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Fixing Consumer Protection Laws So Borrowers Understand Their Payment Obligations



  • Invited article. Jeff Sovern ( is a Professor of Law, St. John's University School of Law. The author expresses gratitude for comments by Ralph J. Rohner, Margot Saunders, attendees at an Association of American Law Schools (“AALS”) Section on Financial Institutions and Consumer Financial Services event at the 2010 AALS Annual Meeting, attendees at the 2010 Annual Conference of the American Council on Consumer Interests, held in partnership with the Federal Reserve Bank of Atlanta, two anonymous ACCI reviewers, attendees at a St. John's Law School faculty colloquium, and the research assistance of Sabihul Alam, Cameron M. Fee, Vitaly Libman, Preston J. Postlethwaite, Richard Burger, and Jamie Weller. ACCI awarded an earlier version of this article its 2010 award for Applied Consumer Economics. This article is an adaptation of a much longer article (Sovern 2010).


The millions of consumers who defaulted on their mortgages in recent years should all have received disclosures mandated by the federal Truth in Lending Act (“TILA”), which requires that lenders inform borrowers of certain loan terms including monthly payments required. Yet many of those borrowers seem not to have understood what their payment obligations were. In fact, TILA, which was intended to enable consumers to borrow wisely, not only failed the subprime borrowers in that goal, but was interpreted to require lenders to provide misleading disclosures that might have persuaded borrowers that their loans were more affordable than they would turn out to be. This article attempts to substantiate the claim that the laws in place during the years in which the subprime loan buildup occurred did not provide the aid consumers needed in making borrowing decisions, and explores strategies to improve the disclosure environment.