Introduction to Financial Services: Consumer Finance
link to page 1 
Updated January 5, 2023
Introduction to Financial Services: Consumer Finance
Consumer finance refers to the borrowing, saving, and
Figure 1. Household Debt Breakdown in Q3 2022
investment choices that people (i.e., households) make over
Total Debt: $16.51 Trillion
Credit Card
time. These financial decisions can be complex and can
($0.93T)
2022 Q3
Home Equity
affect financial well-being both now and in the future.
Student Loan Auto Loan Line of Credit
Understanding why and how consumers make financial
($1.57T)
($1.52T)
($0.32T)
Mortgage ($11.67T)
Other
decisions is important when considering policy issues in
($0.49T)
2%
consumer financial markets. Research on household finance
70.7%
9.5% 9.2% 5.6% 3%
suggests that all of the components of a household’s
finances—income, consumption, savings, assets, and
Source: Federal Reserve Bank of New York, Center for
debts—are important to understand its financial experience
Microeconomic Data, Quarterly Report on Household Debt and Credit,
over time.
2022.
Safe and affordable financial services are an important tool
Consumer Lending Regulation
for most Americans as they work to achieve financial
In economic theory, consumer lending markets that are
security over the course of their lives. People use three
competitive should lead to efficient outcomes for
types of financial products: credit, insurance, and financial
consumers; yet, sometimes, market inefficiencies may be
investments. This CRS product focuses on the first
observed. Common issues in consumer financial markets
category—credit products (loans) for household purposes.
include (1) information asymmetries between financial
firms and consumers and (2) behavioral biases that
Consumer Debt
predictably bias consumers when making financial
Households typically borrow money for the following
decisions. In these cases, government policy can potentially
reasons:
bring the market to a more efficient outcome. Policymakers
must monitor the benefits and costs of various regulatory
Asset building. Using credit to make investments can
approaches to determine whether a policy intervention will
allow a household to build wealth over time (e.g., a
help or harm the market.
mortgage or student loan).
Although each consumer financial market is governed by
Consumption smoothing. Using credit to buy and
various distinct laws and regulations, three types of policy
consume now and pay later (e.g., a credit card).
interventions are common.
1. Standardizing consumer disclosures. Financial
Financial shocks or emergencies. Using credit to pay
products can be complex and difficult for consumers
for unexpected expenses, such as a car or home repair, a
to fully understand. Mandated consumer disclosures
medical expense, or a pay cut (e.g., a payday loan).
are generally intended to give consumers more
information about the costs and terms before they
Most households rely on credit to finance some of these
take out new loans, thus reducing information gaps
expenses, either to avoid having to postpone consumption
in understanding. Standardized disclosures can also
until sufficient funds have been saved or to avoid having to
help consumers shop for the best terms, because all
liquidate wealth that is being accumulated for other
financial product terms are required to be disclosed
purposes, such as retirement.
in the same way.
According to the Federal Reserve Bank of New York,
2. Preventing unfair, deceptive, or abusive practices
mortgage debt is by far the largest type of debt for
or acts. Consumers seeking financial services could
households, accounting for almost 71% of household debt.
be vulnerable, because some consumers may lack
Student debt (9.5%) is the second-largest household debt,
financial knowledge or be susceptible to behavioral
followed by auto loans (9.2%) and credit cards (5.6%). As
biases. For this reason, certain consumer protection
of the third quarter of 2022, household debt totaled $16.51
laws prohibit unfair, deceptive, or abusive acts or
trillion. (See Figure 1 for more information on household
practices. These acts and practices can include both
debt as of the third quarter of 2022.)
individual firm conduct and product features.
3. Ensuring fair lending. Fair lending laws prohibit
discrimination in credit transactions based upon
certain borrower characteristics, such as sex, race,
religion, and age. These laws have historically been
interpreted to prohibit discrimination, whether
intentional or due to disparate impact, in which a
https://crsreports.congress.gov
Introduction to Financial Services: Consumer Finance
facially neutral business decision has a
rulemakings have regulated the payday lending and small-
discriminatory effect on a protected class.
dollar credit market, the mortgage market, and the debt
Consumer Financial Protection Bureau
collection market.
