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Lender liability in the Consumer Credit Market

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  • Palumbo, Giuliana
  • Iossa, Elisabetta
Abstract
In many countries consumer credit legislation provides for the extension of liability for product failure to the …nancial institution that advances credit to the consumer. In particular, lender liability is imposed on those credit grantors who closely operate with the supplier of the good. This paper provides a rationale for lender-responsibility in the consumer credit market. It shows that, when judicial enforcement is ine¢cient or there is risk of seller liquidation, lender-liability helps to protect consumers who systematically underestimate the probability of product failure and overestimate the extent to which they can obtain compensation.

Suggested Citation

  • Palumbo, Giuliana & Iossa, Elisabetta, 2002. "Lender liability in the Consumer Credit Market," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 451, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:451
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    References listed on IDEAS

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    5. Boyer, Marcel & Laffont, Jean-Jacques, 1997. "Environmental risks and bank liability," European Economic Review, Elsevier, vol. 41(8), pages 1427-1459, August.
    6. Jerry Green, 1976. "On the Optimal Structure of Liability Laws," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 553-574, Autumn.
    7. Pitchford, Rohan, 1995. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk," American Economic Review, American Economic Association, vol. 85(5), pages 1171-1186, December.
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    Cited by:

    1. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.

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