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Charging Ahead

The Growth And Regulation Of Payment Card Markets Around The World

Charging Ahead - Mann, Ronald J. - ISBN: 9780521866118
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Beschrijving

This book is the first comprehensive treatment of credit cards in the global economy. The topic is timely not only because of the attention focused on cards as a contributor to the substantial rise in consumer borrowing, but also because of the role of cards in the recent retrenchment in the U.S. bankruptcy system. Relying on data from the US, the UK, Canada, Australia, and Japan, Charging Ahead includes the first careful statistical analysis of the relation between the rise of credit card use and broader macroeconomic phenomena like consumer borrowing, savings, and bankruptcy. It also provides a broad narrative of how credit cards have come to be used so differently around the world. Finally, it sets out a detailed and coherent program for regulatory intervention grounded in both empirical analysis and the existing theoretical literature.

Details

Titel: Charging Ahead
auteur: Mann, Ronald J.
Mediatype: Boek
Bindwijze: Gebonden
Taal: Engels
Aantal pagina's: 310
Uitgever: Cambridge University Press
Plaats van publicatie: 01
NUR: Internationaal (publiek)recht
Afmetingen: 233 x 159 x 26
Gewicht: 570 gr
ISBN/ISBN13: 0521866111
ISBN/ISBN13: 9780521866118
Intern nummer: 6594682

Biografie (woord)

Ronald A. Mann received his JD from the University of Texas where he graduated first in his class and was the managing editor of the Texas Law Review. After graduation, he clerked for judges on the United States Court of Appeals for the Ninth Circuit and the United States Supreme Court. After three years in private practice, he worked for the Justice Department for four years as an Assistant to the Solicitor General. Before joining the Texas faculty in 2003, he taught for six years at the University of Michigan and for three years at Washington University, St Louis.

Extra informatie

Charging ahead
Cambridge University Press
0521866111 - Charging ahead - the growth and regulation of payment card markets - by Ronald J. Mann
Index



