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Not to Pat One’s Own Back (It’s Hard; Try It)

posted by Angie Littwin

I just posted to SSRN a paper that Credit Slips readers might find interesting. It's called, "Beyond Usury:  A Study of Credit Card Use and Preference Among Low-Income Consumers." It is the first of two papers based on an empirical study I did about how low-income women use and think about credit cards.  This paper examines paternalism questions in the usury debate.  Most people who write about the topic seem to accept – and the available data seem to support – the premise that re-imposing usury caps on credit card loans would lead to fewer credit cards for low-income people.  I wanted to learn what low-income consumers thought about that trade-off. It seems that no one had ever asked these consumers themselves what they thought of the current system of easy credit with high interest rates versus a system wherein interest rates were lower but with a corresponding greater degree of difficulty in obtaining a credit card in the first place.  The participants in my study were deeply ambivalent on this question.  They were frustrated and angry at their credit-card companies, but they still thought credit cards were a necessary financial tool.  It turned out that the issue they were most concerned about was not high interest rates in of themselves but rather the temptation to spend and borrow at those rates, even when they knew they would regret it.  The discussion then shifted to how to redesign credit cards so that consumers could better control their temptation response to them.  In the paper, I build off their ideas to develop a proposal for "self-directed credit cards," which would allow consumers to pre-commit to set levels of credit-card usage and avoid the temptation to spend or borrow more in the heat of the purchasing moment.


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