The 2010 Dodd-Frank Wall Street Reform and Consumer
In addition, Congress continues to debate the CFPB’s
Protection Act (P.L. 111-203) established the Consumer
structure and budget, including the degree of independence
Financial Protection Bureau (CFPB) to implement and
the CFPB should have from Congress. The CFPB, much
enforce federal consumer financial law while promoting
like the banking regulators, is funded outside the traditional
fair, transparent, and competitive markets for consumer
congressional appropriations process. The agency is funded
financial services and products.
via a transfer from the Federal Reserve System’s combined
earnings in an amount the CFPB director determines to be
The CFPB may regulate providers of an array of consumer
“reasonably necessary” to perform its statutory functions,
financial products and services, including deposit taking,
subject to a cap. This nontraditional funding source limits
mortgages, credit cards and other extensions of credit, loan
congressional oversight of the agency and is the subject of
servicing, consumer reporting data collection, and
legal challenges. A three-judge panel of the U.S. Court of
consumer debt collection. The CFPB’s authorities fall into
Appeals for the Fifth Circuit, in Community Financial
three broad categories: rulemaking (writing regulations to
implement laws under the CFPB’s jurisdiction
Services Association of America v. CFPB, ruled that the
), supervision
CFPB’s funding is unconstitutional in violation of the
(the power to examine and impose reporting requirements
Constitution’s Appropriations Clause and separation of
on financial institutions), and enforcement of various
powers. The Department of Justice, on behalf of the CFPB,
consumer protection laws and regulations. The act also
petitioned the Supreme Court for a writ of certiorari to
directed the CFPB to develop and implement financial
review and reverse the Fifth Circuit’s decision.
education initiatives, collect consumer complaints, and
conduct consumer finance research.
Credit Reporting. The credit reporting agencies (also
Selected Policy Issues
called credit bureaus) collect and subsequently provide
information to firms about the behavior of consumers when
This section highlights selected policy issues of
they participate in various financial transactions. Firms use
congressional interest relating to consumer finance.
consumer information to screen for consumer risks. For
example, lenders rely upon credit reports and scores to
Financial Technology. Financial technology, or fintech,
determine the likelihood that prospective borrowers will
refers to financial innovations that apply new technologies
repay their loans. Various policy issues related to credit
to financial services or products, such as “peer to peer”
payments, digital wallets, and “Buy Now, Pay Later”
reporting include how to ensure data security and privacy;
how to address inaccurate or disputed consumer
financing. The innovated use of technologies—including
information; and what information is fair to include in
internet access, mobile technology, electronic payment
consumer credit reports—for example, whether medical
improvements, alternative data, and artificial intelligence—
debt or new types of consumer data should be included.
to develop consumer financial products could potentially
improve consumer experiences, lower costs, and expand
CRS Resources
access to underserved consumers. Fintech products could
CRS Report R45813, An Overview of Consumer Finance
also pose consumer protection and data security risks.
and Policy Issues
Related policy questions generally concern whether the
current regulatory framework appropriately fosters the
CRS In Focus IF10031, Introduction to Financial Services:
benefits of new technologies while mitigating potential
The Consumer Financial Protection Bureau (CFPB)
risks to consumers.
CRS Report R46332, Fintech: Overview of Innovative
The CFPB is developing a new rule to implement Dodd-
Financial Technology and Selected Policy Issues
Frank Section 1033 that would clarify standards regarding
consumer-authorized access to financial data and could
CRS In Focus IF12079, Digital Wallets and Selected Policy
significantly affect the fintech industry. According to the
Issues
CFPB, a goal of the rulemaking would be to enable
consumers “to more easily and safely walk away from
CRS Insight IN11784, Rapidly Growing “Buy Now, Pay
companies offering bad products and poor service and
Later” (BNPL) Financing: Market Developments and
move towards companies competing for their business with
alternative or innovative products and services.” The
Policy Issues
rulemaking has the potential to lead to more consumer-
CRS Insight IN11745, Open Banking, Data Sharing, and
friendly innovation and choice, but it could also introduce
the CFPB’s 1033 Rulemaking
new risks to consumers.
CRS Report R44125, Consumer Credit Reporting, Credit
CFPB Regulation and Structure. In the decade since the
Bureaus, Credit Scoring, and Related Policy Issues
CFPB was created, it has been actively engaged in many
rulemakings. Policy debates concern whether the CFPB has
appropriately balanced protecting consumers, credit access,
Cheryl R. Cooper, Analyst in Financial Economics
and costs to industry. Significant and contentious CFPB
IF11682
https://crsreports.congress.gov
Introduction to Financial Services: Consumer Finance
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11682 · VERSION 5 · UPDATED
Updated January 5, 2023
Introduction to Financial Services: Consumer Finance
Consumer finance refers to the borrowing, saving, and
Figure 1. Household Debt Breakdown in Q3 2022
investment choices that people (i.e., households) make over
Total Debt: $16.51 Trillion
Credit Card
time. These financial decisions can be complex and can
($0.93T)
2022 Q3
Home Equity
affect financial well-being both now and in the future.
