Consumer Credit and the American Economy FINANCIAL MANAGEMENT ASSOCIATION Survey and Synthesis Series Asset Management: A Systematic Approach to Factor Investing Andrew Ang Asset Pricing and Portfolio Choice Theory Kerry E Back Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing Hersh Shefrin Beyond the Random Walk: A Guide to Stock Market Anomalies and Low-Risk Investing Vijay Singal Debt Management: A Practitioner’s Guide John D Finnerty and Douglas R Emery Dividend Policy: Its Impact on Firm Value Ronald C Lease, Kose John, Avner Kalay, Uri Loewenstein, and Oded H Sarig Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation [title], 2nd Edition Richard O Michaud and Robert O Michaud Last Rights: Liquidating a Company Dr Ben S Branch, Hugh M Ray, and Robin Russell Managing Pension and Retirement Plans: A Guide for Employers, Administrators, and Other Fiduciaries August J Baker, Dennis E Logue, and Jack S Rader Managing Pension Plans: A Comprehensive Guide to Improving Plan Performance Dennis E Logue and Jack S Rader Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty Andrew Davidson and Alex Levin Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities Su Han Chan, John Erickson, and Ko Wang Real Options: Managing Strategic Investment in an Uncertain World Martha Amram and Nalin Kulatilaka Real Options in Theory and Practice Graeme Guthrie Slapped by the Invisible Hand: The Panic of 2007 Gary B Gorton Survey Research in Corporate Finance: Bridging the Gap between Theory and Practice H Kent Baker, J Clay Singleton, and E Theodore Veit The Financial Crisis of Our Time Robert W Kolb The Search for Value: Measuring the Company's Cost of Capital Michael C Ehrhardt Too Much Is Not Enough: Incentives in Executive Compensation Robert W Kolb Trading and Exchanges: Market Microstructure for Practitioners Larry Harris Truth in Lending: Theory, History, and a Way Forward Thomas A Durkin and Gregory Elliehausen Value Based Management with Corporate Social Responsibility [title], 2nd Edition John D Martin, J William Petty, and James S Wallace Valuing the Closely Held Firm Michael S Long and Thomas A Bryant Working Capital Management Lorenzo Preve and Virginia Sarria-Allende Consumer Credit and the American Economy THOMAS A DURKIN, GREGORY ELLIEHAUSEN, MICHAEL E STATEN, AND TODD J ZYWICKI Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trademark of Oxford University Press in the UK and certain other countries Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016 © Oxford University Press 2014 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Library of Congress Cataloging-in-Publication Data Durkin, Thomas A Consumer credit and the American economy / Thomas A Durkin, Gregory Elliehausen, Michael E Staten, and Todd J Zywicki pages cm.—(Financial Management Association survey and synthesis series) Includes bibliographical references ISBN 978–0–19–516992–8 (alk paper) Consumer credit—United States Consumer credit—Government policy—United States United States—Economic conditions I Title HG3756.U54D865 2014 332.7ˇ43—dc23 2014006801 eISBN 978–0–19–938496–9 Dedicated to pioneer researchers in this field, from whom we have learned so much: John M Chapman (1887–1970) Robert W Johnson (1923–2009) F Thomas Juster (1926–2010) George Katona (1901–1981) Edwin R A Seligman (1861–1939) Robert P Shay (1922–2001) CONTENTS List of Tables and Figures Preface Acknowledgments Introduction and Overview of Consumer Credit: Development, Uses, Kinds, and Policy Issues Consumers and their Credit Types of Consumer Credit Institutional Sources of Consumer Credit Consumer Credit and Public Policy Consumer Credit in the Postwar Era The Credit Growth Context Debt Burden and Spending Growth of Consumer Credit Studies of Long-Term Trends