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Wednesday, August 22, 2018

Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans

Samuel Becher (Victoria University), Yuval Feldman (Bar Ilan University) and I have a new paper we just uploaded on ssrn about behavioral law and economics, poverty and credit: Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans forthcoming in Legal Applications of Marketing Theory, Jacob Gersen & Joel Steckel, eds., Cambridge University Press. Download it while it's hot and would love to hear your comments. Here is the abstract:

Consumers in general, and poor consumers in particular, often make counter-productive financial decisions that undermine their welfare. One key example is that poor people frequently use high-cost credit and loans with onerous interest rates. They are also disproportionately engaged in other types of sub-optimal borrowing, such as rent-to-own transactions and insufficient savings for the future. Although lenders and service providers are obliged to disclose interest rates and other key information in a clear and conspicuous way, disclosures have been at best only partly effective to prevent exploitation and protect consumers. This chapter seeks to examine how consumer law can, and at times should, respond to this reality. While focusing on borrowing practices, we begin by pointing to the main behavioral patterns that impact financial decision making. We first address biases that are relevant to all consumers: over-optimism, the present bias, and the behavioral economics of information. We then discuss the psychology of poverty and scarcity, which demonstrates that the state of poverty depletes cognitive resources and undermines the consumer’s capacity to overcome temptations, choose the uneasy paths and exercise long-term planning. Against this background, we discuss a variety of policy recommendations. We focus on protections that are better-suited to treat the root causes that lead poor people to make dubious financial decisions. We conclude by succinctly noting some of the challenges entailed in our recommendations and discussing ways to expand our proposed framework.


Image result for credit cards exploit

Posted by Orly Lobel on August 22, 2018 at 12:27 AM | Permalink


Orly, you may find, great interest here:

"EU Court rules Poland courts can cancel mortgages with unfair currency exchange terms"


Posted by: El roam | Oct 4, 2019 8:09:40 PM

Always. I REPEAT ALWAYS! Look in to the company before if they ask you to pay before getting your loan.

Posted by: John | Apr 6, 2019 1:52:30 AM

Hello y'all
My name is Mr.DAVID Harrison, a citizen of Washington, Dc united states of America. i have been scammed by 4 different Internet international lender, they all promise to give me a loan after making me pay several fees which yield nothing and amounted to no positive result. i lost my hard earn money. One day as i was browsing through the Internet with tears on my eye i came across a testimony of man who was also scammed and eventually got linked to a legit loan company called : SBM FINACIAL SERVICES.([email protected]) where he finally got his loan, so i decided to contact the same loan company and then told them my story on how i have been scammed by 4 different lenders who did nothing but to cause me more pain. I explain to the company by mail and all they told me was to cry no more because i will get my loan in their company and also i have made the right choice of contacting them. i filled the loan application form and proceeded with all that was requested of me and I was given a loan amount of $500,000 thousand Dollars by this great Company ( SBM FINACIAL SERVICES) SBM and here i am today happy because SBM FINACIAL SERVICES has given me a loan so i made a vow to my self that i will keep testifying on the Internet on how i got my loan. Are you looking for Funding.If you are interested to receive a low interest loan at the rate of 3% for commercial businesses such as Start-Ups, Expansion, Buy-Out, Real Estate, Renewable Energy, IT, Entertainment, General Aviation Equipment,Army Defense Equipment's & Weapons, Financial Banks,Industry,City and Traffic Security Management Systems, Water Waste Systems, Electric,Biomass Energy, Agriculture Projects, Ethanol, Oil Power Plants and Thermal Power Plants Construction, etc; Please,let him know your proposal via their company website SBM Finance | Local Fast Installment Loans email: [email protected]

SBM Finance | Local Fast Installment Loans

Posted by: sbm | Nov 19, 2018 2:03:55 AM

thanks we will read!

Posted by: Orly Lobel | Aug 25, 2018 12:54:35 AM

Orly, you may find great interest I guess, in that ruling, here :


Posted by: El roam | Aug 24, 2018 8:34:41 PM

thanks for these excellent comments. James the random acts of begging and giving is really interesting though outside the scope of our article. Matthew this is a very good question that we've also raised to ourselves - what does the data show on risky credit or even predatory lending as opposed to another perhaps worse alternative. we will read the article you link to and looking forward to delving in.

Posted by: Orly Lobel | Aug 23, 2018 1:03:37 PM

I look forward to reading this paper in tandem with this new article (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3208908), finding that decreased access to (some forms of) credit increased personal bankruptcy filings. In other words, are these credit transactions actually dubious choices? Thanks for posting, Prof. Lobel.

Posted by: Matthew Bruckner | Aug 23, 2018 10:31:57 AM

I have book marked it and will read when I have more time. However this caught my eye.

"We then discuss the psychology of poverty and scarcity, which demonstrates that the state of poverty depletes cognitive resources and undermines the consumer’s capacity to overcome temptations, choose the uneasy paths and exercise long-term planning."

I wonder if anyone has studied how online communities have come to shape the psychology of poverty. For example, the major online social media site reddit has a number of subriddits devoted to homelessness, vagabonds, etc. One of which is called "Random Acts of Pizza" where, as I understand it, people with money give people with less money free pizza. The whole setup they use to prevent scams and make sure free pizza only gets to poor people is fascinating. Online begging for free pizza has got to be an innovation that shapes how we think about poverty and how the poor think about their own poverty.

If the authors know anything that has looked at social media and the shping of poverty I'd love to know about it.

Posted by: James | Aug 22, 2018 4:54:24 PM

Very interesting , complicated and important issue you have dealt here with . It seems that you have ignored , very important factor , when dealing with interest rates and loans or mortgages , and it is the issue of :

Fixed rates V. variable rates

I don't know the situation in the US in this regard , but , variable , may cause many times , lot of troubles ( hard to predict the future change ) . I have fished something here for just introduction or illustration , here :




Posted by: El roam | Aug 22, 2018 7:37:28 AM

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