A Fighting Chance

big banks stepped up their efforts to change the bankruptcy laws: The credit industry, claiming that bankruptcy law protected debtors too much, successfully lobbied for changes to the Bankruptcy Code in 1984. The 1984 amendments were based in part on an empirical study funded by the credit industry. However, the study was founded on empirically unsound research designed to support the industry’s goals to shrink bankruptcy protection for families in trouble. See Teresa A. Sullivan, Elizabeth Warren, and Jay Lawrence Westbrook, “Rejoinder: Limiting Access to Bankruptcy Discharge,” Wisconsin Law Review (1984): 1087, 1087–90. In addition to supporting this expensive and dubious study, the credit industry fought for amending legislation in Congress and claimed in a number of newspaper articles that debtors were discharging “as much as $1.1 billion in bankruptcy that ‘they could repay.’” See Elizabeth Warren, “Reducing Bankruptcy Protection for Consumers: A Response,” Georgia Law Journal 72 (1984): 1333–34 & nn. 3–9. After achieving some success with the 1984 amendments, the credit industry continued to lobby Congress for additional changes it desired throughout the 1990s. See Elizabeth Warren, “The Market for Data: The Changing Role of Social Sciences in Shaping Law,” Wisconsin Law Review (2002): 1, 8 & nn. 19–22; David G. Hicks, “The October Surprise: The Bankruptcy Reform Act of 1994—An Analysis of Title II—The Commercial Issues,” Creighton Law Review 29 (1996): 499, 501–02 & nn. 8–12 (discussing the role of the American Bankers Association in successfully quashing any “anti-industry” changes to the law).

extraordinarily high interest rates, a practice known as usury: The regulation of usury has been around since the ancient Egyptians and has a varied and deep religious heritage. See Gardner Wilkinson, The Manners and Customs of the Ancient Egyptians (2013), 50 (noting that the Egyptian legislature had condemned usury on the theory that “the safety of the country might be endangered through the avarice of a few interested individuals”); see also Diane Ellis, “The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-offs, and the Personal Bankruptcy Rates,” FDIC: Bank Trends, March 1998 (noting that Plato had critiqued usury on the grounds that it fostered inequality and discord among citizens of the state). The Bible, including both the Old Testament and New Testament, contains thirty-five verses on usury, many of which liken usury to “extortion” and “unjust gain.” See King James Bible Online. Islamic law forbids usury, gambling, and excessive risk. Shafiel A. Karim, The Islamic Moral Economy: A Study of Islamic Money and Financial Instruments (2010), 4. Practitioners of Hinduism and Buddhism have issued similar injunctions against usury, believing it to be incompatible with a right livelihood. See Wayne A. M. Visser and Alistair McIntosh, “A Short Review of the Historical Critique of Usury,” Accounting, Business & Financial History 8 (July 1998): 2. Talmudic law also prohibits both borrowing and lending on interest in certain circumstances. See Louis Jacobs, “Usury and Moneylending in Judaism,” My Jewish Learning.

entrusted to the banks by their customers: In response to the Great Depression, Congress fundamentally changed bank regulation by passing the Glass-Steagall Act. The Glass-Steagall Act protected consumers and guarded against excessive risk by separating commercial banking, such as checking accounts and savings accounts, from investment banking, which included speculative trading on stocks. Congress also established deposit insurance, limited interest rates, and prevented traditional commercial banks from engaging too much in risky non-bank activities like the securities or insurance business. In addition, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission to increase oversight of securities markets and enforce new regulations on trading and mandatory disclosures, to protect against fraud. In the 1930s, Congress also created an agency to regulate futures markets (today known as the Commodity Futures Trading Commission) as well as an agency to regulate credit unions (today known as the National Credit Union Administration). At the state level, many states had usury laws, or interest rate ceilings, which served as a meaningful constraint on the credit industry. See Matthew Sherman, “A Short History of Financial Deregulation in the United States,” Center for Economic and Policy Research, July 2009.