Regulating Excessive Credit

Abstract

Consumer financial protection law is dominated by ex-ante, contract-centered regulatory measures. But these measures largely fail to curb lenders' incentive to lend beyond consumers' ability to repay. The Article thus suggests an alternative approach: discouraging lenders from extending loans that cannot be repaid by dismissing the imprudent lender's claims in consumer bankruptcy. I argue that regulating underwriting decisions through bankruptcy is normatively desirable because it cuts through the artificial separation between consumer finance law and consumer bankruptcy law. By the same token, it not only overcomes the autonomy and effectiveness concerns attached to traditional consumer finance regulation, but may also enhance the internal coherence of consumer bankruptcy law.

Keywords: consumer finance law, consumer bankruptcy law, regulation

JEL Classification: K12, K35, D18