Banks and Inner Cities:
Market and Regulatory Obstacles to Development Lending
Why are poor inner cities underserved
by financial institutions, and why is it so difficult to find a solution to
this problem? Explanations of the lending shortfall problem range between
theories based on discrimination to the view that the lending market is working
flawlessly. Drawing largely on the economic development literature, I elaborate
an alternative explanation here. The asymmetric information theory I offer
yields the prediction that urban minority communities will be underserved by
financial institutions even in the absence of discriminatory intent.
I claim that the existing framework of banking
regulation is in part responsible for the difficulty in finding a solution to
the lending shortfall problem. The existing regulatory framework makes it
difficult for large scale development-oriented lending institutions to emerge.
This is a result of the conflict between fair lending and safety regulation.
Relatively small development-oriented banks are constrained by their own
prudence or by safety regulators to diversify their loan portfolios, limiting
the amount of lending geared toward community development. However, fair
lending regulators, specifically Community Reinvestment Act examiners, give
banks poor evaluations on the basis of a conservative lending policy. Banks
that are forced to choose between satisfying the safety and the fair lending
requirements will choose the former, since a failure to satisfy safety demands
can lead to harsh disciplinary action by regulators.
An ideal regime would encourage
development-oriented banks to expand and adopt a safety regulation scheme that
gives banks greater freedom to lend in poor communities. This implies both that
the CRA should be modified so that it no longer prevents the expansion of small
development-oriented banks that have followed a conservative lending policy and
that deposit insurance should be privatized.
In spite of the potential benefits from these changes, they are unlikely to be observed in the near future, because the existing regime represents a political equilibrium supported by dominant interest group coalitions. Lending pressure groups, regulators, virtually all local politicians, and some national politicians generally benefit from the existing enforcement regime for the CRA. More surprisingly, large banks enjoy some benefits and probably benefit overall from the existing CRA enforcement regime.
Glenn Kaplan and Chris Barry
Smith
Patching
the Holes in the Consumer Product Safety Net: Using State Unfair Practices Laws
To Make Handguns and Other Consumer Goods Safer
This Article critiques the current product safety regime in the United
States and identifies a means for its immediate improvement. Under the present
system, consumers are guarded against defective products by a two-tiered safety
net, comprised of federal regulatory authority and state-based tort law.
However, both tiers of this safety net are flawed, and when these flaws
overlap, consumers are exposed to serious dangers from defective products.
Millions of consumer goods each year fall through these “holes” in the safety
net, with poorly designed handguns being perhaps the best known example.
Traditional
remedies for these flaws—such as remedial federal legislation, municipal legal
action, voluntary standards, and increased disclosures of information—are
ineffective patches for the safety net. However, the recent confluence of
developments in administrative law and state unfair trade practices law can
provide the solution to this problem. This Article proposes that these
developments allow state attorneys general to promulgate regulations setting
product standards for goods that fall through the current product safety net.
The attorneys general can set these standards immediately, without further
legislative authorization, and thus prevent the harm and injury that stems from
the sale of such defective consumer goods.
The Ambiguous Basis of Judicial Deference to
Administrative Rules
Much of the commentary on the Supreme Court’s decision in Chevron
U.S.A, Inc. v. Natural Resources Defense Council, Inc. has focused on the nature of power that
agencies exercise when they promulgate rules that merit judicial deference
under Chevron. Some scholars view Chevron as reading into statutes an implied
delegation from Congress to agencies of legislative power to fill statutory
gaps and interpret statutory ambiguities. Other scholars understand Chevron as,
in effect, a delegation of interpretive power from the courts to agencies.
This Article argues that neither view of Chevron is correct. Chevron
purports to command deference beyond what would be required if Chevron merely
stated a rule for the allocation of judicial power to interpret statutes.
Conversely, Chevron deference cannot always rest upon an implied grant of
legislative power from Congress, even where the agency exercises validly
delegated rulemaking authority and promulgates a rule that satisfies the
requirements of the Administrative Procedure Act. In particular, where the
statute contains an ambiguity rather than a gap, it is not a rational principle
of statutory interpretation to view the statute as authorizing a delegation of
legislative rulemaking authority as a way to resolve the ambiguity—ambiguities
impliedly call for interpretation, not legislation. Accordingly, even on the
most expansive reading of Chevron, deference cannot always rest on an implied congressional
delegation of legislative authority; in certain circumstances it must rest on
an implied delegation of judicial authority.
This conclusion suggests that agency reversals of prior rules that
resolve statutory ambiguities should merit substantially less deference than do
rules promulgated de novo. Such reduced deference would be based on the same
principles that prevent courts from lightly abandoning precedent. The
conclusion also raises questions about the policy justifications of Chevron in the
first place. If the resolution of statutory ambiguity is fundamentally an
exercise of judicial power, the question of the scope of deference should turn
on the court’s evaluation of who is best situated to interpret. This evaluation
requires an examination of contextually variable factors that is irreconcilable
with Chevron’s
rule of deference.
Note
Rethinking
Software Tying
This Note proposes a new method of product definition in software tying
cases. “Tying” is a refusal to sell one product unless the buyer also purchases
another product and is a method by which firms are thought to be able to use
their power over one product to obtain power over another.
Tying is the principal antitrust allegation brought against Microsoft,
which refuses to sell its operating system (Windows) unless the buyer also
receives a copy of its web browser (Internet Explorer). Yet Microsoft claims
that it has integrated Internet Explorer into Windows, creating a single
integrated product. But in order to have tying, two separate products must
exist. This dilemma has been dubbed the “single-product problem” and has
required courts to define products before conducting further analysis.
This Note explains why traditional methods of product definition cannot be applied to the software industry. The software industry not only requires a new method of defining products, however; it also, by its very nature, transforms the role of the court in software tying cases. After outlining a theory of software evolution, this Note presents a new method of evaluating integrated software and applies it to three recent examples, including the current case against Microsoft. The new test reveals that the combination of Internet Explorer and Windows should not be considered a single integrated product, because the bundling harms consumer welfare.