Student Loan Auto Loan Line of Credit
Understanding why and how consumers make financial
($1.57T)
($1.52T)
($0.32T)
Mortgage ($11.67T)
Other
decisions is important when considering policy issues in
($0.49T)
2%
consumer financial markets. Research on household finance
70.7%
9.5% 9.2% 5.6% 3%
suggests that all of the components of a household’s
finances—income, consumption, savings, assets, and
Source: Federal Reserve Bank of New York, Center for
debts—are important to understand its financial experience
Microeconomic Data, Quarterly Report on Household Debt and Credit,
over time.
2022.
Safe and affordable financial services are an important tool
Consumer Lending Regulation
for most Americans as they work to achieve financial
In economic theory, consumer lending markets that are
security over the course of their lives. People use three
competitive should lead to efficient outcomes for
types of financial products: credit, insurance, and financial
consumers; yet, sometimes, market inefficiencies may be
investments. This CRS product focuses on the first
observed. Common issues in consumer financial markets
category—credit products (loans) for household purposes.
include (1) information asymmetries between financial
firms and consumers and (2) behavioral biases that
Consumer Debt
predictably bias consumers when making financial
Households typically borrow money for the following
decisions. In these cases, government policy can potentially
reasons:
bring the market to a more efficient outcome. Policymakers
must monitor the benefits and costs of various regulatory
Asset building. Using credit to make investments can
approaches to determine whether a policy intervention will
allow a household to build wealth over time (e.g., a
help or harm the market.
mortgage or student loan).
Although each consumer financial market is governed by
Consumption smoothing. Using credit to buy and
various distinct laws and regulations, three types of policy
consume now and pay later (e.g., a credit card).
interventions are common.
1. Standardizing consumer disclosures. Financial
Financial shocks or emergencies. Using credit to pay
products can be complex and difficult for consumers
for unexpected expenses, such as a car or home repair, a
to fully understand. Mandated consumer disclosures
medical expense, or a pay cut (e.g., a payday loan).
are generally intended to give consumers more
information about the costs and terms before they
Most households rely on credit to finance some of these
take out new loans, thus reducing information gaps
expenses, either to avoid having to postpone consumption
in understanding. Standardized disclosures can also
until sufficient funds have been saved or to avoid having to
help consumers shop for the best terms, because all
liquidate wealth that is being accumulated for other
financial product terms are required to be disclosed
purposes, such as retirement.
in the same way.
According to the Federal Reserve Bank of New York,
2. Preventing unfair, deceptive, or abusive practices
mortgage debt is by far the largest type of debt for
or acts. Consumers seeking financial services could
households, accounting for almost 71% of household debt.
be vulnerable, because some consumers may lack
Student debt (9.5%) is the second-largest household debt,
financial knowledge or be susceptible to behavioral
followed by auto loans (9.2%) and credit cards (5.6%). As
biases. For this reason, certain consumer protection
of the third quarter of 2022, household debt totaled $16.51
laws prohibit unfair, deceptive, or abusive acts or
trillion. (See Figure 1 for more information on household
practices. These acts and practices can include both
debt as of the third quarter of 2022.)
individual firm conduct and product features.
3. Ensuring fair lending. Fair lending laws prohibit
discrimination in credit transactions based upon
certain borrower characteristics, such as sex, race,
religion, and age. These laws have historically been
interpreted to prohibit discrimination, whether
intentional or due to disparate impact, in which a
https://crsreports.congress.gov
Introduction to Financial Services: Consumer Finance
facially neutral business decision has a
rulemakings have regulated the payday lending and small-
discriminatory effect on a protected class.
dollar credit market, the mortgage market, and the debt
Consumer Financial Protection Bureau
collection market.
