Payback: A Structural Analysis of the Credit Card Problem

The market failure deemed “the credit card problem” is in fact a story of unprecedented market success. Advanced underwriting technology has facilitated identification of the most profitable credit card consumer as one who is on the verge of bankruptcy. The resulting market segmentation represents a massive upward redistribution of wealth from the poor to wealthy individuals and corporations. Neoclassical and behavioral economists seek to solve the credit card problem through increased disclosure and cognitive strategies, focusing exclusively on consumer rationality. These interventions are incomplete because the industry’s business model relies on the exploitation of “subsistence” credit card users who have little or no choice in their credit card use. This Article analyzes the credit card problem through the lens of structural inequality, and shifts the focus from the consumer to the industry. It proposes amendments to the CARD Act, including “subsistence amnesty,” the temporary elimination of interest rates and fees on subsistence purchases made by individuals living in poverty.

Article | View PDF | Appears in Volume 55, Issue 1

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