Reflections on Credit Card Practices and Legislative Reform Proposals

July 03, 2008
The growth in consumer use of credit cards over the past three decades has transformed the American economy, placing in consumers’ hands one of the most powerful financial innovations since the dawn of money itself. Credit cards have transformed the ways in which we shop, travel, and live. They have enabled the rise of the e-commerce economy, delivering goods and services to consumers’ doorsteps and permitting consumers to shop when and where they like, unconstrained by traditional limits on competition and consumer choice. Th ey have enabled consumers to travel the world without the inconvenience of travelers’ checks. And they have transformed the way in which we live, from such small improvements such as relieving us the inconvenience of checks and frequent visits to ATM machines to large improvements such as providing security against crime. Credit cards can be used as a transactional medium, a source of credit, or even as a short-term source of cash. Credit cards provide consumers with additional benefits, from cash back on purchases, frequent flier miles, car rental insurance, dispute resolution services with merchants, and 24-hour customer service. It has been aptly observed that that with a credit card you can buy a car; without a credit card you cannot even rent one. Many of these benefits, of course, have been most salient for lower-income, young, and other similar populations, and unsurprisingly, growth in credit card use has been rapid among those populations....