Banking and Finance Law Commons^™

Interest Rate Caps, State Legislation, And Public Opinion: Does The Law Reflect The Public's Desires?, Timothy E. Goldsmith, Nathalie Martin

Chicago-Kent Law Review

In scholarly circles, debates about the benefits and burdens of high-costs lending are prevalent, as are debates about whether to cap interest on certain kinds of consumer loan. Despite this scholarly interest, few scholars actually know what the general public thinks or knows about interest rates on common consumer credit products. This article tries to close this gap through an empirical study of consumer attitudes about interest rates in the state of New Mexico, a state in which high-cost loans such as payday loans and title loans are ubiquitous. Our data show that the general public overwhelmingly supports interest rate …

Third Party Funding Of Personal Injury Tort Claims: Keep The Baby And Change The Bathwater, Terrence Cain

Chicago-Kent Law Review

In the early 1990s, a period of high-risk lending at high interest rates, a new entrant emerged in civil litigation: the Litigation Finance Company (“LFC”). LFCs advance money to plaintiffs involved in contingency fee litigation. The money is provided on a non-recourse basis, meaning the plaintiff repays the LFC only if she obtains money from the lawsuit through a settlement, judgment, or verdict. If the plaintiff recovers nothing, she will not owe the LFC anything. When she does repay the LFC, however, she could end up paying as much as 280% of the amount advanced by the LFC. As one …

An Economic Perspective On Subprime Lending, Michael H. Anderson

Chicago-Kent Law Review

This article aims to provide a concise economic overview of several interesting subprime financing mechanisms, which are becoming increasingly common on the U.S. financial landscape. In particular, rent-to-own, payday lending, pawn broking, and (vehicle) title loans are considered. Generally speaking, a common thread with these loans is their relatively small size and short duration as well as the absence of a credit check or any of the traditional processes for determining credit-worthiness. Due to the ready availability of these loans, they appeal to low-income consumers, including the “working poor,” and to those who have suffered financial setbacks. Because the natural …

An Economic Investigation Of Rent-To-Own Agreements, Michael H. Anderson

Chicago-Kent Law Review

Rent-to-own (RTO) allows immediate access to goods without a credit check and provides an opportunity for eventual acquisition. Yet goods can be returned at any point without penalty or other adverse financial consequence. RTO is attractive to financially distressed consumers due to its ready availability as well as the options embedded in the contract. These options include the ability to cancel, early purchase, reinstate following a consumer return, and, possibly, choose the frequency of payments. In this article, a body of research on RTO is brought together and summarized. The bulk of this work is empirical, applying statistical techniques to …

Banking And The Social Contract, Mehrsa Baradaran

Scholarly Works

This article asserts that there exists today and has always existed an interdependent relationship between banks and the state. I refer to this connection and its mutual benefits and responsibilities as a social contract. When Alexander Hamilton responded to President Washington’s inquiry about the advisability of a national bank, he wrote that “such a Bank is not a mere matter of private property, but a political machine of the greatest importance to the State.” This social contract has existed since the inception of banking in the United States and has been reinforced over time, but it has recently become weakened …

The Banking Contract As A Special Contract: The Israeli Approach, Ruth Plato-Shinar

Touro Law Review

No abstract provided.

Full Disclosure Of Consumer Savings Information , Vance Hartke

Pepperdine Law Review

No abstract provided.

A Specter Is Haunting The Financial Industry - The Specter Of The Global Financial Crisis: A Comment On The Imminent Expansion Of Consumer Financial Protection In The United States, The United Kingdom, And The European Union, Daniel Lamb

Journal of the National Association of Administrative Law Judiciary

This Comment explores the regulatory fallout from the global financial crisis. Across borders, policy makers are united in their conviction to reconcile the perceived failures of their predecessors to foresee and prevent the crisis, the effects of which show no signs of abating. A critical component of what caused the crisis was the inability to correct failures in the consumer credit market, specifically in subprime mortgages. Exacerbated by an influx of capital and a generally weak regulatory environment, this market failure manifested itself forcefully through a tidal wave of defaults in the American mortgage market that sent shock waves around …

Foreword For Regulation In The Fringe Economy Symposium, John P. Caskey

Washington and Lee Law Review

No abstract provided.