Index

Account agreements. See also Contracting practices

   amendments to, 132–134

   arbitration clauses in, 142–143, 257

   described, 131–139, 253–254, 258

   point of sale and, 130

   price terms in, 144

   risk assessment, 135–136, 144

ACH transfers. See also bank transfer systems described

   and Internet retailing, 14, 15

   payments, making, 11, 18

   and transaction authorization, 18

Acquisition

   defined, 20

   market for, 25

   and transaction processing, 26–27

Adler-Polak-Schwartz (APS) model, 199

Affinity programs, 135, 167–171

Airline miles, 167, 262

Amendments to agreements, 132–134

American Express

   affinity/rewards programs, 169

   development of, 83, 89

   marketing campaign, 47

   transaction mechanics, 20

Annual fees

   avoidance of, 128, 137

   and contract revision, 254

   history of, 82

   on loyalty cards, 22

   and rewards programs, 172

   as selection criterion, 135, 138

APS model. See Adler-Polak-Schwartz (APS) model

Arbitration clauses in cardholder agreements, 142–143, 257

Argentina, consumer debt in, 110

Armour, John, 180

Australia

   affinity/rewards programs, 167, 170

   bankruptcy filings in, 184

   credit card markets in, 106

   credit card use in, 4, 51–52, 75, 244

   debit cards, 94–95, 247

   interchange fees, 122, 125

   legal protections in, 98

   nonmortgage consumer debt in, 78

Authorization

   ACH transfers and, 18

   electronic, 261

   process for credit cards, 23–25, 38, 39, 247

Availability bias, 48, 136

Bank accounts

   in A2A payments, 18

   and check collection, 15

   overdrafts, 43

   and stored-value cards, 17

Bank loan transaction costs vs. credit card costs, 40, 41–42

Bank of America, 22, 132

Bank transfer systems described, 18–19

BankAmericard, 86

Banking industry fragmentation in card development, 83–85, 91–92

Bankruptcy

   avoidance of, 176–177

   borrowing and, 50, 140, 181–185

   credit and, 179–185

   and credit cards, 3–4, 49–50, 60–69, 70, 140

   debt and, 3–4, 66–67, 70–71, 140, 181–185

   delinquency rates and, 60, 200–204

   filings

     in Australia, 184

     in Canada, 64, 184

     in families, 69

     and institutions, 68

     in Japan, 184

     learning-curve effect and, 187

     and spending, 64

     in the United Kingdom, 64, 66, 68, 184, 199, 267

     in the United States, 64, 66, 68, 183, 199

     Visa network, 184

   home equity loans and, 43

   and lending markets, 178, 200, 205–206

   leniency defined, 184

   motivations for, 185–187, 267

   nonadjusting creditors in, 244

   optimization of, 175–177, 178

   policy

     in Canada, 184

     described, 178

     and filing rates, 184, 265

     in Japan, 184

     reform, 198–206, 268–269

     small-businesses, 268

     in the United Kingdom, 180, 184

     in the United States, 179

   reform

     borrowing and, 198

     entrepreneurs and, 180, 185

     lending markets and, 205–206

   risk mitigation by, 50

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 2, 161, 204, 257, 268–269

Bankruptcy Code, Chapter 7, 180, 205, 268

Bankruptcy Code, Chapter 13, 205, 268

Bankruptcy Code §310, 205

Bankruptcy Code §707, 268

Bankruptcy Code of 1978, 264

Banks

   card issuance by, 87, 258

   credit card, cost efficiency of, 262

Barclaycard, 90

Belgium

   credit card markets in, 107

   payment card use in, 76, 110

   revolving credit in, 91

Bill-stuffer amendment, 253–254

Blockbuster Video, 136–137

Borrowing

   and bankruptcy, 50, 140, 181–185

   and bankruptcy reform, 198

   in Canada, 95

   as credit card function, 23, 40–44, 67, 78, 165

   and credit card use, 51–52, 56, 60–70, 177

   crisis, 63

   cultural perceptions of, 108–110

   and disclosure, 160–161

   information regulation and, 154

   in Japan, 5, 101, 109, 110, 163

   lending market monitoring of, 268

   limitations on, 6, 156

   point of sale incentives, 5, 121

   prodigal, 62, 64, 170, 171, 188, 190

   and rewards programs, 169

   by small-business, 41, 42, 180

   social costs, limitation of, 207

   in South Africa, 96

   and teaser rates, 172

Britain. See United Kingdom

Budgetism concept, 101

Business models of credit card transactions, 22–23, 82–83, 87, 134, 153

Cahoot card, 1

Canada

   bank failures in, 84

   bankruptcy

     filings, 64, 184

     policy, 184

   credit cards

     development in, 86

     markets for, 106

     regulation of, 191

     usage patterns in, 4, 51–52, 75, 244

   debit cards, 94–95, 247

   legal protections in, 97, 98

   nonmortgage consumer debt in, 78

Capital One

   disclosure regulation of, 166

   payment system mechanics, 22, 113

Cardholders

   -issuer interface, 128–130

   account agreement evaluation by, 134–136

   (See also Account agreements)

   authentication of, 37

   confusion, debit vs. credit cards, 32–33

   credit risk assessment of, 40, 89

   liability, 28

   purchasing behaviors of (See purchasing behaviors of cardholders)

   zero-balance, 78

Cash

   and Internet retailing, 14

   merchant’s costs, 123

   as universal payment systems, 15

   usage in US, 16

   vs. noncash payment systems, 9–11, 102–105

Chargaplates, 87

Chargebacks, 27–28, 202

Check 21. See Check Clearing in the 21st Century Act of 2003

Check Clearing in the 21st Century Act of 2003, 12

Checks

   benefits/limitations of, 10, 37, 39

   and debit cards, 31, 95, 99–100

   and Internet retailing, 14, 15

   payment, obtaining, 25

   in payment card development, 81, 82, 83

   transaction costs, 123, 241

   transaction mechanics, 21

   as universal payment systems, 15

   usage/collection on in US, 11, 15, 16, 83

   usage patterns, global, 13

China

   credit card market in, 107

   credit reporting in, 117, 118

Citibank

   affinity/rewards programs, 168

   marketing strategy, 107, 158

Class actions, 142, 253, 257

Cohen, Lizabeth, 138, 155, 200

Collection process for credit cards, 23–25, 38, 39, 247

College students, credit limitations on, 156–159, 260

Conditional benefits programs, 169

Consumer. See Cardholders

Consumer Bankruptcy Project, 63

Consumer Credit Act, 97, 156, 158

Contracting practices

   account agreements, 131–139, 253–254, 258

   (See also Account agreements)

   in card usage, 21

   described, 128–130

   in the European Union, 143

   and policy setting, 5

   regulation of, 257, 258, 260

   solutions to, 138–139, 153

   in the United States, 143

Convenience risk, 119, 141

Credit

   and bankruptcy, 179–185, 265

   limits

     for minors, 156–159, 260

     and spending behaviors, 48, 49, 68, 147

   market and usury regulations, 190–192

   regulation of, 178, 188–197

Credit bureaus, 113

Credit cards

   account agreements (See Account agreements)

   application for, 40

   authorization and collection process for, 23–25, 38, 39

   benefits, 3, 10, 35, 42

   borrowing and (See Borrowing)

   business models of, 22–23, 31

   cancellation rights, 27, 140

   cardholder confusion in, 32–33

   cardholder purchasing behaviors (See Purchasing behaviors of cardholders)

   development of, 37–40, 80, 81–85, 106

   fraudulent use of,

   functions of, 23

   funds availability, confirmation of, 17

   interchange fees (See Interchange fees)

   and Internet retailing, 15

   limitations of, 1–2, 45

   markets, 106, 175–177

   profits from, 21–23, 40

   revolving (See Revolving credit cards)

