Re: On Credit Cards

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

Sven,

There is already such a mechanism in place. Most major credit cards offer
unemployment protection. If you are unemployed the credit card company pays
your minimum monthly payment for a period of time. To enroll, you pay a
monthly fee based on your outstanding balance. There does not appear to be
any risk rating and it is entirely voluntary.

As you may know, U.S. mortgages with less than 20% down also come with
mortgage insurance. However, this only protects the lender (it does not help
the consumer except to make loans more widely available).

The real problem with credit cards is that they are marketed as a way to
push your budget constraint out. In the long run, they actually push it in
by loading consumers up with high interest, revolving debt. One reform that
would help would be to require full disclosure of the costs of borrowing and
how long it would take you to pay off a credit card. Combine this with rules
on credit card advertising. In short, what is needed is reform of credit
card companies.

-----Original Message-----
From: Sven R Larson [mailto:larson@xxxxxx]
Sent: Monday, March 26, 2001 2:54 AM
To: pkt@xxxxxxxxxxxxxxxx
Subject: Re: On Credit Cards


OK, let's forget the credit card license. An insurance is a good idea,
but also a complicated one since you're spending someone else's money
until your card bill is paid. The insurance is supposed to cover for
payment default, and since the insurance - at least technically - is
also someone else's money the construction of the insurance is a
delicate matter. On the other hand it could actually come to work to the
benefit of household financial stability if it can establish a clear
link between payment default and insurance costs. I just can't see
immediately how it would work.

/srl

Harry Veeder wrote:
>
> My primary suggestion was mandatory credit card insurance.
> This does require some government oversight.
> Forget about the other stuff.
>
> Harry Veeder
>

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910