Payday Lending, Bankruptcy, And Insolvency, Richard Hynes

Washington and Lee Law Review

Economic theory suggests that payday lending can either increase or decrease consumer welfare. Consumers can use payday loans to cushion the effects of financial shocks, but payday loans may also increase the chance that consumers will succumb to temptation or cognitive errors and seek instant gratification. Both supporters and critics of payday lending have alleged that the welfare effects of the industry can be substantial and that the legalization of payday lending can even have measurable effects on proxies for financial distress, such as bankruptcy, foreclosure, and property crime. Critics further allege that payday lenders target minority and military communities, …

Congress Protected The Troops: Can The New Cfpb Protect Civilians From Payday Lending?, Creola Johnson

Washington and Lee Law Review

In 2007, Congress enacted a law, commonly referred to as the Military Lending Act (MLA), which placed a 36% interest rate cap on several consumer loans, including payday loans, and prohibits lenders from engaging in several practices considered predatory. However, the MLA grants these protections only to active-duty military members and their dependent family members. In the wake of the mortgage foreclosure crisis, Congress passed and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd–Frank Act), which creates a new federal agency, the Bureau of Consumer Financial Protection (CFPB), to focus on …

The Alliance Between Payday Lenders And Tribes: Are Both Tribal Sovereignty And Consumer Protection At Risk?, Nathalie Martin, Joshua Schwartz

Washington and Lee Law Review

No abstract provided.

Regulation Of Payday Loans: Misguided?, Paige Marta Skiba

Washington and Lee Law Review

Since payday lenders came on the scene in 1990s, regulation of their “predatory” practices has been swift and often severe. Fourteen states now ban payday loans outright. From an economist’s perspective, high-interest, short-term, small loans need not be a bad thing. Payday credit can help borrowers “smooth” consumption, unequivocally improving welfare as consumers borrow from future good times to help cover current shortfalls. These benefits of credit can accrue even at typical payday loan interest rates of 300%–600% APR. The question of whether payday credit actually assists borrowers in this way is an empirical one. In this Article, I review …

Payday Loan Prohibitions: Protecting Financially Challenged Consumers Or Pushing Them Over The Edge?, William M. Webster, Iv

Washington and Lee Law Review

As recovery from the economic downturn continues, American consumers face an unabated need for short-term, small-dollar credit. To cope with this need, millions choose to take out payday loans. Often the subject of controversy and criticism, these loans have become a mainstream credit option, considered by consumers alongside so-called “traditional” credit products offered by banks and credit unions. This article examines the issues surrounding payday loans, including consumer credit needs, critical options for fulfilling those needs and consumer rationale, from the perspective of Advance America, Cash Advance Centers, Inc., the country’s largest non-bank provider of cash advance services. When faced …

Loan Sharks, Interest-Rate Caps, And Deregulation, Robert Mayer

Washington and Lee Law Review

The specter of the loan shark is often conjured by advocates of price deregulation in the market for payday loans. If binding price caps are imposed, the argument goes, loan sharks will be spawned. This is the loan-shark thesis. This Article tests that thesis against the historical record of payday lending in the United States since the origins of the quick-cash business around the Civil War. Two different types of creditors have been derided as “loan sharks” since the epithet was first coined. One used threats of violence to collect its debts but the other did not. The former has …

“Warning: Predatory Lender”—A Proposal For Candid Predatory Small Loan Ordinances, Christopher L. Peterson

Washington and Lee Law Review

Over a hundred different local governments around the country have adopted ordinances restricting small, high-cost loans. This trend reflects the solid majority of the American public that opposes the legality of triple-digit interest rate loans and the long historical tradition of treating payday and car-title lending as a serious civil offense or even a crime. Nevertheless, perhaps owing to limits on municipal power, local payday lending law has generated relatively little scholarship or commentary. This paper describes the existing local law governing small, high-cost consumer loans and proposes a more emphatic ordinance that better reflects the policy judgment of many …

The Quest For Financial Regulatory Reform: Will A Uniform Fiduciary Standard Guide The Way?, Bonnie M. Treichel

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger

Congressional Testimony

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (“OTC”) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion dollar …

From The Schoolhouse To The Poorhouse: The Credit Card Act's Failure To Adequately Protect Young Consumers, Eboni S. Nelson

Faculty Publications

No abstract provided.

