So far, resistance to the Consumer Financial Protection Agency is fierce. Conservatives like Texas Representative Jeb Hensarling argue that the CFPA will limit consumer choice and stifle innovation, even claiming that such an agency would have outlawed ATMs, frequent-flyer miles, and debit cards.

Richard Posner, writing in The Wall Street Journal on Wednesday, espouses a similar view, but ascribes to CFPA-supporters a dismal view of humanity. He writes:

The plan of the new agency reveals the influence of "behavioral economics," which teaches that people, even when fully informed, often screw up because of various cognitive limitations.

Certainly, one of the goals of the CFPA is to permit consumers to make smarter decisions about financial products. And this is done not just by improving the information available to them, but by, for example, banning dangerous products.

But the agency is not designed to eliminate bad decisions made by dumb, irresponsible borrowers. Far from it, the CFPA targets dumb, irresponsible lenders. The agency's champion, TARP overseer and Harvard law professor Elizabeth Warren, described the aims of the agency in a 2007 article for Democracy:

To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. Instead it is about making certain that the products themselves don't become the source of the trouble.

Posner and others use behavioral economics to rally against the CFPA because they believe the field channels government bureaucracy to limit the choice of individuals who, even if of limited cognitive ability, would make better decisions without regulation. In fact, the agency targets deceptive products. Indeed, it is difficult to see how removing dangerous mortgages and credit cards from the marketplace does anything to individuals' decision making at all, besides make it less likely that they will take out a loan they cannot afford.

The Obama administration is currently losing its argument for the CFPA. It is suffering under some of the same criticisms as its health care reform plan: in particular, that choice will be limited by minimum regulatory standards. The criticism is a false one. But, as the administration falls back on its success at saving the economy from the brink as its primary accomplishment, a victory on financial regulatory reform will be essential.