Do consumers really want credit card reform?

Kathryn L. Combs and Stacey Schreft

Economic Review, 1999, vol. 84, issue Q III, 45 pages

Abstract: Earlier this year, several bills were introduced in Congress to curb what many consumer advocates have described as abusive credit card practices. These bills were intended to keep credit card issuers from penalizing consumers for paying their card balances in full each month. In unveiling one of the measures, Congressman John LaFalce declared, \\"[Consumers] should not be tricked or trapped into escalating interest rates and unnecessary fees. And they clearly deserve better than to be punished for paying off debt and for responsibly using their credit cards.\\"> Apparently, many consumers agree. According to a November 1996 survey by Money magazine, 79 percent of respondents supported legislation to restrict how credit card issuers set fees and account terms.> With such strong consumer support for credit card reform, it is not surprising that Congress responded. In fact, Congress has repeatedly considered similar measures, some even more restrictive, such as proposals to cap the interest rate charged on credit card accounts. These measures have in common one potentially disturbing feature: if passed into law, they each would impose price controls on credit card accounts.> Combs and Schreft address whether such legislative efforts can achieve the stated objective of benefiting consumers. They find that consumers as a whole generally do not benefit from reform measures of the type studied. The effective price of a credit card account might not fall for many---or any---consumers as a result of such pricing restrictions, and credit availability is likely to be reduced, at least to some consumers. Thus, consumers should think twice before asking for pricing restrictions on credit cards.

Keywords: Credit; cards (search for similar items in EconPapers)
Date: 1999
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