Abstract
The latest triumph of our modified free enterprise system is consumer credit which, including home mortgages, has burgeoned from $30 billion since the end of 1945 to more than $569 billion in March 1974. In 1946 the total cost to consumers for interest and debt retirement was $10 billion, or six percent of family income. By 1966 it was $110.6 billion, or twenty-two percent of family income. By 1971 installment debt charges accounted for from twenty to thirty-nine percent of disposable income for five percent of our families and for forty percent or more of disposable income for another two percent. Another commonly employed index, the percentage of annual personal income represented by total personal debt, shows an increase from almost eighteen percent. Although most people are able to handle their consumer debt and other monetary obligations, a substantial number are not. Whatever the trauma for the bankrupt consumer debtor, bankruptcy does not greatly concern the institutional extenders of consumer credit. Since they estimate their losses at from one-half of one percent to two percent of their total receivables, it is apparent that their emphasis is on volume rather than on thorough credit investigation. Such investigation as they do make usually consists of three steps not well calculated to produce an accurate picture. The first is to have the debtor fill out, and the debtor and spouse sign, a financial statement while they sit in the loan office without the benefit of any personal records they may have. When examined in later bankruptcy proceedings, these statements frequently turn out to be inaccurate, particularly in understating existing debts. On this fragile information, the consumer credit extender makes his decisions to extend credit. Small wonder that some consumers find themselves overcommitted to the point where bankruptcy seems the only solution. It does not seem too much to say that one who voluntarily extends credit by disregarding a known risk, or risks which could be discovered by a reasonable effort, should bear the loss when loss occurs. If such a standard imposes some brake on the credit boom, it would be a brake wisely applied in the interests of both the consumers and the extenders of credit.
First Page
1
Recommended Citation
Vern Countryman,
Improvident Credit Extension: A New Legal Concept Aborning?,
27
Me. L. Rev.
1
(1975).
Available at:
https://digitalcommons.mainelaw.maine.edu/mlr/vol27/iss1/2