Distribution of Consumer Credit Use Consumer Credit and the News Media Conclusions The Demand for Consumer Credit Emergence of Modern Consumer Credit Development of the Economics of Consumer Credit Demand Conclusions Behavioral Analysis and the Demand for Consumer Credit Cognitive Models of Consumers’ Credit Decisions Rationality of Credit Card Debt Conclusions The Supply of Consumer Credit Financial Intermediation Costs of Consumer Lending Empirical Evidence on Costs of Consumer Lending The Loan Offer Curve, Default Risk, and Credit Rationing Risk Evaluation and Credit Scoring Funding and Securitization Appendix: The Jaffee-Modigliani Model of the Loan Offer Curve Credit Reporting Conceptual Foundation for the Emergence of Credit Reporting The Credit Reporting System and its Regulation in the United States Comprehensive Credit Reporting and Creditor Decision Making Benefits from Comprehensive Full-File Reporting Systems Data Quality Issues and Implications for Credit Scoring Consumer Credit and the Payments System: Evolution of the Credit Card The Card Context Consumers’ Attitudes toward and Understanding of Credit Cards Credit Card Account Performance Profitability of Credit Card Plans Conclusions Appendix: Sample of Card Accounts Credit for All? Issues and Concerns about Credit Availability Use of Credit Products with High Annual Percentage Rates Credit Use and Younger Consumers Overreaching and “Predatory Lending” Federal Regulation of Consumer Credit: Credit Granting Discrimination Consumer Protection Fairness in Credit Granting: Equal Credit Opportunity Economic Theory of Discrimination Fair Lending Impact of Credit Scoring Evidence from Mortgage Credit Markets 10 Federal Regulation of Consumer Credit: Disclosures Federal Financial Disclosure Laws Growth of Truth in Lending Evaluating Truth in Lending as a Consumer Protection Other Financial Consumer Protections 11 State Regulation of Consumer Credit Interest Rate Ceilings Economic Effects of Interest Rate Regulation Market Adjustments to Rate Ceilings Creditors’ Remedies and Collection Practices Political Economy of Regulation of Interest Rates and Creditors’ Remedies 12 A Complement and a Supplement to Consumer Credit: Debt Protection and Automobile Leasing Credit Insurance and Other Debt Protection Consumer Automobile Leasing 13 Troubled Consumers: Bankruptcy and Credit Counseling Bankruptcy Nonbankruptcy Alternatives for Financially Distressed Consumers 14 Conclusions Bibliography Index LIST OF TABLES AND FIGURES TABLES 1.1 1.2 1.3 2.1 2.2 2.3 2.4 2.5 4.1 5.1 5.2 5.3 5.4 6.1 6.2 6.3 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 Selected measures of assets, debts, and income of American consumers, selected years, 1945–2012 Consumer installment credit by purpose of credit use, 1951–2010 Consumer credit outstanding, end of selected years, 1945–2012 Proportions of households using credit, 1951–2010 Proportions of households using consumer-related credit by income group, 1951–2010 Proportions of households using consumer-related credit by age group of family head, 1951– 2010 Shares of kinds of consumer-related debt outstanding by income groups, 1951–2010 Shares of kinds of consumer-related debt outstanding by age groups of family heads, 1951– 2010 Consumers’ attitudes toward installment credit: appropriate reasons for borrowing Income and expenses for closed-end consumer credit at finance companies and commercial banks, selected years Income and expenses of bank card issuers, 1995 Income and expenses for retail revolving credit in New York, 1972 Income and expenses for selected high-price credit products Variables used in the different scoring models Effect on default rate for various approval rates Simulated effect on credit availability of additional information