Abstract

This essay was prepared for “The Future of Financial Regulation Symposium” October 6, 2023, sponsored by the C. Boyden Gray Center. I assess the future of consumer finance and financial protection by looking to the lessons of history. Consumer finance and financial protection in the United States exhibits a spontaneous evolution driven by changes in technology and consumer preferences in a repeated cycle. In general, consumers use consumer finance in a manner consistent with the predictions of rational behavior in order to improve their lives. Consistently, this goal of consumer betterment runs up against paternalistic and repressive laws, which attempt to prevent the beneficial evolution of technology and competition. Eventually economic forces overwhelm regulatory repression for the betterment of consumers.

I track three distinct eras in the evolution of consumer finance and financial regulation that provide a roadmap to the future evolution in the virtual era and emergent threats to consumers from private and public sources, including the growing use of the consumer finance system to infringe on the exercise of constitutionally-protected values.

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Abstract

Erie Railroad v. Tompkins is a cornerstone of modern American law. Erie overturned Swift v. Tyson, a case that had stood for nearly a century with minimal objection. Swift involved the negotiability of commercial paper and the holding of the case, that in disputes heard in federal courts under diversity jurisdiction, the court should use traditional common law methods to resolve the case rather than feeling bound by the authoritative pronouncements of a state court.

Correspondence between Harvard Law School’s Lon Fuller and Yale’s Arthur Corbin—arguably the two greatest Contracts Law professors of the mid-Twentieth Century—reveals widespread ridicule and dismay among commercial lawyers and scholars following Erie. Fuller quotes the great Harvard Constitutional Law scholar as saying the Supreme Court “pulled a brodie” in Erie. This article reviews Erie from the perspective of commercial law, rather than the public law commentary that has dominated discussion of the Erie doctrine since its birth, seeking to understand the depth of contempt for Erie among commercial lawyers in terms of its consequences, reasoning, and jurisprudential approach.

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The credit card you used to purchase your latte this morning and to fill your car with gas was probably issued by a bank based in Delaware, South Dakota or some state other than Colorado. Why? Because under a unanimous 1978 decision authored by liberal lion William Brennan, the Supreme Court ruled that banks holding a “national charter” would be governed by the interest rate ceilings of the state in which the bank is based instead of the state of the customer’s residence. This one decision transformed the American economy, unleashing unprecedented competition and putting Visa, Mastercard and other credit cards in the hands of millions of American families who were previously reliant on pawnbrokers, personal finance companies and store credit to make ends meet.

Yet a law set to go into effect in Colorado in July would deprive the most credit-deprived Coloradans of the same access to competitive financial services available to the more well-off and effectively destroy the rapidly growing fintech industry in the state. The consequences to Colorado’s more financially strapped households could be catastrophic. Other states are considering following suit.

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Abstract

To date, Friedrich Hayek is the only winner of the Nobel Prize in Economics who also holds a law degree. The role of law is central to Hayek’s work and prominent in the research program of the Austrian School of Economics generally. Although Hayek’s contributions to jurisprudence are manifest, as are the influence of his economics ideas, his influence on the field of law and economics has remained modest. This lecture, delivered as the Keynote Lecture at the 2023 Asian Law & Economics Association Annual Meeting, provides an introduction to the fundamentals of an Austrian Law & Economics research program in contrast to the mainstream, Chicago-school research program that has dominated the field since its early history. Compared to the neoclassical approach, Austrian thinking provides a more insightful approach to many of the key concepts generally associated with the economic analysis of law: the nature and success of the common law as a system of law, the importance of stability and simple rules in the law, and the strong preference for private ordering via contract, personal autonomy, and voluntary exchange exhibited in the common law.

I identify and briefly describe six key distinguishing characteristics of the Austrian school that distinguishes it from neoclassical law and economics: (1) Methodological individualism, (2) utility and costs are subjective, (3) the division of knowledge, (4) spontaneous order, (5) competition as a discovery procedure, and (6) the nature of economic equilibrium. I will also highlight some of the ways in which examining law and economics through an Austrian framework provides valuable insights about law and economics.

