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 conce...

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Bibliographic Details
Published in:The Journal of consumer affairs 2008-06, Vol.42 (2), p.165-188
Main Author: BONE, PAULA FITZGERALD
Format: Article
Language:English
Subjects:
Analysis
Consumer information
Consumer loans
Consumer protection
Consumerism
Consumers
Customer satisfaction
Customers
Delinquency
Empowerment
Financial institutions
Financial markets
Financial services
Financial services industries
Flood insurance
Foreclosure
Home ownership
Homeowners
Homeowners insurance
Influence
Information Processing
Insurance
Loan payments
Loans
Mortgage companies
Mortgage loans
Mortgage servicing
Mortgages
Predatory lending
Principals
Property taxes
Secondary markets
Secondary mortgage market
Securities markets
Studies
Taxes
Welfare
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Summary: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.
ISSN:0022-0078
1745-6606
DOI:10.1111/j.1745-6606.2008.00103.x