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November 17, 2003

Press Contact: Kirston Fortune, UT Law Communications, (512) 471.7330

UT Law Expert Offers Broad-Ranging Critique of Credit Card Policy, Nov. 19

Argues that a Comparative Analysis of Global Credit Card Data Shows a Link to Increasing Bankruptcy Filings, Recommends Major Policy Reforms

AUSTIN, Texas — Professor Ronald Mann of The University of Texas School of Law will offer a broad-ranging critique of credit card policy when he delivers the Akard Lecture at the Law School on Wednesday, Nov.19, the evening before UT Law's Annual Bankruptcy Conference. The lecture, which is free and open to the public, begins at 5 p.m. in the Connally Center's Eidman Courtroom with a reception to follow.

Mann's speech, entitled "Policy Implications of the Global Growth of Card-Based Payment Systems," will focus on the findings of his multi-country study exploring the implications of the rapid growth in global credit card use. Mann, a 1985 UT Law graduate and the William Stamps Farish Professor in Law, is widely recognized as one of the leading commercial law scholars of his generation and is the most frequently cited legal scholar working in any of the business law fields to have entered law teaching in the last decade.

The most provocative parts of Mann's work relate to the significance of credit card use in the many countries in which they are common. As an empirical matter, he presents the first multi-country analysis of the relation between credit cards and bankruptcy. Relying on data about bankruptcy filings and borrowing from Australia, Canada, the United Kingdom, and the United States, Mann shows that credit cards are uniquely likely to contribute to a rise in bankruptcy filings. Although previous scholars have noted a connection between credit cards and bankruptcy in this country, none of them had analyzed their data to distinguish between the effects of general borrowing and credit card borrowing in particular.

Mann's analysis of that point shows that even if a country's overall level of consumer debt does not change, a shift in borrowing patterns that reflects increasing use of credit cards will result in an increase in the total amount of consumer bankruptcy filings. Mann explains: "What the data suggest is that credit cards are uniquely associated with a particularly prodigal sort of borrowing. The gist of it is that borrowing on credit cards is too easy, so easy that borrowers fail to appreciate the risks they would see if they borrowed the money in a more traditional way." These findings raise important policy questions, coming as they do days after announcement of official 2003 statistics showing another major increase in consumer bankruptcy filings in the United States.

Mann's lecture will also address a variety of potential policy initiatives that could be brought to bear on the problem. "The use of credit cards differs dramatically from country to country. Few use credit cards as much as Americans, and nobody uses them to borrow as much as Americans. But regulators in Europe and Australia are taking stern steps to limit rising credit-card use in their countries, even though it is much less common than it is here," said Mann. "Unfortunately, most of those regulatory initiatives are fundamentally misguided, because they address the wrong problem." For example, he points to Japanese regulations that for decades limited credit-card use by barring banks from issuing credit cards. The problem with those initiatives is that they have not discouraged debt more broadly. The end result has been a shift of consumer borrowing to lenders loosely affiliated with organized crime. With respect to Australia, the United Kingdom, and Europe, Mann explains that the regulators in those countries are focused on off-point issues such as the level of interchange fees, failing to notice the more serious implications of the prodigal borrowing demonstrated by his multi-country data about credit card debt.

Eschewing traditional regulatory initiatives, Mann argues instead that regulators should consider novel ideas, such as banning affinity programs. "Almost every time that an American cardholder decides whether to use a credit card as opposed to a debit card or a check or cash, the decision is influenced by an affinity program that provides a substantial tangible incentive in favor of the credit card transaction. If we removed that incentive and let cardholders make those decisions based on the merits of the different payment products, we might see a substantially lower volume of credit card borrowing."

He also argues that the current credit card disclosure regime is fundamentally misguided. By focusing on paper disclosures delivered at the time of the application rather than information delivered at the point of borrowing, the present system expends a great deal of resources to provide no useful information. A system that advised cardholders at the time of the transaction of their current credit level and of any fees associated with the transaction might produce much more intelligent decisions than the existing regime.

The speech builds on Mann's ground-breaking work in electronic commerce and payment systems. Mann is the author of Electronic Commerce (with Jane Winn), Payment Systems, and numerous law review articles related to payment systems and commercial finance. He is a member of the American Law Institute and currently serves as the reporter for amendments to Articles 3 and 4 of the Uniform Commercial Code.

"Ronald's research explores the impact of different international attitudes towards consumer credit. As a result, we will be better able to understand what drives that market and the social and economic effects of credit card use as opposed to other forms of consumer credit," said international insolvency expert and award-winning UT Law professor Jay Westbrook.

Mann received his J.D. from The University of Texas School of Law, where he graduated first in his class and was managing editor of the Texas Law Review. After clerking on the U.S. Court of Appeals for the Ninth Circuit, he clerked for Justice Lewis F. Powell of the U.S. Supreme Court. He served as an Assistant to the Solicitor General of the United States. He is an accomplished appellate advocate, who has argued nine cases in the U.S. Supreme Court. Mann also practiced as a commercial real estate lawyer in Houston, where he represented both developers and lenders. At UT Law, he teaches various courses related to commercial transactions, intellectual property, and electronic commerce. Before joining the UT Law faculty, Mann taught at the University of Michigan Law School and Washington University School of Law.

Mann's multinational study in the variation of credit card usage and practice is funded in significant part by the Marlow R. Preston Faculty Fellowship in Bankruptcy Law. The John C. Akard Distinguished Lectureship Program was endowed by the generous gifts of many members of the Texas bankruptcy bar in honor of Judge John C. Akard, a 1957 UT Law graduate who served with great distinction for 14 years as the U.S. Bankruptcy Judge in the Northern District of Texas, sitting in Lubbock and throughout much of West Texas. The first Akard Lecture was delivered in 2001 by Professor Elizabeth Warren of Harvard Law School, and formerly of UT Law. The 22nd Annual Bankruptcy Conference will be held at the Four Seasons on Nov. 20 and 21 and is offered by The Office of Continuing Legal Education (CLE) at The University of Texas School of Law (

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