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Fed Says We're All Doing Great with Credit Cards

posted by Elizabeth Warren

The Federal Reserve has issued a new report on whether credit card practices might have something to do with people getting into financial trouble (short version: no problems, market is working fine). 

Ronald Mann has written terrific response.  Check it out.   

Comments

The Federal Reserve study is disturbing for a reason wholly apart from its substantive conclusions. It isn't a "study" at all. Not only does the report contain no new data (as Ronald Mann points out), it in fact contains no data at all that address one of Congress's requests.

Section 1229 of the new bankruptcy law required the Fed to "conduct a study of consumer credit industry practices of soliciting and extending credit indiscriminately; without taking steps to ensure that consumers are capable of repaying the resulting debt; and in a manner that encourages consumers to accumulate additional debt." Yet, the parts of the Fed Report that pertain to how credit card companies review credit applications and how they manage accounts to ensure repayment contain NO CITATIONS. There simply aren't any data or references to published literature or citations to other studies. There isn't even a quotation from a banking industry representative to support the Fed's conclusions. Indeed, this entire section of the report is shorter than this blog comment. Further, the Fed Report focuses solely on the credit card industry when section 1229 is directed at the entire "consumer credit industry," which could include payday lenders, auto title lenders, and others.

At best, the report is a short synopsis of the basic practices of credit card companies. It wouldn't earn a passing grade as a research paper at my institution, and frankly the cynic in me has suspicions about who exactly authored this unclaimed report. ("Hey, student intern, have I got a great project for you!")

In an earlier post, I expressed concern that the GAO is late in issuing one of the studies that the new bankruptcy law required it to conduct. The Fed Report makes me hope that the GAO and other federal agencies are using the extra time to produce something that directly responds to the questions that Congress posed and actually contributes to our understanding of consumer credit.

Shouldn't credit card discussions be considered within the larger framework of, what's the repeal of Glass-Stegall doing to our Economy??

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