Payday Lending Regulation: The Substitution Effect?

posted by Adam Levitin

A common argument made against regulating small dollar credit products like payday loans is that regulation does nothing to address demand for credit, so consumers will simply substitute their consumption from payday loans to other products:  overdraft, title loans, refund anticipation loans, pawn shops, etc. The substitution hypothesis is taken as a matter of faith, but there's surprisingly little evidence one way or the other about it (the Slips' own Angie Littwin has an nice contribution to the literature).  

The substitution hypothesis is prominently featured in a New York Times piece that is rather dour about the CFPB"s proposed payday rulemaking. Curiously, the article omits any mention of the evidence that the CFPB itself has adduced about the substitution hypothesis. The CFPB examined consumer behavior after banks ceased their "deposit advance programs" (basically bank payday lending) in response to regulatory guidance. There's a lot of data in the report, but the bottom line is that it finds little evidence of substitution from DAPs to overdraft, to payday, or even to bouncing checks. The one thing the CFPB data examine is substitution to pawn shop lending.  A recent paper by Neil Bhutta et al. finds evidence of substitution to pawn lending, but not to other types of lending, when payday loans are banned. I'd suggest that we're more likely to see a different substitution:  from short-term payday loans (45 days or less) to longer-term installment loans. That's not necessarily a bad thing...if the regulations are well-crafted to ensure that lenders aren't able to effectively recreate short-term payday loans through clever structuring of installment loans. For example, a lender could offer a 56-day loan with four bi-weekly installment payments, but with a "deferral fee" or "late fee" offered for deferring the first three bi-weekly payments. That's the same as four 14-day loans that rollover, and the "late fee" wouldn't be included in the APR.  That's perhaps an even better structure for payday lenders than they currently have.) The bigger point here is this:  even if we think that there will be substitution, not all substitution is the same, and to the extent that the substitution is to more consumer-friendly forms of credit, that's good.

Continue reading "Payday Lending Regulation: The Substitution Effect?" »

The Big 1-0

posted by Bob Lawless

10th BirthdayToday is the tenth anniversary of the launch of Credit Slips. We started the blog in the middle of a big research project as an exercise in team building We also thought the blog might be a place where we could try to reach a wider audience about the scholarship coming out of the project. It is hard to believe we are still chugging along after 10 years.

A lot has happened in 10 years. When we started, blogging was relatively new and especially new for academics trying to reach outside the ivy-covered walls. There weren't no Twitter or Facebook, and Pokemon was passé. Looking back at that first post, four of the original seven bloggers are still with the blog. Things have moved on considerably for most all of the original bloggers. One of us got hired and tenured at one of this nation's leading law schools. A few of us have moved universities. One of us even became the senior United States senator from Massachusetts. Some of our newest bloggers are people we were mentoring as junior scholars or even students ten years ago. For myself over the past 10 years, I managed to move to a new faculty office down the hallway.

We have been talking about a few changes to the blog to keep current with the times, but the changes will not affect our topical focus. Our goal remains what it has been from the start, which is to reach outside the legal academy to have conversations with who care deeply about the policy issues surrounding credit, finance & bankruptcy. Thanks for being part of the conversation.

GM & Ignition Switches

posted by Stephen Lubben

My take on the Second Circuit's opinion – which Levitin has also written about (and I agree with him that the used car analysis is a bit "off") – is over on Dealb%k.  In short, I think that GM mostly has itself to blame for the inability to "discharge" these claims in its chapter 11 case. But the basic point that the federal Bankruptcy Code can override state law successor liability claims remains, despite what some state (and federal) courts have previously held.

Thoughts on the GM Ignition Switch Opinion

posted by Adam Levitin

The Second Circuit handed down its much-anticipated decision on the GM successor liability claims. Bottom line is that most, if not all, of the various claims against New GM are not barred by the Sale Order because of lack of procedural Due Process.  That said, there's a lot more in the ruling.  My thoughts below the break: 

Continue reading "Thoughts on the GM Ignition Switch Opinion" »

Porter's Modern Consumer Law

posted by Bob Lawless

Porter Consumer LawCredit Slips blogger Katie Porter has produced a new textbook in consumer law that anyone teaching the subject should consider adopting. Indeed, law professors not teaching consumer law should to take a look at it and consider whether they should add the class to their teaching portfolio. A 2013 poll on Brian Leiter's Law School Reports named consumer law as the number one "area of law which deserves more attention in the legal academy." Next academic year I will be picking up a new course, and the emergence of Porter's new text made the decision easy for me as to which course it will be.

