The Enforceability of Security Interests in Consumer Goods

Abstract

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.