Credit, Morality, and the Small-Dollar Loan

69 Pages Posted: 10 Sep 2021

See all articles by Mehrsa Baradaran

Mehrsa Baradaran

University of California, Irvine School of Law

Date Written: September 8, 2021


Modern jurisprudence and regulation of small-dollar lending is centered on a consumer protection framework. State and federal agencies and regulators monitor lender behavior, policing fraudulent activity, lack of disclosure, or predation. However, for most of American history, the relevant legal framework relating to small-dollar lending was the law of Usury. This is due, in part, to Court decisions and legislative deregulation that made it difficult for states to enforce usury laws. However, the broader shift was ideological—from the Progressive era framework acknowledging small-dollar lending as a systemic problem to the general dominance of the neoliberal lens on the market that filtered interest rate through market competition. Usury laws, having been infused with moral and even religious overtones, seemed out of touch with the emphasis on “freedom of contract.” Regulating interest rates (i.e., setting prices) for small-dollar loans became anathema for a market-centric ideology. Yet, the tide has begun to turn, at least ideologically. This Article explores the legal and political evolution in lending regulation and offers suggestions on how to account for both systemic and moral concerns in small-dollar lending. The Article concludes with a proposal for a public banking option through postal banks.

Suggested Citation

Baradaran, Mehrsa, Credit, Morality, and the Small-Dollar Loan (September 8, 2021). Harvard Civil Rights- Civil Liberties Law Review (CR-CL), Vol. 55, No,1, Winter 2020, UC Irvine School of Law Research Paper No. 2021-47, Available at SSRN:

Mehrsa Baradaran (Contact Author)

University of California, Irvine School of Law ( email )

401 E. Peltason Dr.
Ste. 1000
Irvine, CA 92697-1000
United States

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