The New Usury: The Ability-to-Repay Revolution in Consumer Finance

60 Pages Posted: 3 Feb 2023 Last revised: 29 Apr 2024

See all articles by Adam J. Levitin

Adam J. Levitin

Georgetown University Law Center

Date Written: April 29, 2024

Abstract

American consumer credit regulation is in the midst of a doctrinal revolution. Usury laws, for centuries the mainstay of consumer credit regulation, have been repealed, preempted, or otherwise undermined. At the same time, changes in the structure of the consumer credit marketplace have weakened the traditional alignment of lender and borrower interests. As a result, lenders cannot be relied upon to avoid making excessively risky loans out of their own self-interest.

Two new doctrinal approaches have emerged piecemeal to fill the regulatory gap created by the erosion of usury laws and lenders’ self-interested restraint: a revived unconscionability doctrine and ability-to-repay requirements. Some courts have held loan contracts unconscionable based on excessive price terms, even if the loan does not violate the applicable usury law. Separately, for many types of credit products, lenders are now required to evaluate the borrower’s repayment capacity and to lend only within such capacity. The nature of these ability-to-repay requirements varies considerably, however, by product and jurisdiction. This Article terms these doctrinal developments collectively as the “New Usury.”

The New Usury represents a shift from traditional usury law’s bright-line rules to fuzzier standards like unconscionability and ability-to-repay. Although there are benefits to this approach, it has developed in a fragmented and haphazard manner. Drawing on the lessons from the New Usury, this Article calls for a more comprehensive and coherent approach to consumer credit price regulation through a federal ability-to-repay requirement for all consumer credit products coupled with product-specific regulatory safe harbors, a combination that offers the best balance of functional consumer protection and business certainty.

Keywords: usury, ability-to-repay, unconscionability, rules-vs-standards, consumer finance, consumer credit

Suggested Citation

Levitin, Adam J., The New Usury: The Ability-to-Repay Revolution in Consumer Finance (April 29, 2024). George Washington Law Review, Vol. 92:2, pp. 425-484 (2024), Available at SSRN: https://ssrn.com/abstract=4347041 or http://dx.doi.org/10.2139/ssrn.4347041

Adam J. Levitin (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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