In his new book, Mann examines relationship between rising credit card use and consumer borrowing and bankruptcy
AUSTIN, Texas—The credit card is perhaps the most important financial innovation of the 20th century and has fundamentally transformed the American economy, by changing the way individuals pay for things and contributing to the consumerist ethos that distinguishes American culture.
That’s according to University of Texas law professor Ronald Mann whose new book on the global credit card industry was released this week. In Charging Ahead: The Growth and Regulation of Payment Card Markets Around the World (Cambridge University Press, 2006), Professor Mann offers a fresh look at the credit card phenomenon that has come to dominate everyday life.
Using data from North America, Europe and Asia, Mann compares the risks of plastic with other forms of payment to arrive at surprising conclusions about the effect of credit cards on the consumer. As he explains, there are significant relations between credit card spending, overall debt and bankruptcy.
The book also tells the story of how the credit card has spread around the world, and why it is used so differently in other countries. A Big Mac tastes pretty much the same thing in Chicago, London, or Tokyo, but the credit card used in those three cities is a very different thing.
“I came to this project with a strong belief in the ability of markets to drive behavior and an abiding skepticism in government regulation,” Mann said. “The data surprised me, leading me to propose a fairly ambitious list of legal reforms. I would encourage policymakers that want to understand the possibilities for reforming the worst abuses without undermining the market altogether to take a careful look.”
Mann recommends a variety of legal reforms that would promote greater use of debit cards – banning things like teaser rates and rewards programs that encourage people to keep credit cards at the “top of the wallet.” Other reforms that Mann suggests focus on financial literacy: a ban on marketing to minors and college students; an increase in credit card minimum payments; and various ways to simplify credit card contracts. At the same time, the book shows why interchange regulation is likely to be a wrong turn and how the U.S. Congress fundamentally misunderstood the link between credit card use and bankruptcy when it enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
For more information, see http://www.chargingahead.net/
About the Author
Ronald Mann is a leading expert in the fields of commercial law and electronic commerce. He received his J.D. from The University of Texas School of Law, where he graduated first in his class and was the managing editor of the Texas Law Review. Mann clerked for Judge Joseph T. Sneed on the Ninth Circuit of the U.S. Court of Appeals and Justice Lewis F. Powell, Jr. of the U.S. Supreme Court. After three years in private practice, he worked for the Justice Department as an Assistant for the Solicitor General of the United States. Mann joined the faculty in January 2003, after teaching at the University of Michigan Law School and Washington University School of Law.