Ebook Who Pays? The Winners and Losers of Credit Card Deregulation
It has been nearly two decades since the credit card industry was deregulated with the promise of bringing greater competition and lower prices to consumers.In addition,technological advancements in underwriting, commonly referred to as risk-based pricing,have widened the market for credit cards to lower- and moderate-income consumers.The result: In 2004, 35 percent of households with incomes below $10,000 had credit cards, while more than half of households with incomes between $10,000 and $24,999 had credit cards.
While much is made of this democratization of credit, there is less public awareness and consumer knowledge about how the cost of credit varies across different segments of the population. Last year alone, households received nearly 8 billion credit card solicitations in their mailboxes.2 Often these solicitations promise teaser rates of 0 percent, or they might dangle the carrot of airline miles or cash-back rewards.
But as our study uncovers, for about one-third of all cardholders, the carrot is not nearly as big as the stick. Today, almost all of the top 10 issuers of credit cards reserve the right to change the APR on the account at any time, for any reason.3 A single late payment—even by as little as minutes—can result in penalty interest rates that average 24.51 percent. Under the shield of deregulation, credit card companies have shifted the cost of credit to individuals least able to afford it—using those profits to underwrite the free loans and bonus miles, rewards and other benefits enjoyed by higher income households.Our research found that four groups—low-income individuals, African Americans, Latinos and single females—bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates.
Contents
Introduction
Key Findings
Background: A Deregulated Credit Card Market
Uncovering the Facts About Who Pays the Most to
Credit Card Companies
Going Inside the Credit Card Market:
Different Borrowers, Different Prices
Four Types of Borrowers
Which Credit Card Holders Pay the Most?
Interest Rate by Income
Interest Rate by Race
Interest Rate by Gender
Borrower Beware: Penalties Are Likely
The Late Payment Penalty
Universal Default
Who Pays the Penalty?
Policy Recommendations
Addressing Industry Practices and Enacting a
Borrower’s Security Act
Technical Appendix
Endnotes
Related Resources
Downlaod
PDF Ebook Who Pays? The Winners and Losers of Credit Card Deregulation
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