Lender liability in the Consumer Credit Market

Giuliana Palumbo () and Elisabetta Iossa

No 451, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

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.

Date: 2002-08-01
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