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127 Banking L.J. 579 (2010)
Is History Repeating Itself

handle is hein.journals/blj127 and id is 593 raw text is: HEADNOTE Is HISTORY REPEATING ITSELF? STEVEN A. MEYEROWITZ Due to the current economic recession, legislators are taking a closer look at credit regulation in the United States. Many consumer advo- cate groups are calling for more stringent interest rate caps, especially for credit card companies and payday lenders. Unfortunately, according to Justice David Baker, a member of the Iowa Supreme Court, and MacKenzie Breitenstein, authors of our lead article, History Repeats Itself: Why Interest Rate Caps Pave the Way for the Return of the Loan Sharks, for many borrow- ers in the United States, interest rate caps do not remedy debt problems. While it is true that high interest rates make it more difficult for borrowers to repay large accumulations of debt, the authors declare that it is equally true that inter- est rate caps do not prevent excessively high interest lending. Interest rate caps instead have a tendency to force low income individuals out of the market for legal lending because lenders cannot charge high enough interest rates to make money from such high risk loans. As a result, many borrowers are left with the unpleasant alternative of having to resort to loan sharks who lend at interest rates above the legal limit and traditionally have brutal collection practices. Justice Baker and Ms. Breitenstein write in their article that one of the reasons interest rate caps were largely abandoned as a means of regulating consumer credit beginning in the 1930s was because of the pervasive loan shark problem in the United States. Instead of returning to a regulation formula which has already been used and failed to achieve its objectives, they suggest that legislators should focus their regulation efforts on lending dis- closures, which allow borrowers to make informed borrowing decisions and encourage market competition. Disclosure regulation provides consumers with the knowledge necessary to make informed borrowing decisions, while not forcing legal lending out of the market for low income individuals. 579

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