Rethinking Credit as Social Provision

By Atkinson, Abbye | Stanford Law Review, May 2019 | Go to article overview

Rethinking Credit as Social Provision


Atkinson, Abbye, Stanford Law Review


Table of Contents  Introduction I.    Access to Credit Debates       A. The CFPB's Payday Lending Rule: Regulating Fringe Credit          1. A primer on payday lending          2. Debating the Payday Lending Rule        B. Madden v. Midland Funding, LLC II.    The Rise of Credit as Social Provision        A. The Beginnings of Credit as American Social Provision        B. Success in the Halcyon Days of Economic Prosperity        C. The Essential Decline of Credit as Productive Policy           1. Credit and civil rights           2. Credit deregulation as social provision           3. Credit as social mobility III.   The Limits of Credit as Intertemporal Redistribution        A. The Limits of Intertemporal Redistribution for the Working           Poor        B. Credit Dependency as Regressive Redistribution Conclusion 

Introduction

"The poor stay poor, the rich get rich. That's how it goes. Everybody knows." --Leonard Cohen (1)

Credit has become an important source of American social provision. (2) Consequently, access to credit has come to rest at the center of the discourse on economic well-being, particularly with respect to low-income communities. (3) For example, this discourse has focused on the relative risks and benefits of subprime small-dollar lending--particularly payday lending--in low-income communities. (4) Increased access to credit forms the premise on which rest varying approaches of how best to regulate this subprime credit market. (5) Although these approaches may diverge in perspective and prescription, they converge on the notion that credit is important for low-income Americans, (6) whether as a viable mechanism of smoothing consumption (7) or as a catalyst for social mobility. (8)

For example, the legislative debates that have emerged in the wake of the Second Circuit's 2015 decision in Madden v. Midland Funding, LLC (9) and the 2017 "Payday Lending Rule" promulgated by the Consumer Financial Protection Bureau (CFPB) (10) center merely around the optimal regulation of credit for high-risk, low-income borrowers. (11) There is otherwise minimal engagement with the essential threshold question whether credit is a viable component of social provision for low-income Americans. Even the fiercest proponents of low-income financial rights and equality regard credit as a second-best playing field on which to engage questions of economic equality for the working poor. (12) Thus, even as these advocates fight for economically disenfranchised communities, they do so in inherently market-based terms.

This notion of credit as social provision for the working poor is deeply flawed. The logical problem with credit as a form of social provision for low-income Americans is that there is an essential "mismatch" between the problem and the solution. (13) At its best, credit is a form of intertemporal and intrapersonal redistribution--credit shifts an individual's future capital to facilitate present consumption. (14) This means that for credit to be "productive," the resulting debt must be "repaid by a much richer borrower to whom that amount of debt is worth less." (15) Put another way, for credit to work as social provision, it must be extended on terms that are likely to result in an overall improvement in welfare. Consequently, credit as meaningful social provision for low-income borrowers implies an expectation that notwithstanding their present condition, low-income borrowers will be better off in the future and able to repay their debts without hardship. This is an unduly optimistic expectation given both the high interest rates that low-income borrowers tend to pay and the fact that decades of data suggest that low-income Americans can consistently expect to be in worse economic shape as time passes. (16) Credit is fundamentally incompatible with the entrenched intergenerational poverty that plagues low-income Americans.

How then did credit come to enjoy such seemingly universal support as a source of meaningful social provision for the working poor? …

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