   risk assessment, 40

   and savings, 54–56

   and spending, 177

   success of, 2

   theft protection, 28, 32

   transaction mechanics, 20–28, 29

   usage, global patterns of, 4, 51–52, 75–80, 117–118, 248

Creditworthiness, assessment of, 40, 89, 113, 190

Cross-subsidization, addressing, 122–126, 168, 170, 171

Data protection. See also Privacy issues

   in credit card product development, 106

   and credit card usage, 4, 117–118

   electronic currency, 18

   funds availability, confirmation of, 17

   in Germany, 115

   and globalization, 113–117

   in Italy, 115, 118

   in Japan, 118

   in the Netherlands, 115

   in South Korea, 116–117, 118

   in United Kingdom, 114

Data Protection Act, 115

Debiasing, 136–137, 138, 255

Debit cards

   cardholder confusion in, 32–33

   checks and, 31, 95, 99–100

   debt and, 29

   development of, 80, 93–105

   economics of, 101

   encouragement of, 4, 158, 166, 168, 188

   fee disclosure in, 164

   funds availability, confirmation of, 17

   and Internet retailing, 31, 99

   in Japan, 101, 102, 103

   market share, 31–32

   merchant’s costs, 123

   payment, psychology of, 46, 48, 49

   PIN-based, 29–30, 31, 32, 96, 242

   PIN-less, 30, 31, 32, 99

   prevalence in US, 16, 119

   protections, legal, 32, 96–98, 247

   for small value payments, 99

   and TILA, 29, 32

   transaction mechanics, 28–32

   usage, global patterns of, 75–80

Debt

   and bankruptcy, 3–4, 66–67, 70–71, 140, 181–185

   card usage and, 4, 45, 49–50, 52–54, 56, 78

   in credit card development, 88–89

   and debit cards, 29

   distressed, tax on, 178, 195–197, 267

   home equity loans and, 43

   institutions and risk mitigation, 50

   prevalence, global, 5, 110

   recovery of, 158

   spending and, 52–54, 57–58, 60, 119

Delinquency rates

   and bankruptcy, 60, 200–204

   fee changes and, 254, 258

   trends in, 268

Deposit insurance, 84

Diner’s Club card

   history of, 81, 85, 89

   marketing strategy, 82, 88, 89

   profits, obtaining, 82–83

Disclosure

   borrowing and, 160–161

   point of sale, 161–165, 256

   policy setting of, 5

   regimes, 145

   regulation of, 154, 159–165, 254, 269

Discounts vs. surcharges, 124–126

Discover card

   affinity/rewards programs, 169

   interchange fees, 26, 121

   transaction mechanics, 20

Dual-issuer system, 86–87

Durbin-Watson statistic, 248

EBay and electronic transactions, 14. See also PayPal

Economics

   and credit card use, 2–3, 16, 21, 155, 180, 188

   of debit cards, 101

   debt and, 50, 54, 58, 62, 66

   delinquency rates and, 60, 200–204, 254

   and product convergence, 107–112

Electronic authorization, 261

Electronic Fund Transfers Act (EFTA), 29, 33, 96, 161, 163

Electronic payment systems, 11–13, 99–100

   See also Credit cards; Debit cards

Electronic storage described, 16–19

Ellis, Diane, 184

England. See United Kingdom

Enterprise Act of 2002, 180

Entrepreneurs. See also Small-businesses

   and bankruptcy reform, 180, 185

   credit card use by, 177

   and electronic money, 18

   lending to, 41, 42, 180

European Consumer Credit Directive, 115

European Data Privacy Directive, 114

European Union. See also individual country by name

   contracting practices in, 143

   credit card use in, 4, 106, 110

   data protection in, 113–117

   merchant’s costs, 123

Expedited Funds Availability Act, 81

Face-to-face vs. long-distance transactions, 15

Fair Credit Reporting Act, 114

Families

   bankruptcy filings in, 69

   spending habits of, 61, 62

Family crisis and bankruptcy, 63

Fear-of-crime hypothesis, 102–105, 241

Fees

   annual (See Annual fees)

   changes and delinquency rates, 254, 258

   interchange (See Interchange fees)

