The Political Economy of Consumer Credit Regulation

Abstract

The existing literature on coercive collection practices of consumer creditors does a thorough job analyzing the consumer welfare aspects of restrictions on coercive collection practices. That literature, however, is incomplete in two respects: First, it fails to explain why legislators and regulators at both the state and federal levels might sometimes favor restrictions on the coercive collection powers of creditors that are contrary to consumer interests; and second, it fails to consider whether the rules governing the adoption of restrictions on consumer creditor practices might be redesigned so as to encourage legislators and regulators to adapt existing restrictions on the powers of creditors to consumer desires. Using the tools provided by public choice theory, this paper attempts to fill both these gaps. Drawing on a model of politicians as individuals who care about: (1) wealth, (2) reelection, (3) power and prestige, and (4) good public policy, the paper demonstrates why state and federal legislators driven by these four goals (and regulators subject to the oversight of such legislators) could sometimes be expected to favor regulations that go too far in restricting the access of creditors to coercive remedies. In addition, the paper proposes a new conflicts of law rule for consumer credit transactions, modeled on the "internal affairs" doctrine of corporate law, that the paper contends would be more likely to lead state and federal regulators acting to favor rules and regulations that are more consistent with the interests of consumers.