Rethinking the Regulation of Coercive Creditor Remedies

Scott, Robert E.

This Article suggests that the conventional analysis is premised on an unduly narrow conception of the function of creditor remedies and of the debtor-creditor conflicts that they ameliorate. A single-minded focus on the postdefault implications of coercive collection invariably characterizes the debtor and creditor as locked in a zero-sum conflict situation. The prohibition of certain remedies thus is seen solely in terms of cost to the creditor, offset by corresponding gains for the debtor. But if the relationship is viewed ex ante, debtor and creditor are actually participants in a cooperative bargaining opportunity-an interaction in which both parties can mutually benefit from cooperation, but in which each confronts the risk of defection by the other. Thus conceived, the regulation of creditor remedies may have the perverse effect of eliminating the very mechanisms used to ensure that the parties will exploit fully their common interests. Part I of the Article develops a conceptual framework for reevaluating the function of various creditor remedies. Part II tests the validity of a bargaining theory approach to consumer credit transactions. Finally, Part III considers the normative implications of the bargaining theory approach. I conclude from this analysis that the prohibition of selected creditor remedies is unlikely to achieve the normative objective of reducing postdefault coercion. A cooperative bargaining model shows that the structural imperatives of the consumer credit transaction cannot be ignored. If the coercion associated with postdefault maneuvering is normatively undesirable, the most effective solution is to reduce the information deficits that motivate postdefault actions. Otherwise, selective regulation of particular terms inevitably will be trumped by the pressure for substitute enforcement mechanisms. On the other hand, if the process of coercive collection is intrinsically a "bad thing," then the culprit is the institution of consumer credit, not the self-enforcing terms parties use to attempt to maximize the benefits available from the relationship.


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January 21, 2016