Banking and Finance Law Commons^™

Shadowing Lenders And Consumers: The Rise, Regulation, And Risks Of Non-Banks, Shelby D. Green

Elisabeth Haub School of Law Faculty Publications

Since the financial crisis of 2008, “shadow banking” or financial transactions by “non-banks,” has skyrocketed. Non-banks are not depositary institutions and as such, they roam free, largely outside the purview of the bank regulators. They occupy all parts of the credit markets, from mortgage loan origination to payday lenders. Untethered, they operate without government guarantees, such as deposit insurance and have no access to emergency government lending facilities, such as the Federal Reserve's discount window.

There are both positives and negatives in the rise of non-banks. On the positive side is market liquidity and greater diversity of funding sources for …

Consumer Bitcredit And Fintech Lending, Christopher K. Odinet

Christopher K. Odinet

Financial Reform: Making The System Safer And Fairer, Michael S. Barr

Articles

In the fall of 2008, the financial crisis crushed the U.S. economy and plunged the country into the Great Recession. The crisis shuttered American businesses, cost millions of Americans their jobs, and wiped out home values and household savings. The macro effects hit hardest and were the longest lasting for those least able to bear the brunt of the crisis. It was devastating to middle-income families and perhaps even more so to low- and moderate-income households, who had little financial buffer (Barr 2012a). Financial stability, never robust for these families, dropped precipitously (Barr and Schaffa 2016). Both in the United …

Tmi About Pmi: A Basic Guide To Private Mortgage Insurance, Marie Sarantakis

Marie Sarantakis

Purchasing a home for the first time can be an intimidating and overwhelming experience for the average consumer. In an economic downturn, Private Mortgage Insurance (PMI) is a commonly utilized mechanism that affords homebuyers the ability to purchase a residence with a minimal down payment while insulating the lender as the beneficiary of the policy. PMI is an often dreaded and misunderstood expense. This basic guide provides a rudimentary understanding of PMI for a real estate novice.

Mers Remains Afloat In A Sea Of Foreclosures, Shelby D. Green

Elisabeth Haub School of Law Faculty Publications

Despite the simple premise of the MERS System, opponents--or those simply trying to invalidate or forestall enforcement of their mortgages--have leveled various challenges to MERS's practices and even its basic business model. Taking an aerial view of the challenges, it is possible to discern a certain pattern as one challenge seemed to morph into the next (often following rejection of the earlier one in the courts). Some borrowers have asserted that MERS lacked legal standing to foreclose because it was a mere nominee and not the owner of the note. Even if MERS's legal standing was upheld, borrowers pointed to …

Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policy makers typically approach human behavior from the perspective of the rational agent model, which relics on normativc, a priori analyses. The model assumes people make insightful, well-planned, highly controlled, and calculated decisions guided by considerations of personal utility. This perspective is promoted in the social sciences and in professional schools and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, and the one we will articulate here, provides a substantially difierent perspective on individual behavior and its policy and regulatory implications. According to the empirical perspective, behavior …

Ability To Pay, John A. E. Pottow

Articles

The landmark Dodd-Frank Act of 2010 ("Dodd-Frank") transforms the regulation of consumer credit in the United States. Many of its changes have been high-profile, attracting considerable media and scholarly attention, most notably the establishment of the Consumer Financial Protection Bureau ("CFPB"). Even specific consumer reforms, such as a so-called "plain vanilla" proposal, drew hot debate and lobbying firepower. But when the dust settled, one profoundly transformative innovation that did not garner the same outrage as plain vanilla or the CFPB did get into the law: imposing upon lenders a duty to assure a borrower's ability to repay. Ensuring a borrower's …

The Subprime Crisis And The Link Between Consumer Financial Protection And Systemic Risk, Erik F. Gerding

Publications

This Article will appear in a May 2009 symposium issue of the Florida International University Law Review on the global financial crisis. This Article argues that the current global financial crisis, which was first called the “subprime crisis,” demonstrates the need to revisit the division between financial regulations designed to protect consumers from excessively risky loans and safety-and-soundness regulations intended to protect financial markets from the collapse of financial institutions. Consumer financial protection can, and must, serve a role not only in protecting individuals from excessive risk, but also in protecting markets from systemic risk. Economic studies indicate it is …

The Case For Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policymakers approach human behavior largely through the perspective of the “rational agent” model, which relies on normative, a priori analyses of the making of rational decisions. This perspective is promoted in the social sciences and in professional schools, and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, provides a substantially different perspective on individual behavior and its policy implications. Behavior, according to the empirical perspective, is the outcome of perceptions, impulses, and other processes that characterize the impressive machinery that we carry behind the eyes and between …

The Subprime Crisis And The Link Between Consumer Financial Protection And Systemic Risk, Erik F. Gerding

Publications

This Article argues that the current global financial crisis, which was first called the “subprime crisis,” demonstrates the need to revisit the division between financial regulations designed to protect consumers from excessively risky loans and safety-and-soundness regulations intended to protect financial markets from the collapse of financial institutions. Consumer financial protection can, and must, serve a role not only in protecting individuals from excessive risk, but also in protecting markets from systemic risk. Economic studies indicate it is not merely high rates of defaults on consumer loans, but also unpredictable and highly correlated defaults that create risks for both lenders …

An Opt-Out Home Mortgage System, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Other Publications

The current housing and financial crisis has led to significant congressional and executive action to manage the crisis and stem the harms from it, but the fundamental problems that caused the crisis remain largely unaddressed. The central features of the industrial organization of the mortgage market with its misaligned incentives, and the core psychological and behavioral phenomena that drive household financial decisionmaking remain. While the causes of the mortgage meltdown are myriad and the solutions likely to be multifaceted, a central problem that led to the crisis was that brokers and lenders offered loans that looked much less expensive and …

Behaviorally Informed Financial Services Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Other Publications

Financial services decisions can have enourmous consequences for household well-being. Households need a range of financial services - to conduct basic transactions, such as receiving their income, storing it, and paying bills; to save for emergency needs and long-term goals; to access credit; and to insure against life's key risks. But the financial services system is exceedingly complicated and often not well-designed to optimize house-hold behavior. In response to the complexity of out financial system, there has been a long running debate about the appropriate role and form of regulation. Regulation is largely stuck in two competing models - disclosure, …