Optimizing Consumer Credit Markets and Bankruptcy Policy

Ronald J. Mann
2006 Theoretical Inquiries in Law  
The link between consumer credit markets and bankruptcy policy is a complex one, acknowledged but not adequately examined in the existing scholarship. This essay argues that the causative relationships running between borrowing and bankruptcy compel a different strategy for policing the conduct of lenders and borrowers in consumer credit markets. I begin by sorting out some of the realities of consumer lending that policy debates about bankruptcy "reform" have obscured. First, I discuss the
more » ... , I discuss the empirical link between credit card use, on the one hand, and increased consumer spending and financial distress. That link suggests that the ability of transacting parties to externalize the costs of financial distress contributes to the steadily increasing use of credit cards. Second, I argue that there is no evidence that the relatively liberal discharge available in the United States has led to abusive borrowing and spending. Third, I discuss the evidence that suggests that a more accessible bankruptcy discharge relates to an increase in entrepreneurial activity, with the associated positive spillover effects.
doi:10.2202/1565-3404.1131 fatcat:gmdc6o5fi5ha7hwmxpchhkg6bi