The 2010 Dodd-Frank Wall Street Reform and Consumer
In addition, Congress continues to debate the CFPB’s
Protection Act (P.L. 111-203) established the Consumer
structure and budget, including the degree of independence
Financial Protection Bureau (CFPB) to implement and
the CFPB should have from Congress. The CFPB, much
enforce federal consumer financial law while promoting
like the banking regulators, is funded outside the traditional
fair, transparent, and competitive markets for consumer
congressional appropriations process. The agency is funded
financial services and products.
via a transfer from the Federal Reserve System’s combined
earnings in an amount the CFPB director determines to be
The CFPB may regulate providers of an array of consumer
“reasonably necessary” to perform its statutory functions,
financial products and services, including deposit taking,
subject to a cap. This nontraditional funding source limits
mortgages, credit cards and other extensions of credit, loan
congressional oversight of the agency and is the subject of
servicing, consumer reporting data collection, and
legal challenges. A three-judge panel of the U.S. Court of
consumer debt collection. The CFPB’s authorities fall into
Appeals for the Fifth Circuit, in Community Financial
three broad categories: rulemaking (writing regulations to
implement laws under the CFPB’s jurisdiction
Services Association of America v. CFPB, ruled that the
), supervision
CFPB’s funding is unconstitutional in violation of the
(the power to examine and impose reporting requirements
Constitution’s Appropriations Clause and separation of
on financial institutions), and enforcement of various
powers. The Department of Justice, on behalf of the CFPB,
consumer protection laws and regulations. The act also
petitioned the Supreme Court for a writ of certiorari to
directed the CFPB to develop and implement financial
review and reverse the Fifth Circuit’s decision.
education initiatives, collect consumer complaints, and
conduct consumer finance research.
Credit Reporting. The credit reporting agencies (also
Selected Policy Issues
called credit bureaus) collect and subsequently provide
information to firms about the behavior of consumers when
This section highlights selected policy issues of
they participate in various financial transactions. Firms use
congressional interest relating to consumer finance.
consumer information to screen for consumer risks. For
example, lenders rely upon credit reports and scores to
Financial Technology. Financial technology, or fintech,
determine the likelihood that prospective borrowers will
refers to financial innovations that apply new technologies
repay their loans. Various policy issues related to credit
to financial services or products, such as “peer to peer”
payments, digital wallets, and “Buy Now, Pay Later”
reporting include how to ensure data security and privacy;
how to address inaccurate or disputed consumer
financing. The innovated use of technologies—including
information; and what information is fair to include in
internet access, mobile technology, electronic payment
consumer credit reports—for example, whether medical
improvements, alternative data, and artificial intelligence—
debt or new types of consumer data should be included.
to develop consumer financial products could potentially
improve consumer experiences, lower costs, and expand
CRS Resources
access to underserved consumers. Fintech products could
CRS Report R45813, An Overview of Consumer Finance
also pose consumer protection and data security risks.
and Policy Issues
Related policy questions generally concern whether the
current regulatory framework appropriately fosters the
CRS In Focus IF10031, Introduction to Financial Services:
benefits of new technologies while mitigating potential
The Consumer Financial Protection Bureau (CFPB)
risks to consumers.
CRS Report R46332, Fintech: Overview of Innovative
The CFPB is developing a new rule to implement Dodd-
Financial Technology and Selected Policy Issues
Frank Section 1033 that would clarify standards regarding
consumer-authorized access to financial data and could
CRS In Focus IF12079, Digital Wallets and Selected Policy
significantly affect the fintech industry. According to the
Issues
CFPB, a goal of the rulemaking would be to enable
consumers “to more easily and safely walk away from
CRS Insight IN11784, Rapidly Growing “Buy Now, Pay
companies offering bad products and poor service and
Later” (BNPL) Financing: Market Developments and
move towards companies competing for their business with
alternative or innovative products and services.” The
Policy Issues
rulemaking has the potential to lead to more consumer-
CRS Insight IN11745, Open Banking, Data Sharing, and
friendly innovation and choice, but it could also introduce
the CFPB’s 1033 Rulemaking
new risks to consumers.
CRS Report R44125, Consumer Credit Reporting, Credit
CFPB Regulation and Structure. In the decade since the
Bureaus, Credit Scoring, and Related Policy Issues
CFPB was created, it has been actively engaged in many
rulemakings. Policy debates concern whether the CFPB has
appropriately balanced protecting consumers, credit access,
Cheryl R. Cooper, Analyst in Financial Economics
and costs to industry. Significant and contentious CFPB
IF11682
https://crsreports.congress.gov
Introduction to Financial Services: Consumer Finance
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11682 · VERSION 5 · UPDATED