   overlimit, 149, 150, 162

   in transactions, 162

Feinberg, Richard, 47–48, 163

Financial distress. See Debt

Finders Services, 84

First Data Corporation, 25–26

France

   banking industry fragmentation in, 91

   card issuance in, 22

   credit card use in, 110

   credit reporting in, 118

Fraud

   and check processing, 11

   losses from, 203

   payment card transactions and, 12, 17, 23–25, 247

   and PIN use, 29, 31

Frugality hypothesis, 108

FTC Mail Order Rule, 139, 149

Funds availability, confirmation of, 17

Germany

   affinity/rewards programs, 169

   consumer borrowing in, 49, 51

   credit card use in, 110

   data protection in, 115

   revolving credit in, 91, 165

Giro systems described, 18–19

Globalization

   and bankruptcy, 179

   data protection and, 113–117

   hypothesis, 108, 111–112

   and revolving credit, 108, 110

Government by private law, 147–148

Griffiths Commission Report, 63, 267

Gross, David, 186

Hock, Dee, 38

Home equity loans, 43, 264

Hong Kong. See China

India

   consumer debt in, 110

   credit reporting in, 117

   payment systems in, 103

Indonesia, credit in, 108

Information regulation, 154, 202

Institutions

   bankruptcy filings and, 68

   and card usage patterns, 79, 84

   and risk mitigation, 50

Instrument-induced risk, 119–120, 141, 177, 188

Insurance process, risk mitigation by, 50, 84

Interchange fees

   and affinity/rewards programs, 168, 170

   American Express, 26, 122, 123

   in Australia, 122, 125

   avoidance of, 127

   Discover card, 26, 121

   factors affecting, 255

   MasterCard network, 26, 124, 251

   in the Netherlands, 126

   PIN-less debit products, 31

   policy issues, 121–122, 251

   setting of, 26, 122–126

   in Sweden, 126

   in the United Kingdom, 126

   Visa network, 26, 124, 125, 251

Interest rates

   caps on, 266

   changes in, 253, 258

   and charge-offs, 203

   differentiation of, 267

   as selection criterion, 135, 137

Internet retailing

   and A2A transactions, 18–19

   ACH transfers and, 14, 15

   cash and, 14

   checks and, 14, 15

   and credit card development, 38–39, 152

   credit cards and, 15

   debit cards and, 31, 99

   electronic currency, advantages of, 18

   and long-distance transactions, 14, 15

   PayPal and, 15, 18, 99

Ireland, credit card markets in, 107

Israel, contracting practices in, 257

Italy

   credit card use in, 13, 103, 110

   data protection in, 115, 118

Jackson, Tom, 49, 135, 179, 198, 268

Japan

   bank transfer systems in, 18–19

   banking industry fragmentation in, 91

   bankruptcy filings in, 184

   bankruptcy policy in, 184

   borrowing in, 5, 101, 109, 110, 163

   cardholders, zero-balance, 78

   credit cards

     development of, 90, 107

     markets for, 106

     regulation in, 191, 192

     transaction mechanics, 25, 123

     usage patterns in, 13, 51–52, 75, 165

   data protection in, 118

   debit cards in, 101, 102, 103

   legal protections in, 97, 247

   revolving credit cards in, 165, 191

   stigma avoidance in, 187

JP Morgan Chase payment system mechanics, 22

Latin America, debit card use in, 102

Lawless, Robert, 180

Learning-curve effect and bankruptcy filings, 187

Lending markets

   bankruptcy and, 178, 200, 205–206

   borrowing, monitoring of, 268

   costs of, 266

   to entrepreneurs, 41, 42, 180

   mortgage, 191, 264

   reform of, 269

Leniency defined, 184

Line-of-credit products, 43, 87

Logos and spending activity, 48, 163

Long-distance vs. face-to-face transactions, 15

Loyalty cards, 22, 168

Marketing

   to college students, 156, 260

   and disclosure, 155–159

   mass mailing, 87

   policy setting of, 5

   and psychology of payment, 47, 126–127, 163

Mass mailing in payment card development, 87

MasterCard network

   cardholder confusion in, 32

   chargebacks, 28

   consumer spending study data, 48

   in credit card development, 39

   in debit card development, 94, 96

   development of, 86

   interchange fees, 26, 124, 251

   issuers for, 41

   in long-distance transactions, 14

   marketing campaign, 47

   PIN-less debit cards in, 30, 99, 101

   term standardization,

   transaction mechanics, 20

MBNA

   affinity/rewards programs, 168, 169

   disclosure regulation of, 166

   marketing practices, 138

   minimum repayment terms, 266, 267

   payment system mechanics, 22, 113

   political contributions by, 242

McDonald’s, 16, 46, 107

Means testing, 184, 268, 269

Merchant/cardholder interface, regulation of, 122–126

Merchant/network interface, regulation of, 121–122

Merchants, payment card value to, 82, 87

Mexico, consumer debt in, 110

Middle East

   credit card market in, 107

   credit reporting in, 118

   interest payments in, 108

Minimum payments as regulatory tool, 193–195, 260, 266, 267, 269

Minors, credit limitations on, 156–159, 260

Money orders, 14

