Peterson books and articles
Selected Books & Articles by Chriistopher Peterson
Selected Books and Articles:
Taming the Sharks: Towards a Cure for the High Cost Credit Market (2004) — This prescient book chronicles the historic, economic, legal, and political factors breeding America's feverish high cost debt industry. The ideas presented are novel, progressive, and controversial. Historians have long argued that interest rates provide a sort of economic and political health of nations. If true, the contemporary American market for credit shows troubling signs of distress. While Federal Reserve Board monetary policy has kept commercial and prime consumer interest rates low, the past two decades have seen explosive growth in an industry specializing in high-cost consumer debt. Payday loan outlet chains, automobile title loan companies, rent-to-own furniture stores, pawnshops, and sub-prime and manufactured home mortgage lenders are transforming the personal finance patterns of millions of Americans. Industry insiders claim they are merely responding to a legitimate demand for financial services that, in effect, consumers vote with their feet. But many observers complain this industry charges excessive prices, uses unfair business practices, and is generally causing more harm for its borrowers than good.
Usury Law, Payday Loans, and Statutory Sleight of Hand: Salience Distortion in American Credit Pricing Limits (2008) — In the Western intellectual tradition usury law has historically been the foremost bulwark shielding consumers from harsh credit practices. Historically, the United States commitment to usury law has been deep and consistent. However, the recent rapid growth of the payday loan industry belies this longstanding American tradition. In order to understand the evolution of American usury law, this paper presents a systemic empirical analysis of all fifty state usury laws in two time periods: 1965 and the present. The highest permissible price of a typical payday loan authorized under each state's usury law was calculated. These prices were then translated into Annual Percentage Rate (APR) format following the federal Truth-in-Lending Act price disclosure regulations. Moreover, this Article also compares how each state legislature describes its most expensive permissible payday loan, with how that loan is characterized under federal price disclosure law. It does so by suggesting a new financial concept which I label: salience distortion. This analysis produces three findings: (1) usury law has become more lax; (2) usury law has become more polarized; and, (3) usury law has become more misleading. These findings suggest that the numeric language in current state usury statutes is not chosen because it helpfully describes some expectation of commercial behavior. Rather, legislatures have chosen the language of most current credit price caps because it sounds in an ancient moral tradition - a mythology of sorts - that roughly delineates popular perception of moral and immoral interest rates. Exploiting this normative tradition as well as common behavioral economic heuristics, many state legislatures use small, innocuous numbers in usury law because they are attempting to minimize the public and media outcry over their decision to legalize triple digit interest rate consumer loans.
Usury Law and the Christian Right: Faith Based Political Power and the Geography of American Payday Lending Regulation (2008) — The culture war has become a national moniker describing a variety of policy debates between social conservatives and secular liberal Americans. Hotly contested battle grounds in this metaphorical war have included abortion policy, affirmative action, the right to bear arms, and gay marriage. Frequently these debates have divided secular Americans from people of faith. This article explores this cultural divide in the context of consumer financial services. In the past fifteen to twenty years America has witnessed a stunning transformation in financial services offered to lower and lower-middle classes. A new breed of fringe creditors charging prices far in excess of the old mafia loan sharking syndicates have spread throughout much of the country. The archetype of fringe creditors commonly referred to as payday lenders, charges average simple nominal annual interest rates of around 450 percent. This Article presents empirical research based on the largest, most comprehensive database of payday loan locations yet created. Payday lender locations are compared to an index measuring the political power of conservative Christian Americans in all fifty states. We conclude that there is a strong correlation between the density of payday lending industry and the political power of conservative Christians, suggesting that conservative Christians have become a prime demographic target of payday lenders. These findings are further discussed in light of Biblical injunctions against usury.
Over-Indebtedness, Predatory Lending, and the International Political Economy of Residential Mortgage Securitization: Comparing the U.S. Subprime Home Mortgage Lending Crisis to Home Finance in the United Kingdom, Germany, and Japan — (2008) Following the United States, many countries around the world have increasingly turned to structured finance, also known as securitization, to fund loan portfolios. This trend has taken on troubling undertones in the wake of widespread default in the American sub-prime residential mortgage backed securities market. This essay provides a brief introduction to the business practices of, and law governing residential mortgage securitization in, the United States. Moreover, it surveys the use of securitization in three influential countries: the United Kingdom, Germany, and Japan. In comparison to these countries, relatively lax regulation, poor oversight of intermediary originators, and volume-oriented underwriting have all contributed to widespread foreclosures in the United States. Private structured finance of American sub-prime mortgages has created economic incentives that promote consumer over-indebtedness as well as predatory lending. Furthermore, by drawing politically powerful financiers into aggressive and ethically questionable lending, residential mortgage backed securitization tends to empower opponents of consumer protection law. Drawing on the U.S. example, caveats for other countries are offered.
Predatory Structured Finance — (2007) Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today's subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is structured to appeal to different types of investors. This process, usually referred to as securitization, can lower the cost of funds for lenders, allowing them to offer better prices. But, it can also capitalize fly-by-night companies that specialize in fraud, deceptive practices, abusive collections, and other predatory behavior. This article makes three intellectual contributions to this national debate: First, it argues that the current notion of predatory lending has been cast too narrowly. Some of the businesses that sponsor securitization of residential mortgage loans are aware of and capable of preventing mortgage predation. Accordingly, the label predatory structured finance is suggested as a necessary addendum to the lexicon of predatory lending. Second, this article tracks the evolution of structured finance of home loans, suggesting that as our financial technology has outpaced consumer protection law, it has effectively deregulated much of the consumer mortgage market. Third, this article argues that the reform strategy favored by many legislators and a growing number of scholars - assignee liability law - is only a partial solution. While a necessary component of the law, these rules are by themselves inadequate because they excuse many of the most culpable parties from accountability. An efficient legal response to predatory structured finance must include further development in an emerging trend of common law imputed liability theories.
Predatory Lending and the Military: The Law and Geography of "Payday" Loans in Military Towns (2005) — A heated national debate has developed over whether one type of high-cost predatory lender, commonly known as "payday lenders," are targeting financially vulnerable military families and whether the law protects them from such predation. Writing within the relatively new interdisciplinary "law and geography" movement, this article provides geographic evidence that payday lenders do aggressively target American military personnel, irrespective of most forms of legal regulation. This paper first provides a comprehensive introduction to payday lending business practices and to the financial vulnerability of military personnel. In conducting our empirical research, we examined 20 states, 1,516 counties, 13,253 ZIP codes, nearly 15,000 payday lenders, and 109 military bases. We consistently found high concentrations of payday lending businesses in counties, zip codes, and neighborhoods in close proximity to military bases. Our observations were controlled by comparing payday lender densities in military areas to statewide averages and also by comparing payday lender locations to bank locations. Of the twenty states involved, the only legal strategy which prevented payday lender targeting of military personnel was New York's aggressive enforcement of civil and criminal usury law. Going beyond the debate over predatory lending to military personnel, our research provides a realist check on pure legal reasoning and unfounded faith in current consumer protection rules.
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