Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans

Legal Applications of Marketing Theory, Jacob Gersen & Joel Steckel, eds., Cambridge University Press (2019, Forthcoming)

San Diego Legal Studies Paper No. 18-357 (2018)

Bar Ilan University Faculty of Law Research Paper No. 18-20

34 Pages Posted: 21 Aug 2018 Last revised: 19 Oct 2018

See all articles by Shmuel I. Becher

Shmuel I. Becher

Victoria University of Wellington

Yuval Feldman

Bar-Ilan University - Faculty of Law

Orly Lobel

University of San Diego School of Law

Date Written: August 20, 2018

Abstract

Consumers in general, and poor consumers in particular, often make counter-productive financial decisions that undermine their welfare. One key example is that poor people frequently use high-cost credit and loans with onerous interest rates. They are also disproportionally engaged in other types of sub-optimal borrowing, such as rent-to-own transactions and insufficient savings for the future. Although lenders and service providers are obliged to disclose interest rates and other key information in a clear and conspicuous way, disclosures have been at best only partly effective to prevent exploitation and protect consumers. This chapter seeks to examine how consumer law can, and at times should, respond to this reality. While focusing on borrowing practices, we begin by pointing to the main behavioral patterns that impact financial decision making. We first address biases that are relevant to all consumers: over-optimism, the present bias, and the behavioral economics of information. We then discuss the psychology of poverty and scarcity, which demonstrates that the state of poverty depletes cognitive resources and undermines the consumer’s capacity to overcome temptations, choose the uneasy paths and exercise long-term planning. Against this background, we discuss a variety of policy recommendations. We focus on protections that are better-suited to treat the root causes that lead poor people to make dubious financial decisions. We conclude by succinctly noting some of the challenges entailed in our recommendations and discussing ways to expand our proposed framework.

Keywords: Poor consumer, responsible lending, payday loans, consumer credit, credit contracts, consumer behavior, high cost credit, scarcity

Suggested Citation

Becher, Shmuel I. and Feldman, Yuval and Lobel, Orly, Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans (August 20, 2018). Legal Applications of Marketing Theory, Jacob Gersen & Joel Steckel, eds., Cambridge University Press (2019, Forthcoming) ; San Diego Legal Studies Paper No. 18-357 (2018); Bar Ilan University Faculty of Law Research Paper No. 18-20. Available at SSRN: https://ssrn.com/abstract=3235810

Shmuel I. Becher (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

HOME PAGE: http://www.victoria.ac.nz/sacl/about/staff/samuel-becher

Yuval Feldman

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel

Orly Lobel

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://home.sandiego.edu/%7Elobel/

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