for various default rates Means of domestic noncash payments in the United States, Selected Years 2000–2012 Numbers of credit cards, charges on credit cards, and amounts of credit card credit outstanding in the United States, 1991–2007 Prevalence of credit cards among households, selected years, 1970–2010 Prevalence of bank-type credit cards and outstanding balance amounts, by household income quintiles, selected years, 1970–2010, in percent except as noted Consumers’ opinions about using credit cards, selected years 1970–2012, in percent Prevalence of belief that using credit cards is “bad” among holders of bank-type credit cards, 2000 and 2012 Attitudes of holders of bank-type credit cards toward credit cards and card issuers, 2000 and 2012, in percent Opinions of consumer credit users concerning ease of obtaining information on credit terms and on adequacy of information provided, selected years, 1977–2012, in percent Opinions of credit card users concerning the effects of credit cards on personal financial management, 2001 and 2012, in percent Overall satisfaction of consumers with credit, by type of credit, selected years, 1977–2012, in percent Opinions of credit users concerning helpfulness of truth in lending statements, selected years, 1981–2001, in percent Knetsch, Jack L., 147 Knittel, Christopher R., 269, 270 Koeniger, Winfried, 614n26 Kohn, Donald L., 67 Kollat, David T., 130, 307 Korean War, 2, 31, 417n3 Kowalewski, Kim J., 610 Kreinin, Mordechai, 57 Krueger, Dirk, 272 Krynski, Tevye R., 144–45 Kumar, Sunil, 134 Kurtz, Robert D., 448n41 Kwast, Myron L., 198n21 Kyriazidou, Ekaterini, 123 Labor mobility, 270–72 Lacko, James M., 374n32, 384, 385 LaCour-Little, Michael, 452 Laibson, David, 153, 165–66 Lake Charles, Louisiana, 508, 527n42 Lampe, Donald C., 41n7 Lancaster, Kelvin J., 103n12 Landers, Jonathan M., 470 Lansing, John B., 57, 127 Larkin, Kenneth, 343n21 Lawless, Robert M., 611n23 Lawrence, Edward C., 119n22, 130n6, 370, 374n32, 376, 381, 383n40, 443–44 Leach, Lauren, 407, 408 Leases of personal property, 462–63(table), 464 Lee, Alyssa Stewart, 275 Lee, Donghoon, 389, 390 Lee, Yoonseok, 491n15 Leff, Arthur A., 521 Lefgren, Lars, 614 Legal aid organizations, 535 Lehman Brothers, 237 Lehnert, Andreas, 602n16, 603 Lemieux, Jeff, 607 Lending and borrowing: with different interest rates, 110–13; in Fisher-Seligman model, 97–103; investment opportunities with, 100–103; in Juster-Shay model, 110–13; with relatively few high return opportunities, 112(figure) Lending costs, 179–201, 635–36; creditors' remedies and, 528–32; empirical evidence on, 183–201; types of, 179–83 Letsou, Peter V., 520, 522, 535, 536n48 Letters of credit, 233–34 Levy, Helen, 606 Levy, Rob, 228n49 Lewis, Edward M., 217 Lexicographic representativeness strategy, 146n27 Li, Geng, 39, 43, 331, 358, 593 Li, Wenli, 594n7, 616, 628 Life cycle stage: credit availability and, 272; credit rationing and, 368; demand for credit and, 112; of high-rate customers, 374–76; supply of credit and, 214, 215 See also Age Life insurance, 563–64 See also Credit life insurance; Term insurance Lin, Emily Y., 614 Linda Problem, 136, 143–44 Lindley, J T., 306, 443 Link, Charles R., 625, 629 Liqudity constraints, 113–14 Liquid assets, 49–50 Litan, Robert E., 295n6, 367n29 Little Rock, Arkansas, 527n42 Liu, Chunlin, 159n38, 165, 613, 618 Livshits, Igor, 594n6, 601 Loan checks, 22 Loan offer curve, 202–16; default risk and, 202–13; Jaffee-Modigliani model of, 238–40 Loan sharks, 90, 355, 362 Loan size cost elasticity, 195, 197, 198, 200–201 Lochner, Lance, 398 Locke, John, 485 Loewenstein, George, 141–42, 150, 151, 152, 153n34 London Interbank Offered Rate (LIBOR), 234 Long, Michael S., 222 Long, Millard F., 482n1, 498–500, 509, 510, 530 Longhofer, Stanley