El rol de la cultura en la teoría de metas de logro

4.8.1 Paternalism, politics and consumer financial regulation

UK conduct of business regulation is founded on the concept of correcting market failures. 122However, this technocratic approach may be viewed as somewhat

disingenuous since determining regulatory policy involves making a number of “political

Supra, note 115, (‘Applying behavioural economics’), 24-25 and a speech by Martin Wheatley, former

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Chief Executive of the FCA, ‘The human face of regulation’, 10 April 2013 Supra, note 115, (‘Applying behavioural economics’), 43

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Sheila Nicholl, (Director of Conduct Policy at FSA/FCA) speech,, ‘Developing regulatory policy on

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mortgages at the national, European and international Level’, 3rd November 2011

Supra, note 58, (‘Mortgage Effectiveness Review’), 19-20. See also Christine Jolls and others, ‘A

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behavioral approach to law and economics’, (1998) 50 Stanford Law Review 1471 FCA, MCOB 4.7A1 and 4.8A

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For example this approach is clearly set out in the FCA’s ‘Economics for effective regulation’, (2014),

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Occasional Paper 13, 5 and it is embedded in the FCA’s statutory strategic objective to “ensure that markets function well”, FCA, ‘Our future mission’, (October 2016), 4

judgements”. This has developed into the FCA becoming a “surrogate citizen” deciding 123 what level of protection to prioritise and who should be protected, in what manner and to what extent. The FCA may consequently set out how much individuals can afford to 124 spend and how much financial risk they should each be exposed to. This can be seen in the regulatory policy governingthe UK mortgage systems and the latter’s exposure of consumers to high levels of debt. Jane Ball notes that individual indebtedness in the UK was 86% of GDP (by 2017 this had increased to almost 140%) compared with, for

example, only 48.3% in France. It may be that lenders are more likely to make a loan in 125 the UK since it is relatively easy to evict a mortgagee. In contrast there are no mortgage eviction figures available in France. The legal eviction process in France also takes 126 account of social issues not least that someone evicted is likely to have difficulty finding even rented property to live in since eviction carries a high level of social stigma.

Consequently, because of the difficulty in evicting defaulters, banks are reluctant to lend unless they can be certain that there is no risk of needing to seek an eviction order. 127

4.8.2 “Structured paternalism”

The MMR’s approach is for the regulator to take greater control of the market and to determine what is best for consumers.Sigal Ben-Porath considered this form of state paternalism, and in her evaluation quoted both Kant’s view of “paternalism” as “degrading of men” and Isaiah Berlin’s contention that paternalism always leads to some form of coercion no matter how well intentioned. Ben-Porath, however, believes that the proper 128 functioning of the state requires it to act in a “structured paternalistic” manner by allowing the individual freedom of choice within set boundaries and that discussion should focus on

Harry McVea, ‘Financial services regulation under the the Financial Services Authority: a reassertion of

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the market failure thesis?’, (2005) Cambridge Law Journal, 64(2), 413-448, 445 Ibid, (McVea), 445

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Jane Ball, ‘Using banks: the effect of national attitudes to public intervention in mortgage lending and

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eviction in French and English law’, (2010) International Journal of Law in the Built Environment, 122 Ibid, (Ball) 125

126

Supra, note 125, (Ball) 124

127

Sigal Ben-Porath, Tough choices: structured paternalism and the landscape of choice, (Princeton

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where those boundaries should be. However, the UK may be moving closer to the 129 French model with a much more paternalistic approach to protecting borrowers.

4.8.3“Libertarian paternalism”

Libertarian paternalism aims to influence “the choices...in a way that will make choosers better off” since “in some cases individuals make inferior decisions in terms of their own welfare decisions that they would change if they had complete information, unlimited cognitive abilities, and no lack of self-control.” It is based on the concept that it is right 130 and proper for the state to act to protect the consumer from themselves and it is only a matter of deciding which are the best tools for this role in “the toolbox of libertarian paternalism.” This form of “soft paternalism” can include regulations which seeks to 131 educate the borrower but still leaves them with the ultimate choice. These could take the 132 form of procedural constraints or default choices for consumers. However, Wright 133

challenges this view, believing that rational lenders will always take sufficient steps to protect themselves without the need for regulatory interference. However, he was 134 writing on the cusp of the financial crisis and there is substantial evidence of lenders mis- pricing risk contrary to their own interests, those of their customers and the financial system in general. Consequently, the approach adopted by the FCA more or less 135 ceases to treat consumers as consenting adults and places responsibility on the lender to act as the consumers’ guardian and guarantor. This develops a form of “Coasian

Ibid, 28

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Cass Sunstein and Richard Thaler, ‘Libertarian paternalism is not an oxymoron’, (2003) 70 University of

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Chicago Law Review 1159

Ibid, (Sunstein) 1174, From the examples given by the authors the approach adopted for mortgage

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advice, by the FCA, lacks the “libertarian” element they envisaged. The authors consider that the “bounded rationality” of people means that in some instances a form of “guiding” or “nudge” is necessary. People, generally, are not the rational calculating machines of classical economic theory. Herbert Simon (a Nobel economics prize-winner) first coined the phrase “bounded rationality” to describe “Man, faced with complexity beyond his ken, uses his information processing capacities to seek out alternatives, to calculate

consequences, to resolve uncertainties, and thereby ...to find ways of action that are sufficient unto the day, that satisfice.” ‘Rational decision making in business organizations’, Nobel Memorial Lecture, 8th December, 1978

Emilios Avgouleas, ‘Reforming investor protection regulation: the impact of cognitive biases’ in

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Michael Faure and Frank Stephen, (eds), Essays in the law and economics of regulation in honour of Anthony Ogus, (Intersentia, The Hague, 2008), 143-166, 146

Supra, note 130, (Sunstein), 1174

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Joshua Wright, ‘Behavioral law and economics, paternalism, and consumer contracts: an empirical

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perspective’, (2007) 2 New York University Journal of Law & Liberty 476 Chapt 3, n15, (‘Turner Review’), 35

Theorem”. It implicitly views the lender as best placed not only to undertake the 136

affordability and suitability assessments but also to shoulder any losses if the assessment turns out to have been wrong viewed with hindsight many years hence. The key issue 137 is whether the FCA’s approach may prove to be beyond the capabilities of mortgage lenders both in terms of the risk that they make the wrong judgments about consumer mortgage affordability and, consequently, that their balance sheets prove too weak to sustain the cost of remediation work and consumer compensation at some future date. This issue could develop in a number of ways including higher cost mortgages to reflect this increased risk, a reduction in the provision of mortgages except to high-net-worth customers, or a subsequent taxpayer funded bail-out of broken mortgage lenders. All of these potential outcomes may have serious socio-economic and political consequences, aspects of which are considered in the following sections.