A Human Rights Approach to Consumer Credit
65 Pages Posted: 19 Jun 2018
Date Written: December 1, 2015
As consumer credit and its attendant problems have exploded around the globe, consumer protection has been the dominant, if not exclusive, framework for mitigating risks to the consumer. Historically, consumer protection work in the consumer credit context has focused on “leveling the playing field” between debtors and creditors by preventing fraud and ensuring proper disclosure. Certain types of loans are now subject to substantive restrictions, such as the new Dodd-Frank regulations requiring mortgage lenders to ensure that borrowers have the ability to repay high cost mortgages. Despite these important advances, some critical gaps remain. Predatory lending continues to be a significant problem. In addition, even in circumstances where there are effective disclosures and absent predatory behavior, consumers can find themselves financially distressed as a result of onerous debt obligations. In particular, the current approach does not effectively address situations in which a debtor’s desperation renders her willing to accept credit on whatever terms it is offered.
This paper suggests that a human rights framework can provide a complementary overlay to the consumer protection approach to consumer credit. Far from supplanting the consumer protection framework, human rights principles can bolster and complement consumer protection work. Human rights principles can establish a universal floor of protection that prevents a race to the bottom and cannot be circumvented on economic efficiency grounds. I propose a specific example of a consumer credit regulation based on human rights: namely, states should not enforce a consumer credit contract if, at the time of the contract, it was substantially likely that the contract would render the debtor unable to meet his or her basic needs.
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