The New Usury

I have a new paper up on SSRN. It's called The New Usury: The Ability-to-Repay Revolution in Consumer Finance. It's a paper that's been percolating a while--some folks might remember seeing me present it (virtually) at the 2020 Consumer Law Scholars Conference, right as the pandemic was breaking out. Here's the abstract:

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 Usury laws, for centuries the mainstay of consumer credit regulation, have been repealed, preempted, or otherwise undermined.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 not to make 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 collectively terms these doctrinal developments 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. While 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 greatest functional consumer protection and business certainty.

Comments

[Laurie Grady]

What about Usury on old Legacy Rmbs. specifically when servicer #7 comes forward in foreclosing and there is no evidence in the supporting documents in court of any account with the trust. in fact the actual loan level reporting now mandated fails to state any balance owed or activity at all. So knowingly , carried forward on a debt collection off a receivable purchased at .06 on the dollar on a deed of trust recorded 4 yrs after close robosigned and unverifiable as well as an alonge placed separately on an RMBS settled 5 times over where fees and charges continued 7 years after default and 6 service transfers no notes, QWR Error resolution and cease and desist have some effect until the bad debt is sold at .06 on the dollar then bought and brought in Litigation by Nationstar on behalf of a trust who has no clue or claim. How does one homeowner prevail and even get attention of court to anything that matters being called time barred. `15 years past error notification and first 4 years of servicing are destroyed and not transferred. Usury is a civil word for it Professor. Unconscionable also, is a known crime which is repeated every day day after day, classes settle when lawyers can justify large paydays but never on the importance of one deadbeat at a time. BTW , I was no deadbeat they never transferred me into their lousy pool to begin with and do not exist as a beneficiary of any interest and that means nothing as im destined to fail to death over something slimy. Consumer protection? Ha!