D., 452 Loomes, Graham, 148n29 Loonin, Deanne, 625 Lopes, Paula, 603 Loshin, Ronald S., 571n24 Loss aversion, 136–43, 150 Low, S., 440, 441 Low-income markets, 513–15 Lucas, Peter, 266 Luckett, Charles A., 35n1, 49, 51–54, 57, 61, 67, 82–83, 236, 478, 480, 600n11, 618 Lumpiness of outflows, 9, 10, 89 Lundquist, Christopher, 629 Lusardi, AnnaMaria, 42n8 Luther, J Wade, 234 Luther, Martin, 485 Lynch, Gene C., 511–12 Lyons, Angela C., 633 Lyons, Fran, 275n38 MacGee, James, 594n6, 601 Mach, Traci L., 82n15 Macroeconomics: bankruptcy and, 604; consumer expectations about, 127; debt burden and, 43, 44; media and, 84; monthly payments model and, 106–9; TIL Act and, 470, 471 Maddala, G S., 214n35 Madison, James, 586 Maine, 501, 507n23 Maki, Dean, 39–44, 46, 59, 64, 128n2, 602n16, 603 Malani, Anup, 623 Malkiel, Burton G., 148n30 Management Decision Systems (MDS), 225 Mandell, Lewis, 287n1, 486 Mann, Ronald J., 136, 383n39, 587, 601, 602n14 Mannering, Fred, 571n24 Manning, Robert D., 400n55 Mansfield, Phylis, 401n56 Marginal rate of investment return, 100, 101–2, 111, 115, 116, 117, 118–19, 123 Marginal rate of time preference, 94, 100, 101–2, 111, 117, 118–19, 120, 123 Marital status, 419, 421, 423–24, 428, 433, 440–41, 444, 445, 446, 447–48 Market adjustments, to interest rate ceilings, 511–19 Market opportunity line, 98–100, 101, 102, 110–11, 115, 116, 117 Market performance: group membership and information about, 439–41; heuristics and, 148–49 Market segmentation, interest rate ceilings and, 501–2, 503(table) Markowitz, Harry, 176n3 Marquette National Bank of Minneapolis v First of Omaha Service Corp., 269n26, 498, 516 Marquez, Robert, 268 Marshall, Alfred, 92 Marshall, J., 441 Massachusetts, 388 Massey, Jennifer, 399n53 MasterCard, 16, 29, 70, 131, 155, 269, 290, 292, 293, 294, 295, 475; charge volume on, 298; growth in use of, 295; increased consumer holding of, 302 Master Charge, 70, 302, 343 Mathur, Aparna, 606, 607 May, Geoffrey, 489n13 Mayer, Robert, 391 Maynes, E Scott, 57 Mays, Elizabeth, 219, 221 MBNA America Bank, 24n12, 269 McAlister, E Ray, 184, 194, 380n34, 516n33 McCathren, Randall R., 571n24 McConnell, John J., 222 McElravey, John N., 237 McGhee, W P., 440n33 McIntyre, Frank, 614 McKernan, Signe-Mary, 374n32, 384, 385 McKinley, Vern, 609, 615 McKinley, William, McMenamin, Robert, 621 McNamara, Robert M., Jr., 249 Mean shift effect, 433–36, 441 Medendorp, Mistie, 399n53 Media, 84–86 Medical debt, bankruptcy and, 605–8 Medici family, 485 Melanchthon, Philipp, 485 Melzer, Brian T., 388–89 Membership fees, 343–44n22, 347 Mental accounting, 129, 139–43 Merchant acquirers, 294 Mester, Loretta J., 167–69, 170, 213, 271n33, 426n12 Metris Companies, 24n12 Mexico, 246n5, 265n22 Michelman, Irving S., 5n4, 90n4, 355, 483n2, 489n13, 490 Middle class, 2, 5, 89, 124, 488, 533–34, 636 Mielnicki, Lawrence, 613, 624 Milde, H., 425n11 Military, payday loans and, 392 Mill, John Stuart, 88, 486 Millenson, Michael L., 607 Miller, Earl K., 153n34 Miller, Fred H., 41n7 Miller, Margaret J., 245 Miller, Merton, 102, 202, 212n32 Miller, Michelle M., 617 Miller, Nathan H., 228n48, 271 Miller, Rae-Ann, 364 Miller, Stephen E., 571n24 Milligan, Casey B., 150n32 Milstein, Abby Sniderman, 626, 627 Miner, Jerry, 57 Miniard, Paul W., 130n6 Minnesota, 626 Mishkin, Frederic S., 42n8 Mississippi, 494(table) Missouri, 501 Modigliani, Franco, 202, 203, 204–5, 207n30, 208, 210, 212n32, 215, 238–40 Molyneux, Philip, 41n7 Money Management International (MMI), 633 Money stock, 46 Monge-Naranjo, Alexander, 398 Monitoring, 177 Monoline credit card banks, 24, 25, 27–28, 269, 294, 308 See also Credit card banks Monoline payday loan companies, 194 Monopolies, 428, 452, 499–500, 502 Monthly payments model, 106–9, 121, 122, 123, 129, 135 Moore, Kevin B., 82n15, 