Global Credit Card Use and Debt: Policy Issues and Regulatory Responses


The rise of card-based payments has transformed the landscape of payments in the last half century, from one dominated by government-supported paper-based payments to one dominated by wholly private systems. The rise of those payments presents a number of policy problems, the most serious of which is the empirically demonstrable likelihood that use of the cards contributes to an undue level of consumer credit and that borrowing on the cards contributes to a rise in the level of consumer bankruptcy. Although the existing pattern shows great variation from country to country, regulators should take no solace in those variations. Building on existing historical research and on detailed contemporaneous data about the patterns of usage around the world, I show that the differences reflect the youth of the system, and the fact that some countries were less suited to rapid takeup of credit cards than others. The pressures of globalization are rapidly driving convergence in card usage, except in those countries that have adopted substantial “speed bumps” to slow the growth of cards.

The natural question, then, is what policies will be useful to confine the problems related to credit cards without creating undue inefficiencies in retail payment systems. The ideal response would be one that encouraged debit cards – protecting the cost savings of electronic payments without the externalities generated by credit card usage. It is not easy, however, to devise policy responses that fit that goal. The closing part of this paper analyzes four different reforms that might be useful to policymakers of different perspectives: (a) permitting merchant credit card surcharges; (b) barring affinity programs, especially those that are conditioned on borrowing; (c) barring marketing to minors; and (d) reorganizing the disclosure system to focus on the behavioral problems that make cards problematic. Among other things, this suggests a shift in emphasis away from disclosures in account agreements to disclosures at the point of sale. Thus, for example, I reject recent proposals to provide enhanced disclosures for universal default provisions. On the contrary, I argue that those provisions should be banned from credit card agreements entirely, with a view to causing card issuers to contract the credit they extend to those that are demonstrably in financial distress.


Bankruptcy Law | Commercial Law | Consumer Protection Law

Date of this Version

March 2005