Economic Models and Regulatory Remedies for the Problem of Consumer Credit

21 Pages Posted: 2 Apr 2011 Last revised: 7 Aug 2011

Date Written: August 10, 2011

Abstract

Much has been written about the problem of consumer credit in the United States over the past decade. In this paper, we survey the prevailing economic theories of consumer credit, which identify a common root problem. Namely, consumers can potentially underestimate borrowing costs, and lenders can exploit this misperception. We then discuss classes of regulatory solutions to address this problem including prohibitions on credit products and terms and empowerment through education and disclosure. We also propose novel solutions including the introduction of a third category involving delegation of credit management to third parties with aligned incentives.

Keywords: Consumer Credit, Mortgages, Credit Cards, Payday Lending, Household Finance, Behavioral Finance

JEL Classification: D14, D18, G21, G28

Suggested Citation

Ko, Kwangmin and Lee, Yoon-Ho Alex, Economic Models and Regulatory Remedies for the Problem of Consumer Credit (August 10, 2011). Available at SSRN: https://ssrn.com/abstract=1800848 or http://dx.doi.org/10.2139/ssrn.1800848

Kwangmin Ko (Contact Author)

Upstart ( email )

2950 S Delaware St #300
San Mateo, CA 94403
United States
2022570741 (Phone)

Yoon-Ho Alex Lee

Northwestern Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
(312) 503-2565 (Phone)

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