Consumer Law Myopia

64 Pages Posted: 15 Feb 2019

See all articles by Andrew T. Hayashi

Andrew T. Hayashi

University of Virginia School of Law

Date Written: February 14, 2019


People make mistakes with debt, partly because the chance to buy now and pay later tempts them to do things that are not in their long-term interest. Lenders sell credit products that exploit this vulnerability. In this Article, I argue that critiques of these products, particularly those that draw insights from behavioral law and economics, have a blind spot: they ignore what the borrowed funds are used for. By evaluating financing transactions in isolation from the underlying purchase, the cost-benefit analysis of consumer financial regulation is truncated and misleading. I show that the same bias that causes someone to take an exploitative loan may also imply that the loan benefits them by causing them to purchase a product or service that they should, but wouldn’t otherwise, buy. I demonstrate the importance of this effect in a study of tax refund anticipation loans. I find that regulation curtailing these loans reduced the use of paid tax preparers and the takeup of the earned income tax credit, which is the second largest federal transfer to low-income households.

Keywords: behavioral law and economics, consumer law

Suggested Citation

Hayashi, Andrew T., Consumer Law Myopia (February 14, 2019). Virginia Law and Economics Research Paper No. 2019-03, Available at SSRN:

Andrew T. Hayashi (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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