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This chapter explores how profits on credit cards became the center of lending. By the early 1980s, credit cards metamorphosed from break-even investments to leading earners. With much higher profits than commercial loans, financial institutions began to lend as much money as they could to consumers on credit cards. By the early 1990s, investments in credit cards were twice as profitable as conventional business loans. Increasingly, the now plentiful credit cards allowed consumers to borrow more money and with greater flexibility than they had before. For home owners, home equity loans also offered a new way to borrow by tapping into the value of their homes. Like credit cards, home equity loans allowed borrowers to pay back their debt when they wanted, without a fixed schedule.

This chapter focuses on the credit card contract. It identifies two features common to most credit card contracts — complexity and deferred costs. It presents a behavioural-economics theory of credit card contracts, and then argues that complexity and deferred costs represent a strategic response by sophisticated issuers to imperfectly rational cardholders. There is a behaviour market failure in the credit card industry that reduces efficiency and hurts cardholders. Regulatory intervention can help minimize the adverse effects of this market failure.

This chapter examines the embodied economy of mass market consumer credit, an area of economic activity that ballooned at the same time as the housing market. Drawing on governmentality literature, it examines the ways in which the responsibilities of borrowers for outstanding credit obligations have been transformed in the booming mass market for credit cards, such that individual borrower subjects come to perform entrepreneurial self-disciplines that extend well-beyond simply meeting repayments. The chapter emphasizes the intersection of the legal and extra-legal in the punishment of debtors, and how risk calculations in credit scoring can be understood as a technology of government. It offers reflections on the tensions and contradictions that are lived by individual credit card holders as the crisis unfolds, specifically arguing that self-disciplines of risk management fall short of completely containing the complexities and inherent uncertainty in economic life, such as precarious labour markets.

This chapter looks at a federal policy called Regulation W. As the federal government attempted to restrain inflation during World War II scarcity, it instituted both the well-known rationing program for many consumer goods, and launched the now forgotten first federal attempt to directly regulate consumer credit. With Regulation W, Roosevelt authorized the Federal Reserve to directly regulate how much consumers could borrow and the terms under which this borrowing could occur. While Regulation W reduced the overall amount of consumer debt during the war, it also destabilized established lending practices and encouraged a hybridization of installment credit and charge accounts that combined interest charges and flexibility in a form outside Regulation W. In effect, from the beginning of World War II until the Korean War, Regulation W deeply shaped the course of credit practices in the American economy, pushing retailers and consumers towards revolving credit—the nucleus of today's modern credit card.

The credit card is an outcome of technological change that allows both payments and credit generation to take place with prearranged lines of open-end credit that may be accessed worldwide. Declining interest rates on card credit since the early 1990s have also encouraged substitution of card credit for other kinds of consumer credit. Consumers seem to like the convenience provided by cards for both making payments and accessing consumer credit, but attitude studies suggest that they maintain a wary eye toward them. This chapter describes the kinds of credit cards available in the marketplace, credit card growth, credit card holding and use, and consumers’ credit card attitudes. It continues discussion of the rationality of credit card use and some recent changes in credit card regulation. It closes with discussion of credit card profitability for issuers.

This chapter focuses on the embodiment of the borrowing boom, and the re-making of mortgagors and credit card borrowers in particular. The first part of the chapter concentrates on the responsible borrowers of contemporary credit card networks, a subject position referred to as the ‘revolver’. Revolvers not only regularly make use of the revolving credit facilities, but also manipulate their outstanding balances in order to further their consumptive freedom and security into the future. The second part of the chapter concentrates on the responsible and entrepreneurial borrower of contemporary Anglo-American mortgage networks. It suggests that mortgagors are no longer ‘suburban subjects’, that is, owner-occupiers who view their home as essential in meeting their aspirations. Rather, the borrowing boom in mortgage networks rests on the assembly of mortgagors as ‘leveraged investors’. Leveraged investors are owner-occupiers who view residential property as an asset that will grow to realize returns. The third and final part of the chapter considers the tensions and contradictions present in the assembly of responsible and entrepreneurial borrowers, and thereby reveal the incomplete and precarious performance of these subjectivities.

This chapter explores the use of choice-of-law, choice-of-court, and arbitration clauses in consumer contracts, including electronic commerce. It explores the question of the extent to which contracting choices effectively made unilaterally by firms should be enforced against consumers. Arguments for regulation may have more political traction in this setting than in the commercial context. This chapter discusses the supply and demand sides of the law market for consumer contracts generally. It also illustrates the law market in action by exploring some similarities and differences in the features of the law markets for credit cards, payday loans, insurance contracts, and electronic commerce. These four contexts involve diverse market environments that provide a range of law market lessons.

This chapter utilizes Provident Financial's archives to chart the history, scale, and scope of check trading. By the 1930s, Provident alone had one million customers. Checks (which were used in shops that accepted them) were sold to customers by agents, who then collected weekly payments. The system was criticized as costly, and for the allegedly poor quality goods that retailers sold to customers. However, it proved popular, not least because a Provident check could be used in numerous shops. The government were less happy with check trading and subjected it to controls during World War Two. Check traders marketed higher value vouchers during the 1960s, which were used to evade government restrictions on hire purchase. This boosted check traders and they planned more upmarket financial products. However, retailers abandoned the system from the 1970s, preferring store and credit cards, leaving check traders to turn to moneylending and the financially excluded.