198n21, 299n10 Moral hazard, 213, 242, 243, 246, 593, 595 Morgan, Donald P., 306, 387–88 Morgan, J Pierpont, Morgan, James N., 127 Morris, Arthur J., 490 Morris Plan, 490, 554 Morris Plan Insurance Society, 543 Mors, Wallace, 104n13, 105, 490, 496 Morse, Adair, 135n15, 386 Mortgage banks, 26–27 Mortgage brokers, 26–27 Mortgage credit, 2, 32n18, 236n58, 271, 545, 636; closed-end, 292n4; in debt burden, 41; debt protection and, 565, 566, 569(table), 570(table); defined, 34n1; discrimination in, 451–52; growth of, 5, 45(figure), 46; incidence of use, 70; overextension of, 38; proportions of households using, 69(table), 72(table), 73(table); shares of debt outstanding, 76(table), 79(table), 81; trends in use of, 63, 67 Mortgage loans, 223, 227, 280–81, 338, 497 See also Home loans; Subprime mortgage loans Mortgage-related insurance, 553, 555 Moskowitz, Tobias J., 487, 510n28, 534 Moss, David A., 598–99, 601, 617, 618 Mossburg, Marta H., 515n32 Mueller, Eva, 127, 128n3, 524n39 Mukhtar, Ali M., 609 Multivariate regression techniques, 218 Munger, Frank W., Jr., 158 Muolo, Paul, 28n15 Murphy, Neil B., 197n21, 426n12, 448n41, 507 Murray, Alan, 65 Musto, David K., 275n38, 616 Mutual funds, 175 Mutual of Omaha Group, 562 Myers, James H., 217, 220, 221, 440n33 Myers, Stewart C., 370, 574n30, 580n40 Myerson, Joel, 152n33 Nader, Ralph, 536 Nadler, Marcus, 417n3 Nash, Robert C., 498 National Association of Insurance Commissioners (NAIC), 554 National Association of State Public Interest Research Groups, 282n47 National banks, 23, 539 National Bureau of Economic Research, 109, 219–20 National Commission on Consumer Finance (NCCF), 104, 130, 201, 319–20, 380, 420–21, 520n36; on creditors' remedies, 525, 528; on credit shopping, 478–79; on interest rate ceilings, 496–97, 503–6 National Conference of Commissioners on Uniform State Laws, 497 National Credit Reporting Association, 280 National Credit Union Administration, 549 National Federation of Independent Businesses, 271 National Federation of Retail Credit Agencies, 247n7 National Foundation for Consumer Credit (NFCC), 626–27 National Foundation for Credit Counseling (NFCC), 285, 627, 630n32, 631–32 National origin, discrimination on basis of, 419, 421 National Pawnbrokers Association, 354 National Survey of America's Families, 388 Natural disasters, 386 Navarro-Martinez, Daniel, 135n15 Navy Federal Credit Union, 28 NCCF See National Commission on Consumer Finance Nearly small dollar loans, 364 Negative income tax experiment, 443 Negative-only credit reporting, 256–57, 266, 277 Neifeld, M R., 492 Nellie Mae, 404–5 Nelson, Benjamin, 485 Nelson, Jon P., 610–11 Nelson, Keith, 550n8 Neoclassical economic theory, 432, 436, 438; on demand for credit, 121, 123; on discrimination, 425–29 Net indebtedness credit life insurance, 554 Net present value (NPV), 370–74, 396, 526 Net worth, 47, 49 Nevada, 494(table) Nevin, J R., 448 New America Foundation, 30 New Institutional Economics, 597 New Jersey, 388, 501 Newlyn, W T., 178n5 News media, 84–86 New York, 388, 495(table), 496 New York City, 513–14 New York State Council of Retail Merchants, 184, 191 New York Times, 85 NFCC See National Foundation for Consumer Credit; National Foundation for Credit Counseling Ng, Serena, 42n8 Nichols, Mark W., 609 Nicosia, Francesco M., 130, 307 Nigro, Peter J., 411, 412 1977 Consumer Credit Survey, 446 Nobel Prize winners, 127, 176n3, 212n32, 425, 427, 430n17, 436, 452 Nocera, Joseph, 287n1, 343n21 Noncash payments, means of, 296(table) Noncontributory group policies, 553–54 Nonfinancial institutions, 29 Noninstallment credit, 15, 16–17 Nonoperating costs, 183, 188 Nonrevolving installment credit See Closed-end credit Noonan, Jeanne, 253n17 Norberg, Scott F., 591, 628 North Carolina, 387, 411–12, 413 North