Consumer Credit in America: Past, Present, and Future

Law and Contemporary Problems, Jun 2017

Pamela Foohey, Jim Hawkins, Creola Johnson, Nathalie Martin

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Consumer Credit in America: Past, Present, and Future

CONSUMER CREDIT IN AMERICA: PAST, PRESENT, AND FUTURE PAMELA FOOHEY 1 JIM HAWKINS 1 CREOLA JOHNSON 1 NATHALIE MARTIN 1 0 5491 (2010)); see also Christopher L. Peterson, Consumer Financial Protection Bureau Law Enforcement: An Empirical Review , 90 T 1 Associate Professor of Law, Indiana University Maurer School of Law , USA We began organizing this symposium at the start of 2016 with the recognition that consumer credit and financial services were in a state of flux prompted in significant part by the Great Recession.1 The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) brought with it the Consumer Financial Protection Bureau (CFPB).2 The CFPB's creation marked the most significant moment in modern American consumer law.3 Consumers gained an advocate charged with protecting them through researching, monitoring, and regulating the providers of consumer financial products and services, enforcing federal consumer financial protection laws, and, as importantly, empowering consumers.4 - 2 Since its creation, the CFPB has tackled debt collection,5 mortgages,6 payday loans,7 prepaid debit card accounts,8 and student loans,9 among other products and services.10 It has processed over a million consumer complaints.11 Its supervisory and enforcement actions routinely make headline news, and, at the five-year mark, have collectively returned more than $11 billion to consumers.12 At the same time, Congress, states, and municipalities have also taken significant action to regulate and police providers of consumer financial products and services. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009,13 which mandated changes in credit card underwriting, has helped consumers avoid more than $16 billion in credit card fees since its enactment.14 Several states have passed legislation aimed at curbing the payday No. 3 2017] and auto-title lending industries.15 And when other states failed to enact substantial legislation to reform payday lending, municipalities around the nation stepped up to enact ordinances of their own that limit expansion of these lenders into their borders.16 Much like the law, the consumer credit business itself is rapidly changing. Technological innovations have fundamentally altered the ways in which people access credit and financial services. Mobile pay and banking are becoming mainstream, leaving more and more banking deserts in the physical world, as opposed to in the virtual one.17 Even the providers of alternative financial products like payday loans are abandoning the brick and mortar locations that had once filled the voids left by disappearing banks, and increasingly are selling their products online, where studies suggest they can make more money.18 Other consumer credit profit centers likewise have shifted, and businesses are adjusting their product offerings in accordance. The housing bubble led to a decline in subprime mortgages, only to be replaced with subprime auto loans and fears that these loans are fast creating a new bubble as lenders package them into securities similar to subprime mortgages.19 Subprime auto loans come with a 15. See Sudeep Reddy, States to Protect Borrowers Who Turn to Cars for Cash, WALL ST. J.: BUS. (July 19, 2010), http://www.wsj.com/articles/SB10001424052748704746804575367250783943906 [https:// perma.cc/9MVU-VXSG] (highlighting rule changes in Illinois, Virginia, and Wisconsin). 16. See generally KELLY GRIFFITH ET AL., CONTROLLING THE GROWTH OF PAYDAY LENDING THROUGH LOCAL ORDINANCES AND RESOLUTIONS: A GUIDE FOR ADVOCACY GROUPS AND GOVERNMENT OFFICIALS 17–35 (Oct. 2012), http://www.consumerfed.org/pdfs/Resources.PDL. LocalOrdinanceManual11.13.12.pdf [https://perma.cc/9CLZ-VXWS] (listing payday lending local ordinances); Olivia M. Pena, Municipal Regulation of Payday & Title Loans in Texas, 17 J. OF CONSUMER & COM. L. 71 (2014) (overviewing Texas municipalities’ ordinances). 17. See Mehrsa Baradaran, It’s Time for Postal Banking, 127 HARV. L. REV. F. 165, 167–68 (2014) (discussing the movement of banks out of low-income neighborhoods); Terri Friedline & Mathieu Despard, Life in a Banking Desert, THE ATLANTIC (Mar. 13, 2016), http://www.theatlantic.com/ business/archive/2016/03/banking-desert-ny-fed/473436/ [https://perma.cc/3BQW-NTN4] (discussing if and how mobile banking can fill the gap left by banking deserts); Carolyn Lowry, Note, What’s in Your Mobile Wallet? An Analysis of Trends in Mobile Payments and Regulation, 68 FED. COMMC’NS L.J. 353, 355–65 (2016) (overviewing the current landscape of mobile pay). 18. See SUSANNA MONTEZEMOLO, CTR. FOR RESPONSIBLE LENDING, PAYDAY LENDING ABUSES AND PREDATORY PRACTICES 9 (2013), http://www.responsiblelending.org/state-oflending/reports/10-Payday-Loans.pdf [https://perma.cc/CW53-J8UW] (discussing researching finding a decline in payday loan storefronts from 2007 to 2010 and a concomitant doubling of internet payday loan volume); PEW CHARITABLE TRUSTS, FRA (...truncated)


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Pamela Foohey, Jim Hawkins, Creola Johnson, Nathalie Martin. Consumer Credit in America: Past, Present, and Future, Law and Contemporary Problems, 2017, Volume 80, Issue 3,