Bankruptcy rates rose after 1978. The debtor-friendliness of the 1978 changes set the stage for a new bankruptcy crisis, but the increasing importance of banks that issue credit cards was the most important force. The Supreme Court’s 1978 decision in Marquette National Bank of Minneapolis v. First Omaha Services Corp. led directly to the growth in the market for credit cards. Banks could now profit from offering cards to high-risk consumers, and this put more people on the path to bankruptcy. Card issuers used some of their profits to lobby for changes to bankruptcy law. Studies by creditor-funded organizations, such as the Credit Research Center, supported a narrative in which lax bankruptcy law and lack of stigma led households to file for bankruptcy even when they could pay, imposing a so-called bankruptcy tax on honest debtors. In 2005, Congress passed a bankruptcy reform bill supported by banks and credit card companies, over the objections of many legal professional, scholars, and even some creditors. Today personal bankrupts must use Chapter 13 repayment plans unless they can show that they do not have sufficient income to repay. Credit card issuers won the argument that retailers began in the 1930s.

This chapter discusses how changes in the social and economic environment throughout recent history have affected human behavior regarding finance. It begins by taking a look at spending habits. This chapter looks at the “physics of spending” by examining the psychological variables that conspire to draw money out of people's pockets. The chapter applies psychological principles to banking, credit, and debt, with particular attention to the period since the 1970s, concentrating on how a variety of innovations affected the physics of spending and, in turn, behavior. The chapter gives the example of the bankruptcy of Kathy and talks about how she tried to get her finances under control.

Under the auspices of the Credit Control Act of 1969, President Jimmy Carter sought to restrict inflationary forms of credit—especially the use of credit cards. These unpopular actions contributed significantly to his loss of the presidency to Ronald Reagan in the 1980 election. Other presidents in recent decades have instead encouraged Americans to make extensive use of credit cards.

This chapter documents the rapid growth of household credit in Korea since the foreign exchange crisis in 1997. It also examines the development of the credit card crisis in 2003 and evaluates the adequacy of ensuing policy responses. It is argued that the Korean credit card crisis is a classic example of regulatory failure. The deregulation was inappropriately done without the requisite infrastructure (in this case, a central institution to administer credit information). The government intervention was timed poorly, and an abrupt regulatory change in 2002 resulted in a crash of credit card lending. With more timely and proper policies, many of these difficulties could have been at least alleviated if not averted altogether.

This chapter presents a technical critique challenging the most basic premises underlying the Gramm–Leach–Bliley Act—that “financial data” refers to data held by financial institutions. Instead, it argues that a better analysis starts with looking to the data, not the holder. After providing a primer on the basics of information security engineering, it asks whether there is something inherent in the nature of financial information that makes it a challenge for information security and any regulatory framework. Analyzing the two most common forms of financial information—credit card numbers and Social Security numbers—the chapter concludes that although the credit card industry appears to successfully mitigate risks of disclosure, the use of Social Security numbers as a financial identifier is inherently problematic and should be eliminated.

This chapter continues the discussion in the previous chapter focusing on the puzzles related to the consumer loan side of the credit card--information asymmetry, information sharing and market origination and expansion. It concludes with a short account of how each was solved in the American payment card market and presents a brief preview of solutions used in the postcommunist countries.

In this chapter, Frederick Abernathy and Anthony Volpe demonstrate the dual impact that technological innovations have had on retailing. Some innovations enable retailing by indirectly providing services—for instance, the effect of containerized shipping on global sourcing. Other innovations directly transform retailing by changing standardized practices—for instance, the effect of information technology in the development of lean retailing techniques. Both types of technological innovations have had profound effects on many dimensions of retailing, including merchandising (that is, product mix and variety), retail formats, services offered (including payment), and supply-chain management and sourcing strategies. Most of these major technological innovations first occurred in other sectors of the economy, but retailers have been able to utilize them for their own advantage, either directly or indirectly, in selling products. Some examples include the development of railroads and improved ocean transportation, which allowed retailers to expand the geography of their supply base efficiently. The shopping mall and “big-box” retailers were dependent on the automobile and the interstate highway system, to bring them both their customers and their products. Innovations such as bar codes and checkout scanning, plus payment by credit or debit cards, would be impossible without the revolutionary changes in computer hardware and software.

Financial failure has been rising at a dizzying rate, but the explanations for this so far offered could not be more different. The chapter outlines another story of bankruptcy. Caroline's debt was caused by use of credit cards. She and her husband cut up the cards and paid off Caroline's debt in installments. Counseling helped Caroline overcome her issues.

This chapter provides evidence that credit card securitizations do not transfer as much risk as a literal interpretation of such structures might imply. It is argued that the existence of special purpose vehicles (SPVs) depends on implicit contractual arrangements that avoid accounting and regulatory impediments to reducing bankruptcy costs. It outlines the significant features of securitization SPVs. Securitization is a significant and growing phenomenon. The simple model of off-balance sheet financing has the unique ability to find high-quality projects for the bank by making an effort. It is suggested that the risk of a sponsoring firm should impact the risk of the asset-backed securities that are issued by its SPVs. Riskier firms are more likely to securitize though the effect is not always monotonic, depending on the specification. The efficient use of off-balance sheet financing is facilitated by an implicit arrangement, or contractual relations, between sponsoring firms and investors.