Fork Bank Corporation, 24n12 North German Confederation, 486 Norway, 486 "Note on Measurement of Utility, A" (Samuelson), 150 Nugent, Rolf, 361, 487n8, 491n15, 492, 500, 501, 517n35 Nunez, Stephen, 623 Nunnally, Bennie H., Jr., 571n24 Oaksford, Mike, 135n13, 149 Obama, Barack, 537 OCC See Office of the Comptroller of the Currency O'Connell, Sean, 488n11 O'Donoghue, Ted, 150, 151, 152, 153 Oeltjen, Jarret C., 490 Office of the Comptroller of the Currency (OCC), 23, 549, 552–53 Office of Thrift Supervision, 549 Oklahoma, 248, 512 Olney, Martha L., 5n4, 90n4, 483n2, 492n18 Open-end credit: defined, 15; features of, 22; growth of, 48; lending costs in, 182, 190–91; monitoring of payment, 177; revolving credit distinguished from, 291n4; TIL Act on, 458–59 (table), 460–62(table), 463, 467 Open-end operating leases, 572 Open-loop networks, 293–95 Operating costs, 188, 189, 190, 191, 195, 216; loan size and, 200, 201; types of, 179–83 Operating leases, 571–72 Opportunistic behavior, 175, 181, 210 Opportunity costs, 148 Opportunity rate, 203 Ord, Keith, 57, 67 Oregon, 388 Origination costs, 179–82 Ornstein, Stephen E J., 464 O'Rourke, Collin M., 632 Ortmann, A., 135n13 Overdraft protection, 22, 392–93 Padilla, Jorge A., 244, 245 Pae, Peter, 270n29 Pagano, Marco, 244, 245, 246, 266n23, 267n24, 272 Palash, Carl, 60 Panel Study of Income Dynamics, 606 Paquette, Lynn, 40 Pardo, Rafael I., 611n23 Park, Sangkyun, 63–64 Parker, Lee E., 223–24 Parker, Sanford, 37 Pass-through securities, 232, 235 Patrick, Thomas M., 571n24 Pavan, Marina, 594n7 Pawnbroker loans, 17, 21, 181, 182, 192, 382, 394, 409, 488, 516; customer demographics, 374, 375(table), 376, 377, 378; features of, 353–54; regulation of, 489 Payday loans, 17, 21, 119n22, 192, 394, 395, 409, 516–17; bank products, 363–65; customer benefits from, 386–93; customer decision making and, 381–83; customer demographics, 375(table), 376–78; example of value calculations, 370–72; experimental studies, 392–93; features of, 356–57; financial difficulties and, 387–92; lending costs for, 194–95, 196(table); the military and, 392; natural disaster aftermath and, 386; overconfidence in, 136n15 PaymentsSource, 346 Payments-to-income ratio, 39–40 Pearce, Douglas, 61–62 Pence, Karen, 30, 35n1, 40, 44n9, 65 Pennington-Cross, Anthony, 411n61, 413 Pension Protection Act (2006), 634n37 Pentagon Federal Credit Union, 28 PERC See Political and Economic Research Council Perfect capital markets, 93, 98, 111, 207 Perfecting a loan agreement, 181 Perri, Fabrizio, 272 Persky, Joseph, 486n5 Personal bankruptcy cycle, 604 Peterson, Carol M., 427, 428, 442–43 Peterson, Richard L., 427, 428, 442–43, 507n24, 513, 515, 526–27, 528, 529, 530–31, 532, 533, 610 Phelps, Edmund S., 430, 433, 434, 435, 436, 437 Phillips, Robert F., 452 Piggyback seconds, 237 Plank, Thomas E., 586n2 Planned amortization class tranches, 232, 235 Plath, D Anthony, 571n24 Plott, Charles R., 146–48 Plummer, Wilbur C., 93n7 Plunkett, Travis, 625 Poapst, J V., 119n22 Polister, Peter, 153n34 Political and Economic Research Council (PERC), 282–83, 284 Political economy: of bankruptcy law, 621; of regulating interest rates and creditors' remedies, 533–36 Poor men's banks, 485 Poor Richard's Almanac (Franklin), Population segments, distribution of credit within, 70–74 Porter, Katherine, 587 Posner, Eric A., 509n27, 520, 521, 534–35, 612, 623 Powell, Andrew P., 266 Practices approach to ECOA, 423–24, 433–34, 436–38 Prager, Robin A., 293n5 Pratt, R J A., 440n33 Precommitment, 129–30, 153, 154 Predatory lending, 351, 408–14; defined, 409 Prelec, Drazen, 141–42, 153n34 Prell, Michael, 35–36, 39, 57–59, 61, 84 Prepayment, 141, 234, 235 Prepayment penalties, 409, 410, 414 PreScore, 225 Present value, 99, 102, 111, 573–74, 577, 580 See also Net present