August 25, 2010
Conglomerate Junior Scholars Workshop: Jim Hawkins on Regulating on the Fringe
Posted by Christine Hurt

Welcome to the third week of the Conglomerate Junior Scholars Workshop!  Today, we are spotlighting a new paper by Jim Hawkins, Associate Professor of Law at the University of Houston Law Center, entitled "Regulating on the Fringe:  Reexamining the Link Between Fringe Banking and Financial Distress."  Our panel of esteemed experts includes our own David Zaring and friends of the Glom Larry GarvinKatie Porter and Todd Zywicki.  We are looking forward to passionate debate on this controversial topic, starring our experts and you!  Feel free to jump in with your thoughts either as comments to this post or as comments to the commentators' posts.

Here is the abstract:

Critics of fringe banking -- products like payday loans, pawn loans, and rent-to-own leases -- frequently argue that using these products causes borrowers to experience financial distress. This argument has enormous intuitive appeal: Fringe credit is very costly, and usually the borrowers who are forced to use it are already in a serious financial bind. Taking on additional debt and paying high costs for it, the reasoning goes, drives them over the brink.

Surprisingly, however, linking financial distress to fringe banking is extremely difficult to do. This Article represents the first attempt to uncover the relationship between fringe banking and financial distress by stystematically analyzing the structure of fringe credit markets and characteristics of specific fringe credit transactions. Contrary to the assumptions made by the bulk of the literature, I argue that the link between fringe banking and financial distress is dubious. . . . (Read more here.)

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