Foreword For Regulation In The Fringe Economy Symposium

The timing of this symposium could not be better. The economy of the United States is still suffering the consequences of a financial crisis that had its origins in lax mortgage lending standards with cascading effects that threw millions out of work and wiped out the modest wealth of many low- and middle-income households. As one of its responses to the crisis, Congress created the Consumer Financial Protection Bureau (CFPB), which is charged with, among other things, devising regulations for banks and non-bank financial institutions that better protect individuals from unfair and abusive financial contracts.1The CFPB will have to make tough decisions.2 Although payday lenders, car title lenders, and other small-value, high-cost consumer finance firms, collectively commonly called "fringe" lenders, did not cause the financial crisis, the crisis made people acutely aware that not all debt contracts are individually or socially beneficial. Consequently, all types of subprime lending, which disproportionately go to low- and moderate-income individuals, are currently subject to heightened scrutiny. In the case of fringe lenders, there are two basic questions. First, does access to high-cost, small-value loans benefit borrowers? Second, do the regulations that govern fringe lenders need to be changed to improve transparency, to forbid certain contractual terms, or to make consumers more cognizant of potential pitfalls associated with the contracts?The Articles in this symposium tackle these issues. Several of the Articles address payday lending. Others examine related issues in title lending, bank overdraft protection (ODP) programs; small- value, shortterm lending outside the United States; and social and philosophical issues related to restrictions on free credit markets generally. A third set of Articles analyzes topics that are often not associated with smallvalue subprime lending, but clearly should be, or arguably could be. Articles in this category cover peer-to-peer lending, government loans to students attending for-profit trade schools and colleges, and nonfinancial harms to families with excessive debt burdens.It is common for academics writing about fringe credit markets to avoid taking definitive stands on what government regulatory agencies should do, ducking the tough issues with the safe statement, "More research is needed." The authors of the Articles in this symposium do not do that. Almost all take the bull by the horns and advocate specific regulations or regulatory approaches. Of course, the authors, who come from a variety of philosophical perspectives, advocate different policies. Some believe that if an individual freely agrees to borrow in a transparent credit contract it must be because this is the individual's best option, and eliminating or restricting access to this alternative can only reduce the well-being of that person. Others argue that cognitive or behavioral flaws can lead people to make short-term decisions that are not in their long-term interest and the elimination or restriction of some options can raise people's welfare. In the case of loans to attend for-profit schools, the loan contract itself may be transparent and fair, but the career benefits of the education it finances may not be.Regardless of where the authors stand in this debate, they are uniformly well-informed about the regulatory environment and the business operations in the credit markets they analyze. Readers of the Articles in this symposium will learn important institutional details related to fringe lending in nearly all its forms.In addition to providing a well-informed overview of the functioning of these credit markets, the Articles tackle a number of key themes that are critical to thinking about regulating high-cost consumer lending. In a short introduction, I cannot do justice to all of the important issues, but let me draw your attention to three basic questions that strike me as most important and pervasive in the symposium. …