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The Enforceability of Security Interests in Consumer Goods

Schwartz, Alan (1982) The Enforceability of Security Interests in Consumer Goods. Social Science Working Paper, 423. California Institute of Technology , Pasadena, CA. (Unpublished)

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Security interests in consumer goods have been extensively regulated, this regulation taking the principal forms either of prohibiting creditors from taking such interests at all or of deliberately reducing their attractiveness as risk reduction devices. The unique feature of this consumer protection regulation is that it is not justified by the usual unconscionability reasons, such as the existence of imperfect information, but rather by the view that security disadvantages consumers even though the contracts that create it may not be unconscionable. In particular, the institutional structure is considered to create incentives for secured creditors not to maximize the proceeds that repossessed collateral could yield, with the result that consumers remain liable for excessive debts even after foreclosure. Also, creditors are said to threaten repossession unfairly to coerce payment; repossession allegedly destroys consumer surplus; and it supposedly violates debtors' rights. This paper argues that these justifications for the regulation of security interests in consumer goods are untenable or unpersuasive. Contracts to give security actually pose problems similar in kind to those posed by any other consumer contract, and should be regulated, if at all, under the same rationales.

Item Type:Report or Paper (Working Paper)
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Additional Information:This paper was originally given as an Addison J. Harris lecture at Indiana University Law School (Bloomington). I am grateful for the extraordinary hospitality extended to me by the Indiana Law School, and for the useful comments its faculty made on a prior version of the paper. The paper also benefited from comments received at a seminar in Contract Theory held in the Berkeley Law School and at U. S. C. Law Center Faculty Workshop. In addition, Alan Axelrod, Melvin A. Eisenberg. Thomas Jackson, Will T. Jones, Michael Moore, Stephen J. Morse, Margaret Jane Radin, John Schmitz, Matthew Spitzer, James Strnad and Louis Wilde also made very helpful suggestions. Portions of this paper will appear in different form in A. Schwartz and R. Scott, Commercial Law: Principles and Policies (1982). Published as Schwartz, Alan. "The Enforceability of Security Interests in Consumer Goods." The Journal of Law and Economics 26.1 (1983): 117-162.
Group:Social Science Working Papers
Subject Keywords:Debtors, Creditors, Resale, Cartels, Creditor claims, Consumer goods, Automobiles, Market prices, Consumer credit, Security interests
Series Name:Social Science Working Paper
Issue or Number:423
Record Number:CaltechAUTHORS:20171003-144543113
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82006
Deposited By: Jacquelyn Bussone
Deposited On:04 Oct 2017 19:10
Last Modified:03 Oct 2019 18:49

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