Truth, Understanding, and High-Cost Consumer Credit: The Historical Context of the Truth in Lending Act

Abstract

Since the inception of human civilization consumer credit has provided a paradoxically useful and dangerous social institution. Each civilization has attempted to strike the right balance between protecting vulnerable members of society and facilitating socially useful debt. Most policy strategies for addressing the harmful aspects of consumer credit can be classified into a handful of categories: debtor amnesty, contract restrictions, selective protection, self-help free markets, charitable lending, and cooperative lending. Historical case studies exploring each of these strategies are presented. During its history the United States has imported and now continues to use variations on each of these strategies, plus one more. Credit disclosure rules, such as those found in the Truth in Lending Act, are from a historical perspective a relatively new innovation. The Truth in Lending Act was possible because it sounds in a relatively rare ideological overlap shared by those tending to advocate free markets and those tending to advocate government regulation. Nevertheless, Truth in Lending has failed to live up to its theoretical promise. For disclosure law to evolve into a more meaningful consumer protection, it must be reoriented toward promoting consumer understanding of credit price and terms, rather than the current accurate but often unheeded descriptions.

Keywords: Truth, Lending, credit, debt, consumer, usury, disclosure, market, regulation, bankruptcy, amnesty, charity, bank, banking, price, transparency