value President's Commission on Financial Structure and Regulation, 496–97 Pridgen, Dee, 497 Privacy concerns, 251, 253, 254, 315 Private label credit cards, 292 Processing costs, 179, 182, 223 Production costs, 201, 202 Productive credit, 90, 91 Product substitution, 516–18 See also Substitution effect Prohibition, 534 Prospective accounting, 141 Prospect theory, 133, 138–40, 147 Protected groups, 431, 438, 439–41, 445, 446, 448–49 Providian Financial, 24n12, 269 Proxmire, William, 250n12 Prussia, 486 Psychological Economics (Katona), 127 Public credit registries (PCRs), 245–46 Public Law 93–495, 419 Public Law 94–239, 419 Public Law 100–583, 465 Public Law 104–208, 254 Public Law 108-159 See Fair and Accurate Credit Transactions Act Public Law 111-24 See Credit Card Accountability, Responsibility, and Disclosure Act Public policy: consumer credit and, 31–33; credit card users' complaints and, 329–31 Putnam, Robert D., 618 Quercia, Roberto G., 412 Rabin, Matthew, 153 Racial discrimination, 419, 426, 428, 433, 441, 443–44, 448, 451 Racine-Kenosha, Wisconsin, 527n42 RALs See Income tax refund anticipation loans Ramsay, Iain, 632, 633n35 Rasor, Paul B., 31n17, 415n2 Ratcliff, Paul, 228 Rational behavior: cognitive biases and, 149–50; credit card debt and, 155–72 Rational economic choice theory, 88, 124, 128 Ratner, Bruce C., 626, 627 Real, Leslie, 152n33 Real Estate Settlement Procedures Act (RESPA, 1974), 32n18, 454, 480, 481 Recession of 1990, 83 Reclassification, 447n39 Recognition heuristics, 134 Redlich, Fritz, 5n4 Reference price, 140 Regulation B, 221, 421, 422, 423, 424, 435, 436, 447, 449, 450 Regulation M, 365n25, 464, 581–82 Regulation W, 31, 38–39n4, 417n3 Regulation Z, 291n4, 365n25, 453, 457, 464, 581; credit insurance and, 556, 564; provisions of, 456–57n4 Reid, Chris, 488n11 Religious discrimination, 419, 421 Religious injunctions against credit, 3, 353n1, 415, 416, 484–85, 533, 593, 594–95, 636 Remedial loan societies, 489–90, 491 Rent-to-own transactions, 352, 394, 514, 516, 517; customer decision making and, 384–86; customer demographics, 374, 375(table), 376, 378; features of, 365–67 Repayment-to-income ratio, 65, 66 "Report of Income and Condition." See Call Report Representativeness heuristics, 134, 145–46 Republican Party, 623 Residual value, 571, 572, 580, 581, 582 RESPA See Real Estate Settlement Procedures Act Retail credit cards, 191, 193(table) Reverse mortgages, 462(table), 464 Revolving credit, 12, 15, 48, 291n4 See also Open-end credit Revolving credit cards, 48, 287, 290–91, 292, 293, 298; frequency of revolving by users, 332–34; increased consumer holding of, 302 Risk-based pricing, 2, 227, 330–31 Risk-based pricing notice, 424–25 Risk evaluation, 216–19, 229 See also Credit scoring Risk intermediation, 176–77 Risk Management Association, 271n33 RiskView, 229n50 Robert Morris Associates (RMA), 271n33 Robins, Russell, 604n18 Robinson, Louis N., 361, 491n15, 492, 500, 501, 517n35 Rockoff, Hugh, 484, 486 Roebuck, J., 362n16 Roever, W Alexander, 237 Rogers, David H., 5n4, 19n11, 90n4, 355, 483n2, 488, 489, 490, 502 Rohner, Ralph J., 470 Rosen, Sherwin, 207 Rosenberg, Eric, 221n41 Rosenthal, Howard, 623 Rosenthal, Stuart S., 216n38 Rothschild, Michael, 212n34, 524n40 Rothstein, Jesse, 398 Rouse, Cecilia Elena, 398 Rowlingson, Karen, 488n11 Rubinstein, Ariel, 151 Rudolph, P., 306 Runkle, David E., 42n8 Russell, Thomas, 210–11, 213, 215n37, 242, 522 Russell Sage Foundation, 490–92, 500 Sabarwal, Tarun, 613 Sabelhaus, John, 82n15 Salary buying agreements, 488 Sallie Mae, 30, 40, 404–5 Salop, Stenen, 524n40 Samolyk, Katherine, 184, 357n9 Samuels, Richard, 143n26, 149 Samuelson, Paul A., 105n14, 134n11, 150, 483n1, 534 Santomero, Anthony, 36, 39 Sardinia, 486 Sartain, Robert L., 601, 605, 620 