Toward Regulatory Mass Redress Schemes - Mass Redress in Financial Mis-Selling Scandals in the U.S., the U.K. and South Korea

Youkyung Huh

Document Type

Article

Publication Title

Indiana International & Comparative Law Review

Abstract

This paper analyzes case studies from three nations that have recently used regulatory redress schemes to address widespread financial mis-selling scandals. In response to the inappropriate sales of credit card add-on products in the United States, the Consumer Financial Protection Bureau (CFPB) ordered financial companies to repay consumers whom these deceptive practices harmed. In the United Kingdom, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) ordered and managed consumer redress schemes that reimbursed millions of consumers who were mis-sold payment protection insurance (PPI) policies. In South Korea, the Financial Supervisory Service (FSS) advised financial companies to repay consumers for mis-sold credit card add-on products. The regulatory case studies cited in this article all involve harm to consumers caused by financial products. Regulatory mass redress works exceptionally well in the financial services sector because, unlike any other industry, it is a heavily regulated industry that offers regulators unique opportunities to access information and intervene at an early stage. The wide variety of enforcement mechanisms available to financial regulators creates incentives for the regulated entities to offer redress voluntarily and promptly. Further, as the consumer harm that financial products cause can easily be widespread, inconspicuous, and of low-value in individual cases, policymakers have come to consider regulatory mass redress as an attractive alternative to traditional class action litigation. Regulatory redress schemes operate in the broader milieu of each nation's unique civil justice system and financial regulatory architecture. In the U.S. and the U.K., financial authorities promulgate, impose, and operate explicit legal mandates, guidelines, and procedures regarding consumer restitution or redress schemes. In contrast, the South Korean case lacks a legal basis for its consumer redress scheme and is much more informal. What these regulatory redress schemes have in common is that they can be very accessible, effective, and efficient, particularly in low-value but widespread financial mis-selling cases. However, regulatory redress schemes are not without drawbacks. Critics argue that consent replaces the rule of law, and administrative actions replace due process." They also raise the concern that the new processes emphasize efficiency over the right to a fair trial by an independent judiciary that will consider the evidence and apply the law. Thus, designing an optimal regulatory redress scheme becomes a balancing act between efficiency gains and due process. This paper reflects on the implications of these three case studies and proposes various factors that legislators should consider when designing regulatory redress schemes.

First Page

99

Last Page

126

Publication Date

2019

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