by Jeff Sovern
I've just been listening to the National Associate of Retail Collection Attorneys' (NARCA) symposium on debt collection held at GW on October 15 (the recordings are available here). I was particularly struck by Todd Zywicki's remarks in the third panel; the panel was titled "Legal Collections - The Essential Link to a Successful Credit-Based Economy." (Regular readers may recall a previous blog post on Zywicki's receipt of financial support from the credit industry in an article in The Nation headlined "Scholars Who Shill for Wall Street."). Zywicki stated that his presentation was based on a chapter he authored in a forthcoming book about credit regulation; the chapter promises to be interesting reading.
Zywicki's presentation could almost have come from an alternate universe from many of the academic presentations I hear. While many of us embrace behavioral law and economics, Zywicki dismissed it as voodoo based on just-so stories and lacking much empirical support (my own view is that some of its findings, such as the endowment effect and the tendency of consumers to be overly optimistic, are indeed empirically supported, and I cite some of the relevant literature here and here. I gather that the people who award the Nobel prize for economics have been similarly impressed by the quality of the research). I look forward to seeing the chapter in part because I'm curious if it will provide more support for Zywicki's claims than he supplied in his talk.
Zywicki repeated the industry claim that consumer credit regulation--in particular, restricting remedies for defaults--increases the cost of credit and reduces its availability. He mentioned a recent study by the Philadelphia Fed that found that the Credit CARD Act had reduced the availability of credit. He didn't mention other studies finding that it reduced the cost of credit (see here and here) but perhaps he hadn't had a chance to learn of those studies as they were issued shortly before he spoke. As for reducing the availability of credit, the Credit CARD Act was intended to reduce access to credit by borrowers who were not capable of handling the demands of credit cards (think of the college students who borrowed too much and then tragically committed suicide).
My favorite statement by Zywicki was when he observed that the legal regime of debtor's prisons was probably too harsh (only probably?). If even Zywicki thinks that, then it is indeed unfortunate that we seem to have resurrected that regime, as Lea Shepard has written about.