In the last four decades something radical has happened in the United States consumer economy: the ordinary, middle class homeowner has gained a new means for borrowing thousands of dollars. While consumers have long had the option of using their homes as collateral for loans, they can now use credit cards to borrow large sums without any security for those loans.
This article explains the legal shift that accompanied this new type of loan transaction and explores changes in the credit relationship. While careful and extensive legal scholarship draws attention to the dramatic changes the credit card has made to the landscape of consumer credit, the focus has been on explaining the lure of credit cards to consumers and the key legal moments that promoted the credit card. The effect of credit cards on borrowers' legal rights has remained largely unexamined.
This article seeks to fill that gap. Using mortgage lending as the historical paradigm, I claim that credit card lending creates a new legal paradigm of an individual borrower. Whereas mortgage law crafted non-waivable property rules to protect the ignorant borrower from exploitation by the lender, credit card law relies on largely waivable contract rules to afford the enlightened borrower greater access to credit. Mortgage law traditionally protected ignorant borrowers' ownership rights in their collateral. Credit card law regulated the disclosures made to enlightened borrowers to ensure that they have enough information to make good bargains. This switch in borrower paradigms elicits drastically different results and less favorable treatment of the typical, middle class consumer borrower in courts, Congress, and the market.
University of Tennessee College of Law
Copyright 2006 Tennessee Law Review Association, Inc.
73 Tenn. L. Rev. 303 (2006)