Making Credit Safer

102 Pages Posted: 31 May 2008 Last revised: 12 Nov 2008

Oren Bar-Gill

Harvard Law School

Elizabeth Warren

Harvard Law School

Abstract

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.

Suggested Citation

Bar-Gill, Oren and Warren, Elizabeth, Making Credit Safer. 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. Available at SSRN: https://ssrn.com/abstract=1137981

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Elizabeth Warren

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3101 (Phone)
617-496-6118 (Fax)

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