Credit in the United States

Credit Definition

The word “credit” is derived from the Latin word “credere.”  (this definition of Credit is based on The Cyclopedic Law Dictionary.):

• The confidence reposed in the ability and intention of a purchaser or borrower to make payment at some future time, either specified or indefinite. …. The ability to borrow, on the opinion conceived by the lender that he will be repaid.
• A debt due in consequence of a contract of hire or borrowing of money.
• The time allowed by the creditor for the pajrment of goods sold by him to the debtor.
• That which is due to a merchant, as distinguished from “debit,” that which is due by him.
• That influence connected with certain social positions.

Background

For most consumers, credit provides a means of purchasing goods or services and
spreading the cost of repayment over time. This is true of the three largest consumer credit
markets: the market for mortgages ($9.99 trillion in outstanding balances), for student loans
($1.3 trillion), and for auto loans ($1 trillion). This is also one way in which certain types of
open-end credit—including home equity loans ($0.14 trillion) and lines of credit ($0.51
trillion)—and at least some credit cards and revolving credit ($0.9 trillion)—can be used.6
Consumers living paycheck to paycheck and with little to no savings have also used
credit as a means of coping with shortfalls. These shortfalls can arise from mismatched timing
between income and expenses, misaligned cash flows, income volatility, unexpected expenses or income shocks, or expenses that simply exceed income. Whatever the cause of the shortfall,
consumers in these situations sometimes seek what may broadly be termed a “liquidity loan.”

There are a variety of loans and products that consumers use for these purposes including credit cards, deposit account overdraft, pawn loans, payday loans, vehicle title loans, and installment loans. Credit cards and deposit account overdraft services are each already subject to specific Federal consumer protection regulations and requirements.

Pawn Lending

Another liquidity option—pawn—generally involves non-recourse loans made against the value of whatever item a consumer chooses to give the lender in return for the funds. Pawn lending, also known as pledge lending, has existed for centuries, with references to it in the Old Testament; pawn lending in the United States began in the 17th century.

The consumer has the option to either repay the loan or permit the pawnbroker to retain and sell the pawned property at the end of the loan term, relieving the borrower from any
additional financial obligation. This feature distinguishes pawn loans from most other types of
liquidity loans.

Regulation

Credit in Foreign Legal Encyclopedias

For starting research in the law of a foreign country:

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Credit and Tax Law

There are more details about Credit in the tax compilation of the legal Encyclopedia.

Resources

Further Reading

• See Susan Payne Carter, Payday Loan and Pawnshop Usage: The Impact of Allowing Payday Loan Rollovers, at 5 (2012)
• Information about Credit in the Gale Encyclopedia of American Law.