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In a recent piece for the Financial Times, Brendan Greeley argues that the misnamed Credit Card Competition Act would reduce inflation. In it, Greeley recycles numerous myths about the nature of credit-card markets that have long been rebutted by serious economic research. Both theory and ample evidence from the United States and other countries shows that attempting artificially to force down interchange fees is bad for consumers—especially those with lower incomes and those who revolve their balances. Moreover, these interventions simply redistribute the costs of operating the payment-card system; they do not eliminate them. As a result, they won’t reduce inflation, as Greeley imagines.

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QUESTION PRESENTED

Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

INTEREST OF AMICI CURIAE

The Manhattan Institute for Policy Research (“MI”) is a nonpartisan public policy research foundation whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility. To that end, MI has historically worked sponsored scholarship and filed briefs supporting economic freedom against government overreach.

Richard Epstein is the Laurence A. Tisch Professor of Law at New York University. He also serves as the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor of Law emeritus and a senior lecturer at the University of Chicago.

Todd Zywicki is George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law and a research fellow of the GMU Law and Economics Center.

Justin “Gus” Hurwitz is a senior fellow and academic director of the Center for Technology, Innovation, and Competition at the University of Pennsylvania Carey Law School.

Geoffrey Manne is the president and founder of the International Center for Law and Economics and a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics.

This case interests amici because it involves an agency regulation that was not explicitly authorized by statute. Indeed, it gives the Court a chance to revisit Chevron—either overruling it or clarifying that statutory silence does not require judicial deference.

SUMMARY OF ARGUMENT

Family-run fishing businesses face a fraught and competitive environment even before the intrusion of burdensome regulations. Here, the National Marine Fisheries Service (“NMFS”) promulgated a rule for certain classes of herring boats that sweeps in most such businesses, as portrayed in the Oscar-winning movie CODA. If a vessel needs a monitor and has not already been assigned one under a federally funded program, it must pay for one itself. The cost for most herring boats exceeds $710 per sea day.

Petitioners, four family-owned and -operated fishing companies, contend that the industry-funding requirement which is not explicitly authorized by statute—will have a devastating economic impact on the herring fleet and will disproportionately impact small businesses, destroying historic communities.

The district court ruled for the government, finding that various provisions of the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”) together conferred broad authority on the NMFS to implement regulations to carry out fishery management plan’s measures. Without any analysis, the court also found that, even if the statute were ambiguous, the government’s reading would be reasonable under Chevron Step Two and thus worthy of judicial deference. A divided panel of the D.C. Circuit affirmed, reasoning that the MSA’s authorization for the placement of monitors, through silence on funding, left room for agency discretion. This Court granted certiorari to determine whether the Court should overrule Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

The Court should now take this opportunity to overhaul the Chevron-deference regime, because this experiment in rebalancing the relationship between administration and judicial review has failed. It has led to agency overreach, haphazard practical results, and the diminution of Congress. Although intended to empower Congress by limiting the role of courts, Chevron has instead empowered agencies to aggrandize their own powers to the greatest extent plausible under their operative statutes, and often beyond. Congress has proved unequal to the task of responding to this pervasive agency overreach and now has less of a role in policymaking than in the pre-Chevron era. Courts, in turn, have become sloppy and lazy in interpreting statutes. It’s a vicious cycle of legislative buckpassing and judicial deference to executive overreach.

Chevron deference rests on the presumption that Congress won’t over-delegate and that agencies will be loyal agents. But the past 40 years have shown that Congress loves passing the buck and agencies are actually principals who pursue their own interests. The time has more than come for the Court to revisit Chevron, whether it chooses to overrule it explicitly or keep it nominally under a newly restricted standard. Cf. Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (preserving Auer deference but reworking it so completely that both Chief Justice Roberts, who joined Justice Kagan’s majority opinion, and Justice Kavanaugh, who joined Justice Gorsuch’s effective dissent, noted that there wasn’t much difference between the two).

Democratic lawmakers like Illinois Sen. Dick Durbin and the Justice Department’s Antitrust Division want to impose new rules for credit-card transactions that would reduce competition, harm consumers and crush small banks.

The traditional Boy Scout oath was that each scout should “do his duty.” Unfortunately, in the bankruptcy case dealing with the fallout from the horrendous sexual abuse scandal, the bankruptcy court failed to do its duty. Instead of looking out for those who were victimized, the case has turned into another feeding frenzy by class action lawyers. To rectify this miscarriage of justice, appeals courts should take a second look.

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