Making Credit Safer
New York University School of Law
Harvard Law School
NYU Law and Economics Research Paper No. 08-27
University of Pennsylvania Law Review, Vol. 157, 2008
Harvard Law School Program on Risk Regulation Research Paper No. 08-3
Physical products, from toasters and lawnmowers to infant car seats and toys to meat and drugs, are routinely inspected and regulated for safety. Credit products, like mortgage loans and credit cards, on the other hand, are left largely unregulated, even though they can also be unsafe. Because financial products are analyzed through a contract paradigm rather than a products paradigm, consumers have been left with unsafe credit products. These dangerous products can lead to financial distress, bankruptcy and foreclosure, and, as evidenced by the recent subprime crisis, they can have devastating effects on communities and on the economy. In this Article, we use the physical products analogy to build a case, supported by both theory and data, for comprehensive safety regulation of consumer credit. We then examine the current state of consumer credit regulation, explaining why the current regulatory regime has systematically failed to provide meaningful safety regulations. We propose a fundamental restructuring of this regime, urging the creation of a new federal regulator that will have both the authority and the incentives to police the safety of consumer credit products.
Number of Pages in PDF File: 102Accepted Paper Series
Date posted: May 31, 2008 ; Last revised: November 12, 2008
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