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BRUSSELS 2007! Workshop 2: "Credit Card Credit: American Overindebtedness a European Future?" - OUTLINE

Achim Tiffe (iff, Chair); Matthew Lee (Fair Finance Watch, USA); Damon Gibbons (DOOD, UK); Paolo Landi (Adiconsum, Italy); Manfred Westphal (vzbv, Germany)

Held on Friday Sept14th at 2pm, concurrent workshop is W1 on Overindebtedness and Bankruptcy.

Credit cards allow purchases, cash advances, and other transactions to be made in a convenient and flexible way but also seem to make the accumulation of debt more likely than other forms of credit. With an average of six credit cards per person and total consumer credit lines of over $3 trillion the US leads in credit card usage. Are there features of credit card debt that make it potentially dangerous for all consumers the world over, or can we expect cultural traits to limit the excesses of this form of individual indebtedness in Europe?

Despite the warning signs, EU regulation remains committed to viewing credit cards predominantly as a means of payment even though only one-third of Americans are classified as “convenience users” paying off their balance in full each month. The exclusion of credit card debt from the Consumer Credit Directive and the fact that the Payment Services Directive does not regulate such small sum credit has kept them out of reach of the relevant supervisory authorities. The decision to exclude them is unknown to many MEPs.

Going beyond the issues of questionable marketing practices (e.g., unsolicited credit limit increases and dangerously low minimum monthly payment requirements), this workshop will discuss the complexity of the cards themselves (their lack of transparency and their manipulation of consumer biases) and their cost. The potential for extending small automated revolving consumer credit, the possibility of taking on an unlimited numbers of parallel loans (“flipping”), or allowing accrued interest to be refinanced by new credit (“pyramiding”) can be challenging for the consumer and make for more challenging work for debt advisors.

The simple alternative currently prevalent on the continent is supplying “credit cards without credit.” These are debit cards linked to a bank account where an overdraft limit serves as the source of the loans. This credit is linked to income and consolidates all credit and debit card debt into one account which makes the borrowing transparent to consumers, allows them to easily oversee their finances, and encourages informed advice and reliable liquidity control by the account-holding bank.

Do credit card lenders play on consumer biases to create credit dependency or are they simply a popular and effective means of borrowing? If there are problems, then can credit cards be developed in a different way with more positive effects on society? Are the costs of credit card usage spread equitably between those who use it only as a payment mechanism and those who use it as a means of borrowing? What could be the implications of the Single Euro Payments Area on credit card use?

ID: 40035
Author(s): iff
Publication date: 14/09/07

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Created: 16/08/07. Last changed: 19/08/07.
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