Ebook Private Liability For Reckless Consumer Lending
Congress recently passed what it perceived as long overdue reform to the federal consumer bankruptcy laws. The overarching theme of these amendments is increased responsibility of debtors to pay back their debts. Congress went tough on debtors, and it is believed this crack-down will stem the burgeoning number of personal bankruptcy filings in this country.
Many scholars have opined that these new laws were ill conceived. One common complaint is that they are overly cumbersome and will drive up the expense of the consumer bankruptcy system enormously for all participants. Compulsory court filings, documentations, calculations, and certifications add much to the cost of a “means test” system for everyone a means test that many concede will catch only a few miscreants. That is a sound critique of the law, but it is widely shared.
The purpose of this article is to take the more pointed position that the reforms were wrongheaded in their entire antidebtor approach in the first place. This stance is not out of sympathy for debtors. It is an objection based on efficiency, fairness, and (to a certain extent) legislative intent. If one accepts Congress’ apparent premise that the number of personal bankruptcy filings in the United States is too high, and if one believes, as recent data demonstrate, that consumer bankruptcies vary as a function of personal credit card debt, a better strategy would have been and would still be to crack down on creditors, not debtors, in order to curtail the number of filings. Instead of, or at least in addition to, targeting debtors, Congress should fix its sights on creditors: paradigmatically, institutional high-rate (subprime) consumer credit card lenders.
Implementing this notion of creditor-focused reform, this article proposes that Congress should consider establishing privately enforceable legal remedies against consumer lenders who bear primary responsibility for a debtor’s financial default. “Reckless credit” should become a legally recognized defense to collection on such undesirable loan contracts, and possibly even an affirmative cause of action in tort. The proposal does not come on a clean slate.
Over thirty years ago, Professor Vern Countryman published a characteristically pithy article arguing for similar relief, and that piece in turn chronicled his efforts that began over forty years ago. Countryman failed to convince Congress; indeed, his proposal was virtually stillborn. I do not flatter myself to be more persuasive than Countryman, nor do I delude myself into thinking that the political environment in this country has become more solicitous toward consumer debtors. The goal is more restrained. This article seeks to explore some of the theoretical foundations as to why such private liability might be a positive and effective intervention given today’s new lending environment, and, more importantly, to examine some objections that skeptics are likely to assert.
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