Scott Loftesness

In a frankly depressing but undoubtedly realistic column this morning titled “National Addiction to Easy Credit Remains Consumers’ Downfall“, Michelle Singletary, the Washington Post’s personal finance columnist, writes that the credit card reforms being put into regulation by the Federal Reserve and potentially being accelerated/enhanced by Congressional action sometime soon won’t deal with the root cause of the problem of credit card debt.

She regrets that even after these reforms are in place that “people will still be able to swipe their way into massive debt in seconds — and it’s that ease of borrowing that has produced hundreds of thousands of credit addicts.” Some of us who spent years building the current card-based payments systems to be “faster than cash” might say that was the whole point of doing so wasn’t necessarily to help build credit card receivables but, rather, to help merchants and consumers quickly transact!

Singletary says what she’d really like to see is “point-of-sale transparency” – displaying right on the POS terminal back to the cardholder what their current credit card account balance is and explicitly getting their approval to add to it with the current purchase. Of course, the cost to implement such an approach would prohibit its adoption – and merchants certainly are much more interested in just getting the sale vs. helping consumers do a better job of credit management!

Our earlier post about the increasing use of debit cards comes close – at least if banks were to in fact enforce limits and not use them to as another source of overdraft fees. What do you think?

5 Responses to “Addicted to Credit”

  1. Joe Young says:

    Budgeting, cash management, responsible use of credit, however you want to look at the consumer side of credit card use it should always be consumer based. I agree that card companies/banks have fully taken advantage of their customers by making access to and use of credit “easy”. Shame on them for the fine print in agreements that essentially lets them take great liberties in terms of adjusting rates but the consumer is ultimately the one who needs to manage this aspect of their financial life.

    Singletary’s concept is interesting but far from practical. My solution would be a mobile solution connected to the issuer where this type of balance projection would take place. Isn’t this closer to what Wesabe is doing anyways?

  2. I wonder if anyone has tried to apply some of the newer thinking and research on behavioral economics to credit card use? Cass Sunnstein, Obama’s (proposed?) regulatory czar has written articles applying behavioral economic analysis to regulatory policy, and Animal Spirits by Akerlof and Shiller does the same with unemployment, savings and real estate cycles, among other things. Although a lot of the analysis seems contrived to my mindset it might add some insight to an otherwise anecdotal topic.

  3. TFB says:

    This is what I heard from someone from Europe. Due to language differences, I may have misinterpreted what was said, but here it goes. Their credit card has two sides: debit and credit. As the point of sale, the consumer decides whether to use debit or credit. If the consumer chooses debit, the credit card company debits the total of all debit purchases from the linked bank account at the end the month. If the consumer chooses credit, the purchase is put on revolving credit. Instead of choosing between a debit card and a credit card, the consumer chooses whether to pay for the purchase in full or carry the balance *at the point of sale*. Accelerating that decision from the time the bill is due to the time of making a purchase leverages people’s best intention.

    Can you confirm if this is how it works in Europe? If it is, it apparently can be done.

Leave a Reply

Previous post:

Next post:

Clicky Web Analytics