Monoline payment system

   in Europe, 115–116

   mechanics, 22

   profitability of, 23, 113, 268

Moral hazard problem, 182, 199, 204, 266

Mortgages

   arbitration clauses in, 144

   delinquency rates on, 60

   development of, 253

   lending markets, 191, 264

   as repayment security, 43

   term standardization in, 149, 257

   in the UK, 266

Moss, David, 199

Multiplicity in credit card markets, 138

National Bank Act, 256

Netflix, 136–137, 152

The Netherlands

   credit card use in, 110

   data protection in, 115

   interchange fees in, 126

   payment card use in, 76, 108

Networked payment systems

   authorization and collection process for, 23–25

   cancellation rights, 27, 140

   chargebacks, 27–28

   protection, legal, 28, 29

   transaction processing in, 26–27

   usage, standards for, 21

   vs. universal, 15–16

Nilson Report, 242

Noncash vs. cash payment systems, 9–11

Norway, surcharges in, 122–123

NYCE network, 29

Obligations and credit cards, 133–134

Opportunistic-borrowing theory, 183, 185

Optimistic bias, 135

Overlimit fees, 149, 150, 162

Paper-based and electronic systems, 11–13, 99–100

Payday loans, 192

Payment

   as credit card function, 23

   forms of, 241

   obtaining from credit cards, 25

   psychology of, 46–49, 163

Payment card transactions. See also Credit cards; Debit cards

   in Belgium, 76, 110

   benefits of, 19, 35

   development of, 81, 82, 83, 87

   and fraud, 12, 17, 23–25, 247

   inhibition of, 102–105

   legal issues regarding, 256

   market effects of, 77

   in the Netherlands, 76, 108

   network effects of, 82

   as networked systems, 16

   processing of, 12–13

   segmentation of, 165–166

   in South Africa, 76, 95

   in Sweden, 76

   in the United States, 12–13, 16, 21, 25, 111, 242, 244

Payment systems

   cash vs. noncash, 9–11

   choices in, 9

   and consumer spending, 69–70

   development of, 16–19

   face-to-face vs. long-distance transactions, 15

   merchant’s costs, 123

   paper-based and electronic, 11–13, 99–100

   reforming, 119–120

   retail and policy setting, 4–6

   and spending practices, 47

   universal vs. networked, 15–16

PayPal and Internet retailing, 15, 18, 99

Peterson, Christopher, 189

Point of sale

   and account agreements, 130

   borrowing incentives, 5, 121

   in credit card development, 89

   in debit card encouragement,

   disclosures, 160, 161–165

   in Japan, 97

   price regulation at, 122, 123

   surcharges and, 124–125, 126

   transactions, mechanics of, 28, 33, 38–39

Policy. See also Regulation

   bankruptcy, 178, 198–206, 268–269

   contracting practices, 5, 138–139, 153

   credit card debt, 45, 49, 60, 68, 78

   in credit card development, 91

   debit vs. credit cards, 29, 31

   discounts vs. surcharges, 124–126

   interchange fees, 121–122, 251

   rewards programs, 170–171

   setting of, 2, 4–6, 119–120, 208, 269

   stigma as policy tool, 187

   tax on distressed debts, 178, 195–197

   in universal vs. networked systems, 16

   usury regulations, 189–193

Portugal, 91, 107

Posner, Eric, 189

Price terms in cardholder agreements, 144

Privacy issues. See also Data protection

   and credit card usage, 4, 117–118

   electronic currency, 18, 39

   and globalization, 113–117

Prodigal borrowing, 62, 64, 170, 171, 188, 190

Profits from credit cards, 21–23, 82–83, 89–90

Protection, legal

   in Australia, 98

   in Canada, 97, 98

   debit cards, 32, 96–98, 247

   networked payment systems, 28, 29

   unauthorized transactions, 247

   Uniform Commercial Code, 256

   in the United Kingdom, 97, 98, 156

Providian

   affinity/rewards programs, 167

   disclosure regulation of, 166

   payment system mechanics, 22, 113

Pulse network, 29

Purchasing behaviors of cardholders. See also Spending

   and debt levels, 52–54, 69–70

   described, 45–51, 67, 100

   economic effects of, 155

   regulation of, 97

Regulation. See also Policy

   of contracting practices, 257, 258, 260

   of credit, 178, 188–197

   of disclosure, 154, 159–165, 254, 269

   of information, 154, 202

   merchant/network interface, 121–122

   of purchasing behaviors, 97

   of teaser rates, 171–173, 269

Regulation Z, 256

Retail payment systems, 4–6

Retailer cards, 169

Revolving credit cards

   in Belgium, 91

   described, 86–92

   float and, 96

   in Germany, 91, 165

   globalization and, 108, 110

   in Japan, 165, 191

   in Portugal, 91

   in the United Kingdom, 90, 92

Rewards programs, 5, 167–171, 260

Risk

   assessment

     account agreements, 135–136, 144

     card transactions, 181–182, 258, 268

     creditworthiness, 40, 89, 113, 190

     and mitigation, 50, 84

   convenience, 119, 141

   instrument-induced, 119–120, 141, 177, 188

Saudi Arabia, 108

Savings process

   credit card use and, 54–56, 59

   risk mitigation by, 50

Schumer boxes, 159

Scott, Sir Walter, 175–177