In the preface, Porter makes explicit her three-pronged approach to the topic of consumer law:

  1. The book situates consumer law within the business-law curriculum. "Consumer law is big business," she notes. Understanding the legal issues requires understanding the "deal," the information flow, and the market in which the transaction occurs. Porter expressly recognizes, "the world of consumer practice offers opportunities for lawyers to represent consumers (as government lawyers, policy advocates, and plaintiffs’ attorneys) and to represent businesses (as in-house counsel, defense attorneys, and
    lobbyists)."
  2. The book provides a strong theoretical frame by situating consumer law at the intersection of tort and contract. The book does not present consumer law as a hodgepodge of cases and statutes loosely organized around the term "consumer." Rather it recognizes that a lot of what travels under the law of "consumer law" responds to the gaps that traditional contract and torts doctrines have when it comes to the issues that consumer transactions create.
  3. The book explores where the social-science literature has learning for consumer law. Porter looks to see what psychology, sociology, marketing, and economics can add to our understanding of the legal issues. By doing so, the book explores the difference between law on the ground and law in the books. 

The book uses a problem-based method of instruction that will be familiar to users of Porter's co-authored bankruptcy textbook or my co-authored secured transactions textbook. The problems range from straight-forward statute readers to teach doctrine to tough client counseling problems that focus on real-world lawyering skills.

More information, including a table of contents and a sample chapter, can be found at Aspen Publishers.

The Bad CHOICE Act

posted by Adam Levitin

I'm testifying before House Financial Services tomorrow regarding the "CHOICE Act," the Republican Dodd-Frank alternative.  My testimony is here.  It's lengthy, but it doesn't even cover everything in the CHOICE Act--there are just too many bad provisions, starting with the idea of letting megabanks out of Dodd-Frank's heightened prudential standards in exchange for more capital, then moving on to a total gutting of consumer financial protection, and ending with a very poorly conceived good bank/bad bank resolution system executed through a new bankruptcy subchapter.  The only good thing about the Bad CHOICE Act is that it has little chance of becoming law any time soon. 

Annual U.S. Bankruptcy Filings on Track for 6.7% Decline

posted by Bob Lawless

Filings per 1000.July 2008 to June 2016It has been a while since I last checked in on bankruptcy filing rates. The arrival of the latest figures from Epiq Systems was a welcome reminder to do so.

We are at the halfway point for the year, and the U.S. has had 398,000 bankruptcy filings. It is tempting to simply double that figure to get an estimate of what filings will total for all of 2016, but that estimate would be too high. Bankruptcy filings are somewhat more concentrated in the first six months of the calendar, which have accounted for about 52% of yearly filings for the past two years. Extrapolating from recent experience would mean there will be 764,000 filings for the calendar year.

That would be a 6.7% decline in filings from 2015. Back in January, I forecasted a 5% decline or 780,000 filings for 2016. Given that we are well within the confidence interval of that estimate, I will take that. Although we still have half the year left to go, the model I use for the forecasting looks to be holding up.

In terms of trends, we have had 68 straight months of year-over-year declines in the daily filing rate. The annualized filing rate per 1,000 currently stands at 2.46. The graph shows a 12-month moving average for filings per 1,000 persons since 2008. The discerning eye will note the tail of the graph is flattening. The year-over-year decline is slowing. Where we saw double-digit declines in 2013-14, the declines are in the 5%-8% figures now.

Continue reading "Annual U.S. Bankruptcy Filings on Track for 6.7% Decline" »

Harmonizing Consumer Insolvency Law

posted by Jason Kilborn

HarmonyIn contrast to the cacophony created by Brexit, EU authorities have been working for several years on a project to move toward greater harmony among the discordant insolvency laws of the Member States. Though the project is focused on business rescue and restructuring, the Commission Recommendation "on a new approach to business failure and insolvency" makes specific reference to non-business cases, as well, as "Member States are invited to explore the possibility of applying these recommendations also to consumers" (para. 15).

A fantastic conference at Brunel University London this May explored the question whether there was a need for comprehensive EU intervention in the historically national-law arena of consumer debt relief. The conference presented several instructional vignettes on the varying situations in the UK, Germany, Italy, and Greece, as well as some reflections on the very limited degree of EU involvement in ensuring "fair" consumer credit markets as a supposed bulwark against overindebtedness. The presentations at the conference vividly illustrated the weakness of this supply-side-only approach, as well as the extreme divergence among exisiting European personal insolvency relief regimes. A fascinating book published in connection with this conference's greater project nicely illustrates the messy state of overindebtedness regulation in the EU today.

All of which has me thinking about a topic that recurs in the academic debate in the US from time to time:

Continue reading "Harmonizing Consumer Insolvency Law" »

Regulars

Occasionals

Current Guests

Kindle and ePub Versions of Bankruptcy Code

  • Free Kindle and ePub versions of the Bankruptcy Code are available through Credit Slips. For details and links, visit the original blog post announcing the availability of these files.

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad