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CHARGING AHEAD
This book is the first comprehensive treatment of credit cards in the global
economy.Thetopicistimelynotonlybecauseoftheattentionfocusedoncards
asacontributortothesubstantialriseinconsumerborrowing,butalsobecause
oftheroleofcardsintherecentretrenchmentintheU.S.bankruptcysystem.
RelyingondatafromtheUnitedStates,theUnitedKingdom,Canada,Australia,
andJapan,ChargingAheadincludesacarefulstatisticalanalysisoftherelation
betweentheriseofcreditcarduseandbroadermacroeconomicphenomenasuch
asconsumerborrowingandbankruptcy.Italsoprovidesabroadnarrativeof
howcreditcardshavecometobeusedsodifferentlyaroundtheworld.Finally,it
setsoutadetailedandcoherentprogramforregulatoryinterventiongrounded
inbothempiricalanalysisandtheexistingtheoreticalliterature.
RonaldJ.MannreceivedhisJ.D.fromtheUniversityofTexaswherehegrad-
uated first in his class and was the managing editor of the Texas Law Review.
Aftergraduation,heclerkedforjudgesontheUnitedStatesCourtofAppeals
fortheNinthCircuitandtheUnitedStatesSupremeCourt.Afterthreeyears
inprivatepractice,heworkedfortheJusticeDepartmentforfouryearsasan
AssistanttotheSolicitorGeneral.BeforejoiningtheUniversityofTexasfaculty
in2003,hetaughtforsixyearsattheUniversityofMichiganandforthreeyears
atWashingtonUniversityinSt.Louis.
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Charging Ahead
THE GROWTH AND REGULATION OF
PAYMENT CARD MARKETS
Ronald J. Mann
UniversityofTexasSchoolofLaw
iii
cambridge university press
Cambridge,NewYork,Melbourne,Madrid,CapeTown,Singapore,SãoPaulo
Cambridge University Press
TheEdinburghBuilding,Cambridgecb22ru,UK
PublishedintheUnitedStatesofAmericabyCambridgeUniversityPress,NewYork
www.cambridge.org
Informationo nthi stitle :www.cambri dge.org/9780521866118
© Ronald J. Mann 2006
Thispublicationisincopyright.Subjecttostatutoryexceptionandtotheprovisionof
relevantcollectivelicensingagreements,noreproductionofanypartmaytakeplace
withoutthewrittenpermissionofCambridgeUniversityPress.
Firstpublishedinprintformat 2006
isbn-13 978-0-511-24574-9eBook(EBL)
isbn-10 0-511-24574-2eBook(EBL)
isbn-13 978-0-521-86611-8hardback
isbn-10 0-521-86611-1hardback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyofurls
forexternalorthird-partyinternetwebsitesreferredtointhispublication,anddoesnot
guaranteethatanycontentonsuchwebsitesis,orwillremain,accurateorappropriate.
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Contents
FiguresandTables page vii
Acknowledgments ix
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
PARTI. THEBASICSOFPAYMENTCARDS 7
1 PaperorPlastic?TheFunctionalityofPaymentSystems . . . . . . . . .9
2 TheMechanicsofPaymentCardTransactions . . . . . . . . . . . . . . 20
PARTII. EASYMONEY 35
3 InDefenseofCreditCards. . . . . . . . . . . . . . . . . . . . . . . . . . 37
4 ThePsychologyofCardPayments:CardSpendingand
ConsumerDebt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5 OvertheBrink:CreditCardDebtandBankruptcy . . . . . . . . . . . . 60
PARTIII. THEPUZZLEOFPAYMENTCARDS 73
6 ExplainingthePatternofGlobalCardUse. . . . . . . . . . . . . . . . . 75
7 TheIntroductionofthePaymentCard . . . . . . . . . . . . . . . . . . . 81
8 RevolvingCredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
9 Point-of-SaleDebit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
10 ConvergenceandExceptionalismintheUseofCards . . . . . . . . . 106
PARTIV. REFORMINGPAYMENTSYSTEMS 119
11 IndirectApproaches:RegulatingInterchangeandEncouraging
Surcharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
12 ContractDesign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
13 RegulatingInformation . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
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vi CONTENTS
14 ProductDesign:AffinityandRewardsProgramsandTeaser
Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
PARTV. OPTIMIZINGCONSUMERCREDITMARKETS
ANDBANKRUPTCYPOLICY 175
15 Causation,ConsumerCreditandBankruptcy . . . . . . . . . . . . . . 179
16 RegulatingConsumerCreditMarkets. . . . . . . . . . . . . . . . . . . 188
17 ConsumerBankruptcyReform . . . . . . . . . . . . . . . . . . . . . . 198
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Appendix:Country-LevelData 209
Notes 241
Bibliography 271
Index 289
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Figures and Tables
FIGURES
1.1 Valueofcashandnoncashretailtransactions. 10
1.2 Shareofvalueofchecksinnoncashtransactions. 13
1.3 Consumerpaymentsystemsovertime. 17
2.1 Paymentbycreditcard. 21
2.2 U.S.cardissuerrevenuesources(2004). 23
2.3 Creditcardnumbers. 24
2.4 Dividingthecreditcarddollar. 27
4.1 Creditcarddebt(CCD),creditcardspending(CCS),and
consumerdebt(COND). 52
4.2 2001savingsrates. 55
5.1 2002Consumerbankruptcyrates(permillion). 65
5.2 Paymentchoicesandconsumerfinance. 70
6.1 Cardtransactionspercapita(2001). 76
6.2 Creditcardtransactions/totalcardtransactions(2001). 76
6.3 Creditcardtransactionspercapita(2001). 77
6.4 Creditcardspending/GDP(2001). 77
6.5 Creditcarddebt/creditcardvalue(2001). 78
6.6 Creditcarddebt/totalcardvalue(2001). 79
8.1 Chargaplate. 87
8.2 U.S.nonmortgageconsumercredit(TimeSeries). 88
8.3 Cardtransactionspercapita(1992). 90
9.1 Debitcardtransactions/cardtransactions(U.S.Time
Series). 94
9.2 Transactionsharesofnoncashconsumerpaymentsystems
(U.S.TimeSeries). 100
10.1 Debitcardtransactions/cardtransactions(TimeSeries). 111
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viii FIGURESANDTABLES
10.2 Creditcardspending/GDP(SouthKoreaTimeSeries). 116
10.3 Creditcarddebt/GDP(SouthKoreaTimeSeries). 117
P4.1 Pricinginterfaces. 120
17.1 Thedynamicsofprofitability. 201
17.2 Lossesandlending. 202
17.3 Averagecreditcardmarkup. 203
TABLES
4.1 Creditcarddebtandconsumerdebt. 56
4.2 Creditcardspendingandconsumerdebt. 57
4.3 Creditcardspending,creditcarddebt,andconsumer
debt. 57
4.4 Creditcardspending,creditcarddebt,macroeconomic
variables,andconsumerdebt. 58
4.5 Creditcardspending,creditcarddebt,andsavings. 59
5.1 Creditcarddebtandbankruptcy. 70
5.2 Consumerdebtandbankruptcy. 71
5.3 Creditcarduse,consumerdebt,andbankruptcy. 71
5.4 Creditcarduse,consumerdebt,macroeconomicvariables,
andbankruptcy. 72
5.5 Finalmodel(withdummies). 72
9.1 Creditcardsandcrime. 105
10.1 Consumerdebt/GDP. 109
10.2 Globalizationandconsumerdebt. 112
Description:This book tells the story of credit cards around the world: why people use them, the effects on the economies of the nations where they prevail, why they are used so differently around the world, and what should be done to respond to the problems they cause. It includes a wealth of data from around
