Behavioral Exploitation Antitrust in Consumer Subprime Mortgage Lending

Note from the Digital Editor: In order to highlight the high-level of research and scholarship from the authors who have published in the William & Mary Policy Review’s peer-reviewed print journal, we have reproduced the abstracts from Volume 4, Issue 1 along with a link to an electronic copy of the full form of the piece.

We analyze whether antitrust provides a favorable alternative and perhaps superior approach to regulating consumer subprime mortgage lending. Behavioral exploitation antitrust targets commercial conduct of the sort that was observed in consumer subprime mortgage lending in the years leading up to 2007. The negative effects to welfare of exploitation of the subprime mortgage market are easily observed. Antitrust-based regulation can mitigate those welfare effects. Regulation that does exist, which operates at the level of the individual transaction, may be easily avoided, may be short-sighted, may suffer from enforcement problems explained by public choice theory, and/or may overreach in its capacity to remove consumer choice. We show that antitrust enforcement under a rule of reason approach avoids those pitfalls. However, none of the three primary approaches to antitrust enforcement – prohibitions of anticompetitive conduct by a dominant firm, prohibitions of anticompetitive agreements, and prohibitions of mergers with incipient anticompetitive effects – in their current forms permit resort to antitrust remedies in the consumer subprime mortgage market. We argue that liberalized standards for antitrust enforcement under both Clayton Act section 7 (regulating mergers) and Sherman Act section 1 (regulating concerted conduct), perhaps restricted narrowly to this and closely analogous markets, would be appropriate to gain the benefits of regulation through behavioral exploitation antitrust.

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Max Huffman is an Associate Professor and Dean’s Fellow at Indiana University Robert H. McKinney School of Law. Daniel B. Heidtke is a Fellow at Institute for Consumer Antitrust Studies, Loyola University Chicago, School of Law.