpinning to such spending. overall, evidence from the federal reserve's survey of consumer finances shows that about three - quarters of all households carry some debt. 2 about three - quarters of automobile purchases are currently either financed or leased, and about 95 percent of home purchases involve a mortgage. the use of revolving credit is similarly widespread ; about 75 percent of consumers hold credit cards. the annual transaction volume on general - purpose credit card accounts reached nearly $ 1. 8 trillion in 2006, and our latest information suggests that consumers owed nearly $ 1 trillion on revolving credit accounts of all types. because consumer credit plays a central role in the economy, the federal reserve has a macroeconomic interest in facilitating the efficient functioning of consumer credit markets. the role of credit the prudent use of credit by households provides a number of important economic benefits. first, for many families, credit allows for easier and timelier