The Problem With The Solution: Why West Virginians Shouldn't "Settle" For The Uniform Debt Management Services Act, Ryan Mccune Donovan

West Virginia Law Review

No abstract provided.

The Consumer Financial Protection Agency: Love It Or Hate It, U.S. Financial Regulation Needs It, Ann Graham

Villanova Law Review (1956 - )

The article discusses The Consumer Financial Protection Agency Act of 2009, a legislation filed in the U.S. House of Representatives on July 9, 2009. The U.S. House of Representatives passed The Wall Street Reform and Consumer Protection Act on December 11, 2009, which contained The Consumer Financial Protection Agency Act in Title IV. The American Bankers Association, Financial Services Roundtable, and Independent Community Bankers of America have opposed the creation of the Consumer Financial Protection Agency.

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 …

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 …

Code, Crash, And Open Source: The Outsourcing Of Financial Regulation To Risk Models And The Global Financial Crisis, Erik F. Gerding

Publications

The widespread use of computer-based risk models in the financial industry during the last two decades enabled the marketing of more complex financial products to consumers, the growth of securitization and derivatives, and the development of sophisticated risk-management strategies by financial institutions. Over this same period, regulators increasingly delegated or outsourced vast responsibility for regulating risk in both consumer finance and financial markets to these privately owned industry models. Proprietary risk models of financial institutions thus came to serve as a "new financial code" that regulated transfers of risk among consumers, financial institutions, and investors.

The spectacular failure of financial-industry …

Developing An Antitrust Injury Requirement For Injunctive Relief That Reflects The Probability Of Anticompetitive Harm, Yavar Bathaee

Fordham Journal of Corporate & Financial Law

No abstract provided.

Confusion And Convergence In Consumer Payments: Is Coherence In Error Resolution Appropriate?, Anita Ramasastry

Articles

At present, there are no uniform rules governing retail payment systems in the United States. Checks, credit cards, debit cards, and new types of payment systems—such as stored-value cards and prepaid cards—are governed by different rules and provide consumers with varying protections. In addition, several phenomena may have confused consumers about the type of consumer protections they have when using different payment systems. First, new types of intermediaries have developed—such as online funds transmission and electronic bill presentment and payment—that piggyback on existing payment systems. Second, electronic check conversion systems may convert customer checks into a different payment system—electronic funds …

Banking Law Reform And Users-Consumers In Developing Economies: Creating An Accessible And Equitable Consumer Base From The 'Excluded', Joseph J. Norton

Faculty Journal Articles and Book Chapters

Drawing on over two decades of relevant experience, the author sets forth the primary proposition that the equitable and accessible provision of banking services has never been a core component of modern banking sector legal reform in developing countries. Over the course of the article, the author evaluates the past fifteen years of banking law reform for developing countries and considers recent World Bank efforts to address financial access and equity issues. The article also includes a discussion of the rise of microfinancing and private banking industry initiatives in South Africa. The author concludes with reflections on the importance of …

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

Still Mortgaging The American Dream: Predatory Lending, Preemption, And Federally Supported Lenders, Julia Patterson Forrester Rogers

Faculty Journal Articles and Book Chapters

This Article discusses the continuing problem of predatory lending abuses in the subprime home mortgage lending market and federal and state attempts to address the problem. Over the protests of consumer advocates, federal agencies have recently issued regulations preempting state predatory lending statutes as applied to national banks and thrifts. In addition, Congress is considering legislation that would preempt state predatory lending laws for all lenders. The Article considers the preemption debate, particularly in the context of federally supported lenders-banks, thrifts, and the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Banks and thrifts receive support through the federal safety …

Better Than Cash? Global Proliferation Of Debit And Prepaid Cards And Consumer Protection Policy, Arnold S. Rosenberg

ExpressO

A global deluge of debit cards and prepaid cards – payment cards that do not require consumers to qualify for credit – is rapidly making electronic payment systems accessible to much of the world’s population that previously paid in cash for goods and services. The global proliferation of payment cards is fraught with both risk and promise for consumers.

The billions of people of low to moderate incomes who are being hurled from a cash economy into the era of electronic payments in emerging economies by the proliferation of debit and prepaid cards are particularly vulnerable to abuses by banks …