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Sarah Brown

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Sarah Brown

The purpose of this book is to examine recent and current policy and regulatory approach and reform in protecting the credit consumer. It provides an insight into the development and current state of consumer credit control and supervision, drawing some conclusions as to what can be learned in terms of future direction of travel. This is done, within the theme of management of the consumer credit relationship, by conducting a comparative analysis of the systems in the UK and the US. The comparative investigation is designed to address key questions and issues pertaining to regulation of the consumer credit market and consumer protection. It covers questions surrounding policy themes of empowerment, overindebtedness and trust that inform the rationale behind policy and reform.

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Sarah Brown

The basis of much credit provision and development of consumer protection in the credit market has been mirrored across the Atlantic, prompting seemingly similar responses. It appears at first glance that rates of progress are the only observable difference, rather than there being deep divergence. The chapter discusses how policy and the regulatory response has developed over time, including the pace of development of the market from the nineteenth century, when the first attempts at legislative control over personal borrowing were made, to the state of modern consumer borrowing today. It also charts policy and regulatory responses to the emerging nature of the consumer credit relationship and concludes that while transatlantic values are not so different, and while the social and political backdrop to the provision of credit may differ, the benefits and detriments of credit are essentially the same and have remained so over time.

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Sarah Brown

The control of credit can take a number of forms. Control can be substantive and/or procedural. These controls primarily reflect concerns about fairness, exploitation and expectation of the parties, both pre- and post agreement. They are the basis of regulatory tools reflecting wider policy questions of the role of consumer empowerment, overindebtedness and trust in the consumer credit relationship. These are examined in order to provide detailed analysis of the approach to managing the consumer credit relationship. Questions of consumer empowerment and self-reliance, framed within a structure of financial capability and consumer responsibility, are covered, followed by a discussion of overindebtedness, which has highlighted the vulnerable consumer and the inequality that arises in the relationship. Trust is examined in this context, drawing in the question of institutions’ role in consumer credit provision. Some concluding observations are then made.

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Sarah Brown

This chapter provides an overview of the regulatory/supervisory systems that control and police the credit markets across the Atlantic, and the conceptual bases of regulation employed in the context of the consumer credit relationship. This includes an overview of the institutional framework, referencing the various regulatory bodies and how these interconnect. The approach to supervision and enforcement is then considered, before moving on to the specifics of regulatory control over consumer provision. Particular issues surrounding the CFPB and its role in supervision and enforcement are discussed. There are a number of regulatory theories and approaches that engage with regulation, and numerous approaches to market regulation. The primary analysis, however, considers the principles versus rules-based dichotomy, as this has dominated recent debate; the analysis compares the basis of regulation across the Atlantic, and what informs the approach of the regulators in this regard.

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Sarah Brown

Law and policy traditionally treat business and vulnerable borrowers very differently, in effect at opposite ends of the spectrum. However, they are very much related, not only in terms of the potential imbalance in their relationship with the creditor, but also in the more nuanced arguments that surround vulnerability. This chapter considers how US and UK policy and regulation utilise the persona of the consumer as a means of measurement for protection. The particular case of the small business borrower is examined, exploring the connection with vulnerability. This in turn is discussed in more detail, revisiting arguments for a reconceptualisation of the vulnerable consumer through the lens of the vulnerability theory of Martha Albertson Fineman. It then goes on to explore the nature of responsibility in the context of the consumer credit relationship. The conclusion is drawn that a more integrated response to regulation and support is needed.

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Sarah Brown

There are a number of ways in which borrowers can be protected from exploitation, before and at the point of entering a consumer credit transaction, both prescriptive and proscriptive. Prescriptive measures are found in requirements of transparency and responsible lending. Proscriptive controls are based in product intervention such as the control of cost. Other direct control in relation to the creditor is provided through gatekeeping devices of licensing and authorisation. The chapter considers the regulatory devices employed in relation to the creditor’s ability, and the borrower’s decision, to enter into a consumer credit relationship. It examines US and UK regulation of measures in product intervention through interest rate caps and the arguments for and against such a measure. It looks at creditor responsibilities in information requirements, and responsible lending, before drawing some conclusions from the comparisons that are made.

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Sarah Brown

The primary safety net for the consumer at the front end of the transaction, beyond transparency, lies in the ability to withdraw or cancel an agreement without liability. There are also remedies available to the individual once the agreement is entered into – either in unenforceability or in the setting aside of terms. This remedy is used to particularly powerful effect in relation to unfairness. This chapter completes the analysis of the regulation of the consumer credit relationship, by concentrating on rescue mechanisms provided for the consumer at inception and during the credit relationship. Cancellation rights are described before a more detailed examination of protection against unfairness. The role of the regulator and regulation, in guarding and rescuing the credit consumer against unfair terms and practices is discussed together with the role of the courts in both defining and protecting against unfairness. This includes the UK’s unfair credit relationship test. This latter test is recommended as, at least, a partial solution to the problems that attempts to regulate against unfairness can bring.

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Sarah Brown

This chapter provides a conclusion to the arguments and themes explored in the book. The examination of these two systems shows us that consumer credit protection remains intertwined with protection of the market in policy thinking. The characteristics of the parties of the consumer credit relationship are all important, and are multidimensional. It must be recognised that lender and borrower interests are, to a degree, interdependent – the consumer credit relationship being the conduit through which these interests are channelled. A number of interconnected issues pervade the consumer credit relationship: trust and culture; protection initiatives based in market efficiency; access to credit; approaches to regulation; and roles and extent of creditor responsibility. Consumer protection in credit provision illustrates the difficulty in adequately addressing the balance that needs to be maintained in what are, in many respects, opposing needs. Clearly regulatory protections are essential, but what the comparison has shown us is that a more balanced approach may ultimately be the better approach.

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The Regulation of Consumer Credit

A Transatlantic Analysis

Sarah Brown

This incisive book gives a comprehensive overview of the regulation of consumer credit in both the US and the UK. It covers policy, procedure and the dynamics of the consumer credit relationship to advocate for a balanced approach in achieving more effective consumer protection.