Consumer Law

Texas Consumer Laws Prevented Banking Crisis

By Richard Alderman

by Richard Alderman

Paul Krugman's editorial in the New York Times today compares the results of the financial crisis in Georgia with Texas, noting that Texas did not face similar problems. He states, "Why didn?t the same thing happen in Texas? The most likely answer, surprisingly, is that Texas had strong consumer-protection regulation. In particular, Texas law made it difficult for homeowners to treat their homes as piggybanks, extracting cash by increasing the size of their mortgages. Georgia lacked any similar protections (and the Bush administration blocked the state?s efforts to restrict subprime lending directly). And Georgia suffered from the difference."

Krugman is correct that throughout the 1990s, Texas law prohibited home equity loans and made it difficult for consumers to get over their heads in what appeared to be low interest rate debt. What he doesn't note, however, is that Texas has since amended its law to permit home equity loans. Although the Texas law does have some consumer protections, I don't think we will fare as well in the next economic crisis.

Full post as published by CL&P Blog on April 12, 2010 (boomark / email).