Minnesota Law Review

Usury Law, Payday Loans, and Statutory Sleight of Hand: Salience Distortion in American Credit Pricing Limits

In the Western intellectual tradition usury law has historically been the foremost bulwark shielding consumers from harsh credit practices. In the past, 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 Article presents a systematic 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 format following the federal Truth-in-Lending Act price disclosure regulations. Moreover, this Article compares how each state legislature describes its most expensive permissible payday loan, with how that loan is characterized under federal price disclosure law. This Article does so by suggesting a new theoretical concept labeled “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 expectations 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. In addition, going beyond consumer protection law, the concept of salience distortion offers a promising new theoretical tool in behavioral economic analysis of legislation.

:: View PDF

News & Events

  • Follow MLR on Twitter!

    The Minnesota Law Review is proud to announce that we are now on Twitter. Follow us @MinnesotaLawRev for information and updates concerning the petition period and deadlines, the opening and closing of article submissions, our 2014 Symposium: Offenders in the Community, and all other news concerning our authors and publications. [...]

  • Vol. 97 Lead Piece Cited in Al Jazeera Opinion Piece

    A recent Al Jazeera opinion piece that criticizes the Supreme Court’s Daimler decision cites to Volume 97′s lead piece, How Business Fares in the Supreme Court. You can read the Al Jazeera piece here.

  • Masthead for Volume 99 Board

    The masthead for the Board of Volume 99 of the Minnesota Law Review is now available. You can view the masthead here.

  • Above the Law Post Highlights MLR‘s Jump in Journal Rankings

    A recent post on Above the Law highlights the fact that the Minnesota Law Review was ranked 11th in the most recent 2013 edition of the Washington & Lee Law Review Rankings. You can read the post here.

  • Vol. 97 Lead Piece Cited on Slate

    A recent Slate article on the Supreme Court’s decision not to hear the “Moldy Washing Machine” cases, or overturn class certification of those cases in some circuits, cites to the Volume 97 Lead Piece, How Business Fares in the Supreme Court. You can read the article here.

Newsletter

cforms contact form by delicious:days