Segmentation in credit card markets, 137–138, 190

Shrouding, 136, 255

Slovenia, revolving credit in, 92

Small-businesses. See also Entrepreneurs

   bankruptcy policy towards, 268

   formation of, fostering, 180

   lending to, 41, 42, 180

Small value payments, 99

Souleles, Nicholas, 186

South Africa, payment card use in, 76, 95

South Korea

   data protection in, 116–117, 118

   debtor insolvency in, 50

   economic growth and credit card use in, 180

Spain, credit card use in, 110

Specific terms, prohibition of. See terms

Spending. See also Purchasing behaviors of cardholders

   bankruptcy filings and, 64

   credit cards and, 177

   credit limits and, 48, 49, 68, 147

   culture of, 155–156, 200, 263

   and debt, 52–54, 57–58, 60, 119

   families, habits of, 61, 62

   and information regulation, 155

   and market share, 77

   patterns, assessment of, 46, 48, 62, 163

   and payment systems, 69–70

Star network, 29

Stigma and bankruptcy, 176–177, 185–187

Store cards, 87

Stored-value cards, 17, 46

Sumitomo Mitsui card, 90

Surcharges

   encouragement of, 122–126, 157

   limitations of, 126–127

Survey of Consumer Finances (SCF) data issues, 61

Sweden, 76, 126

Tax on distressed debts, 178, 195–197, 267

Teaser rates

   and cardholder behavior, 5

   regulation of, 171–173, 269

Terms

   invisible, 257

   prohibition of, 143–148

   standardized, 148–153, 258

Thailand, credit card market in, 107

Theft protection, 28

Tipping practices, 47

Transactions

   costs of

     checks, 123, 241

     credit card vs. bank loan, 40, 41–42

   face-to-face vs. long-distance, 15

   fees in, 162

   mechanics

     American Express, 20

     checks, 21

     credit cards, 20–28, 29

     credit cards, Japan, 25, 123

     debit cards, 28–32

     Discover card, 20

     MasterCard network, 20

     point of sale, 28, 33, 38–39

     Visa network, 20, 25, 26

   payment card (See Payment card transactions)

   unauthorized, 247

Truth in Lending Act (TILA)

   consumer-merchant disputes, 151

   credit card transactions,

   and debit cards, 29, 32

   disclosures required by, 159, 160, 161

   discount legislation in, 124

   liability limitations in, 28

   in marketing reform, 158

   surcharges, 125

   unauthorized transactions protection, 96

Turkey, credit reporting in, 117

Unconscionability doctrine, 141–143

Unfair Terms Directive, 143

Uniform Commercial Code, 256

United Kingdom

   account agreements in, 153

   banking industry fragmentation in, 91

   bankruptcy filings in, 64, 66, 68, 184, 199, 267

   bankruptcy policy in, 180, 184

   card issuance in, 22

   check collection in, 83, 84–85

   credit cards

     markets for, 106, 107

     regulation of, 191

     usage patterns in, 1–2, 4, 51–52, 75, 110, 244

   data protection in, 114

   debit cards, 94–95, 189, 247

   disclosures in, 159

   funds availability, confirmation of, 17

   interchange fees in, 126

   interest rates caps in, 266

   legal protections in, 97, 98, 156

   minimum payment requirements in, 193, 260

   mortgage consumer debt in, 266

   nonmortgage consumer debt in, 78

   revolving credit in, 90, 92

United States

   affinity/rewards programs, 168

   banking industry fragmentation in, 91–92

   bankruptcy filings in, 64, 66, 68, 183, 199

   bankruptcy policy in, 179

   cardholders, zero-balance, 78

   cash or noncash systems, 9

   consumer spending culture in, 155–156, 200, 263

   contracting practices in, 143

   credit cards

     regulation of, 191–192

     usage patterns in, 2–3, 4, 27, 51–52, 62, 100, 110

   debit cards in, 31, 93, 96, 98, 99–100, 102

   debt in, 5, 119

   minimum payment requirements in, 193

   paper-based and electronic systems, 11

   payday loans, 192

   payment card transactions in, 12–13, 16, 21, 25, 111, 242, 244

Universal default provisions, 144–147, 152

Universal vs. networked payment systems, 15–16

Upromise Card, 168

Usury regulations, 189–193, 267

Vending machine use study data, 46

Violent crime. See Fear-of-crime hypothesis

Visa network

   and bankruptcy filings, 184

   cardholder confusion in, 32

   chargebacks, 28

   consumer spending study data, 46, 48

   in credit card development, 38, 39

   in debit card development, 94, 96

   development of, 86, 89

   interchange fees, 26, 124, 125, 251

   issuers for, 41

   in long-distance transactions, 14

   PIN-less debit cards in, 30, 99, 101

   term standardization,

   transaction mechanics, 20, 25, 26

Warren, Elizabeth, 180, 189

Welfare and credit card debt, 50

Wells Fargo payment system mechanics, 22

West, Mark, 187

White, Michelle, 180, 199

Wolters, Timothy, 89





© Cambridge University Press

Voorwoord

Charging ahead
Cambridge University Press
0521866111 - Charging ahead - the growth and regulation of payment card markets - by Ronald J. Mann
Frontmatter/Prelims



