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Religion & Law

: Mirror of Justice

Applying Subsidiarity to the Regulation of Consumer Credit

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I've just posted a paper I presented at the Journal of Law & Religion's fall symposium on The Global Economic Crisis, Law and the Religious Traditions, entitled:

The Paradox of the Global and the Local in the Financial Crisis of 2008: Applying the Lessons of Caritas in Veritate to the Regulation of Consumer Credit in the United States and the European Union. It's a case study in the application of subsidiarity to debates about the regulation of consumer credit in the United States and the European Union, through the lens of Pope Benedict's Caritas in Veritate. I'd be most grateful for any feedback. Here's the abstract:

In his recent encyclical Caritas in Veritate, Pope Benedict XVI grapples with one of the most vexing paradoxes of the current global economic crisis: that a systemic global financial crisis was rooted in uniquely local transactions: loans to individual consumers tied to unique, unmovable parcels of residential real estate. This paradox raises some tricky questions about the ?architecture? of the regulatory response to the crisis. Does the scope of the problem demand the efficiencies of broad-brush uniform regulation, or does the origin of the problem require more differentiated local responses?

In one sense, the question of whether a global or a local response is most appropriate is largely academic, since there is no global authority with the power to implement any response. But on a smaller scale, this question is the subject of active debate in two significant political arenas ? the U.S. and the E.U. In the U.S., the battle over whether consumer credit should be regulated on the local (state) level or on the federal level has been raging in banking circles and federal courts for years. Proposals to tinker with the balance of federal and state authority over consumer credit laws are part of every version of financial reform legislation currently under consideration in Congress. This same question is also being raised in the E.U., which is currently considering a European directive on consumer rights that would diminish the authority of national governments to regulate consumer credit locally, while increasing the authority of the E.U. to impose uniform standards across member states.

In Caritas, Pope Benedict portrays the current global economic crisis as a crisis of world development. He argues that the globalization of the world economy leading to the current crisis has exposed inadequacies in our views of the authority of existing political structures and the authority of the market. Our conception of the state as an institution capable of fostering human development is flawed because the authority of states ends at their borders, while markets cross borders. Our conception of the market as an institution capable of fostering human development is flawed because it does not incorporate the essential insights of the principle of gratuitousness ? the internalization of solidarity and mutual trust necessary for the human subjects of market transactions to be recognized as members of the same human community. Our current views of the structures of political and economic authority are flawed because they are rigidly, but unrealistically, dualistic. They fail to acknowledge the multiplicity of values at stake in the various spheres of human activity. Benedict thus concludes that both political and economic authority has to be articulated. There will be different levels at which governmental and market forces can most effectively act to protect the different values at stake.

This article first describes how the tension between a local or a nonlocal approach plays out in the debates about the appropriate regulatory scheme for consumer credit in the U.S. and the E.U. In both jurisdictions, the primary motivation for the increasingly predominant uniform, nonlocal approach has been economic efficiency. Next, the article explores Pope Benedict?s arguments in Caritas for why only an articulated response to the root causes of the global economic crisis protects the multiplicity of values required to achieve an authentically humane global economy. Finally, it applies Pope Benedict?s general framework to the debates in the U.S. and the E.U. It concludes that, while this framework does not reject entirely the value of economic efficiency that supports some uniform nonlocal regulation, it also counsels for the preservation of the possibility of some differentiated, inefficient, local regulation of consumer credit. The most effective regulatory responses to the current crisis, therefore, will be those that support an ongoing dynamic balancing of the competing claims of local and nonlocal interests.

Full post as published by Mirror of Justice on February 09, 2010 (boomark / email).