CHARGING AHEAD

This book is the first comprehensive treatment of credit cards in the global economy. The topic is timely not only because of the attention focused on cards as a contributor to the substantial rise in consumer borrowing, but also because of the role of cards in the recent retrenchment in the U.S. bankruptcy system. Relying on data from the United States, the United Kingdom, Canada, Australia, and Japan, Charging Ahead includes a careful statistical analysis of the relation between the rise of credit card use and broader macroeconomic phenomena such as consumer borrowing and bankruptcy. It also provides a broad narrative of how credit cards have come to be used so differently around the world. Finally, it sets out a detailed and coherent program for regulatory intervention grounded in both empirical analysis and the existing theoretical literature.

Ronald J. Mann received his J.D. from the University of Texas where he graduated first in his class and was the managing editor of the Texas Law Review. After graduation, he clerked for judges on the United States Court of Appeals for the Ninth Circuit and the United States Supreme Court. After three years in private practice, he worked for the Justice Department for four years as an Assistant to the Solicitor General. Before joining the University of Texas faculty in 2003, he taught for six years at the University of Michigan and for three years at Washington University in St. Louis.





Charging Ahead

THE GROWTH AND REGULATION OF PAYMENT CARD MARKETS

Ronald J. Mann
University of Texas School of Law





CAMBRIDGE UNIVERSITY PRESS
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Cambridge University Press
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www.cambridge.org
Information on this title: www.cambridge.org/9780521866118

© Ronald J. Mann 2006

This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2006

Printed in the United States of America

A catalog record for this publication is available from the British Library.

Library of Congress Cataloging in Publication Data

Mann, Ronald J., 1961–
Charging ahead : the growth and regulation of payment card markets / Ronald J. Mann.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-521-86611-8 (hardback)
ISBN-10: 0-521-86611-1 (hardback)
1. Credit cards. 2. Credit cards – Law and legislation. I. Title.
HG3755.7.M36    2006
332.7′65 – dc22    2006005052

ISBN-13 978-0-521-86611-8 hardback
ISBN-10 0-521-86611-1 hardback

Cambridge University Press has no responsibility for
the persistence or accuracy of URLs for external or
third-party Internet Web sites referred to in this publication
and does not guarantee that any content on such
Web sites is, or will remain, accurate or appropriate.





Contents

Figures and Tables page vii
Acknowledgments ix
Introduction 1
PART I.  THE BASICS OF PAYMENT CARDS 7
1   Paper or Plastic? The Functionality of Payment Systems 9
2   The Mechanics of Payment Card Transactions 20
PART II.  EASY MONEY 35
3   In Defense of Credit Cards 37
4   The Psychology of Card Payments: Card Spending and Consumer Debt 45
5   Over the Brink: Credit Card Debt and Bankruptcy 60
PART III.  THE PUZZLE OF PAYMENT CARDS 73
6   Explaining the Pattern of Global Card Use 75
7   The Introduction of the Payment Card 81
8   Revolving Credit 86
9   Point-of-Sale Debit 93
10   Convergence and Exceptionalism in the Use of Cards 106
PART IV.  REFORMING PAYMENT SYSTEMS 119
11   Indirect Approaches: Regulating Interchange and Encouraging Surcharges 121
12   Contract Design 128
13   Regulating Information 154
14   Product Design: Affinity and Rewards Programs and Teaser Rates 167
PART V.  OPTIMIZING CONSUMER CREDIT MARKETS AND BANKRUPTCY POLICY 175
15   Causation, Consumer Credit and Bankruptcy 179
16   Regulating Consumer Credit Markets 188
17   Consumer Bankruptcy Reform 198
Conclusion 207
Appendix: Country-Level Data 209
Notes 241
Bibliography 271
Index 289




Figures and Tables

FIGURES
1.1 Value of cash and noncash retail transactions. 10
1.2 Share of value of checks in noncash transactions. 13
1.3 Consumer payment systems over time. 17
2.1 Payment by credit card. 21
2.2 U.S. card issuer revenue sources (2004). 23
2.3 Credit card numbers. 24
2.4 Dividing the credit card dollar. 27
4.1 Credit card debt (CCD), credit card spending (CCS), and consumer debt (COND). 52
4.2 2001 savings rates. 55
5.1 2002 Consumer bankruptcy rates (per million). 65
5.2 Payment choices and consumer finance. 70
6.1 Card transactions per capita (2001). 76
6.2 Credit card transactions/total card transactions (2001). 76
6.3 Credit card transactions per capita (2001). 77
6.4 Credit card spending/GDP (2001). 77
6.5 Credit card debt/credit card value (2001). 78
6.6 Credit card debt/total card value (2001). 79
8.1 Chargaplate. 87
8.2 U.S. nonmortgage consumer credit (Time Series). 88
8.3 Card transactions per capita (1992). 90
9.1 Debit card transactions/card transactions (U.S. Time Series). 94
9.2 Transaction shares of noncash consumer payment systems (U.S. Time Series). 100
10.1 Debit card transactions/card transactions (Time Series). 111
10.2 Credit card spending/GDP (South Korea Time Series). 116
10.3 Credit card debt/GDP (South Korea Time Series). 117
P4.1 Pricing interfaces. 120
17.1 The dynamics of profitability. 201
17.2 Losses and lending. 202
17.3 Average credit card markup. 203
TABLES
4.1 Credit card debt and consumer debt. 56
4.2 Credit card spending and consumer debt. 57
4.3 Credit card spending, credit card debt, and consumer debt. 57
4.4 Credit card spending, credit card debt, macroeconomic variables, and consumer debt. 58
4.5 Credit card spending, credit card debt, and savings. 59
5.1 Credit card debt and bankruptcy. 70
5.2 Consumer debt and bankruptcy. 71
5.3 Credit card use, consumer debt, and bankruptcy. 71
5.4 Credit card use, consumer debt, macroeconomic variables, and bankruptcy. 72
5.5 Final model (with dummies). 72
9.1 Credit cards and crime. 105
10.1 Consumer debt/GDP. 109
10.2 Globalization and consumer debt. 112




Acknowledgments

The gratitude I owe my wife Allison Mann cannot be overstated. If this book has succeeded in providing any insight that is deep or compelling, there can be no doubt that it is attributable to her vision and persistence.

   I owe a special debt to my friend Kinami Atsushi, who first saw the inherent interest of this project and arranged for my time spent studying this subject at the Institute of Monetary and Economic Studies at the Bank of Japan.

   For assistance in collecting data, I am grateful to the National Bank of Belgium, the Department of Finance of Canada, the Institute for Monetary and Economic Studies at the Bank of Japan, the Bank of England, and the Federal Reserve Bank of New York. I also thank Morgan Stanley and Euromonitor for the use of proprietary data they kindly have provided to me.

   Allegra Young deserves special thanks for reading the entire manuscript with great care and insight. For assistance with statistical analysis, I thank Dr. Dan Powers, Tracey Kyckelhahn, and Abe Dunne. For comments on earlier versions of various portions of this project, I thank Oren Bar-Gill, Terry Sullivan, Elizabeth Warren, Mark West, Jay Westbrook, and anonymous reviewers on behalf of Cambridge University Press. I received useful comments on a presentation of an early version of this work as the 2003 John C. Akard Distinguished Lecturer at the University of Texas School of Law, and on presentations of part of this work at the University of Michigan Law School and the CEGLA Center at the Tel Aviv University Faculty of Law. For particularly useful editorial assistance, I thank Andrew Brasher and Nick Bunch. For assistance with data collection, I thank Travis Siebeneicher, Tammy Macy, and Aimie Cryer.

   Finally, I owe special thanks to Jeff Lehman and Bill Powers (my deans at the University of Michigan and the University of Texas, respectively) and to the Marlow Preston Fellowship for funding my work on this project.





© Cambridge University Press

Quote

"...Charging Ahead: The Growth and Regulation of Payment Card Markets offers a refreshingly balanced perspective on the optimal use of credits...the book manages to be provocative without resort to polemic. Even rarer, Charging Ahead reveals how payment systems law-perhaps the most esoteric topic in the already esoteric world of commercial law -shapes our society and its pursuit of the good life...Charging Ahead elucidates the public effects of our often mindless act of paying with plastic...Charging Ahead concludes with a cogent and careful circumscribed set of strategies for reshaping American appetites for credit card use...provides a concise and readable explication of the variety of payment cards, focusing on the benefits and burdens of debit cards versus credit cards...articulate a persuasive agenda for credit card reform that has international applicability..."
--Katherine Porter, Michigan Law Review [Vol. 106:1167]

Inhoudsopgave

Introduction; Part I. The Basics of Payment Cards: 1. Paper or plastic? - payment system functionality; 2. The mechanics of payment card transactions; Part II. Easy Money: 3. In defense of credit cards; 4. The psychology of card payments - card spending and consumer debt; 5. Over the brink - credit card debt and bankruptcy; Part III. The Puzzle of Payment Cards: 6. Explaining the pattern of global card use; 7. The introduction of the payment card; 8. Revolving credit; 9. Point-of-sale debit; 10. Convergence and exceptionalism in the use of cards; Part IV. Reforming Payment Systems: 11. Indirect approaches: regulating interchange and encouraging surcharges; 12. Contract design; 13. Regulating information; 14. Product design: affinity and rewards programs and teaser rates; Part V. Optimizing Consumer Credit Markets and Bankruptcy Policy: 15. Causation, consumer credit and bankruptcy; 16. Regulating consumer credit markets; 17. Consumer bankruptcy reform; Conclusion; Endnotes; Bibliography; Index.

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