Sarte, Pierre-Daniel, 594n7, 628 Sartoris, William L., 428n15, 506 Satisficing behavior, 126, 134 Saunders, Anthony, 232n55 Sauter, Richard F., 122–23 Savings account garnishments, 527 Savings and loan associations, 4, 29 Savings banks, 29 Savings depository institutions, 23, 29 Saxony, 486 Schallheim, James S., 571n24 Schmalensee, Richard L., 155n36, 288n2, 293n5, 295n6, 343n21, 498 Schoemaker, Paul J., 133n10 Scholz, John Karl, 216n38, 613 Schor, Juliet B., 601 Schuermann, Til, 231n54 Schultz, Glenn M., 237 Schwartz, Alan, 524–25 Schwartz, Anna Jacobson, 5n4 Schwartz, Saul, 632 Schweitzer, Paul R., 565n21 Science, 133 Scope economies, 198 Scott, Robert E., 535–36 Search, decision making and, 130–33 Search costs, 157, 168, 615–16 Seblani, Ihab, 387–88 Second mortgage loans, 478 Secured credit, 588, 622, 623, 629 Securities and Exchange Commission (SEC), Securitization, 27–28, 229–38, 270–71, 637 See also Asset-backed securities Security agreements, 181–82 Seidel, Joseph L., 254n18 Seidl, John M., 362, 493 Selby, E B., 306, 443 Self-control, 153, 171 Seligman, Edwin Robert Anderson, 91, 93–106, 107, 109, 113, 121, 123, 130, 352, 485n4, 487n8, 635 Sencindiver, Cynthia A., 61 Senior tranches, 235 Service credit, 16–17 Settlement, 294 Sex discrimination, 419, 420–21, 428, 438, 440–43, 444, 445, 446n38, 447–48 Sexton, Donald E., 440n33, 447–48 Shack-Marquez, Janice, 82n15 Shares of credit outstanding, 74–81 Shaw, Edward S., 175n2 Shay, Robert P., 31, 106, 109–23, 124, 129, 130, 135, 153, 167, 184, 191, 208, 343n20, 353, 355, 367–68, 369, 370, 376, 417n3, 445–46, 447–48, 474n9, 476n11, 502, 506, 517n34, 528, 529 Shepard, Lawrence, 604, 605, 610 Sherer, Paul M., 37 Sheth, Jagdish N., 130, 307 Shiers, Alden F., 604, 605, 613, 614, 623 Shinkel, Bernard A., 447, 448, 449 Shuchman, Philip, 603n17, 607 Siegel, David A., 134 Signaling costs, 437 Signaling theory, 436–38, 446–47 Simmons, Edward C., 417n3 Simon, Herbert A., 127n1, 134 Simon, Ruth, 331 Simple scale economies, 198–200 Simpson, Nicole B., 593 Singer Sewing Machine Company, Single-payment loans, 16, 17 Sinkey, Joseph F., Jr., 498 Sittner, Larry S., 607 Size intermediation, 178 Skeel, David A., Jr., 596, 597, 621–23 Skiba, Paige Marta, 389–91, 621 Skinner, Jonathan, 607n21 Sloan v Sears, 511 Small business start-ups, 271 Small dollar amount loan pilot project of FDIC, 363–65 Small loans: customer decision making and, 380–81; features of, 355–56; interest rate ceilings and, 489, 500–501 See also Very small short-term consumer finance company loans Smith, Adam, 88, 92, 243, 485, 486n5 Smith, Clifford W., Jr., 175 Smith, Douglas E., 598, 604, 612, 614 Smith, James F., 448n41 Smith, Michael L., 556n12 Smith, Paul F., 188n11, 428n15, 440n33 Smith, Susan J., 543n1 Smith, Vernon L., 148–49, 205–6 Smith, Warren, 37–38 Smith, William L., 506 Snowden, Kenneth A., 486n6 Soman, Dilip, 142 Somlyk, Katherine, 194 Sonntag, Janet, 449 Sorhaindo, Benoit, 628 Souleles, Nicholas S., 160n39, 162–64, 165–66, 306–7, 599, 603, 606, 617 South Dakota, 498, 619 Sowell, Thomas, 268n25 Spain, 246n5, 486 Special purpose entities (SPEs), 27–28, 231 Spence, A Michael, 436–38, 446–47 Spending, 39–44 SPEs See Special purpose entities Spiro, Leah Nathans, 270n29 St John, Cheri, 281n45 Stafford loans, 404 Stanford Research Institute, 220 Stango, Victor, 164n43, 269, 270 Stanley, David T., 587, 597, 598, 604, 614, 616 Starkey, William, 571n24 Starmer, Chris, 148n29 Starr-McCluer, Martha, 82n15, 198n21, 299n10 State banks, 23 Statement of Financial Accounting Standard No 167 (SFAS 167), 27 Staten, Michael E., 106n16, 242, 251n14, 252–53, 257, 263n20, 21, 265n22, 269n28, 286, 349n25, 405–6, 412, 543n1, 565n21, 22, 604n18, 605, 609, 616, 618, 625, 626, 628, 629 State regulation, 482–541, 634, 639 See also Creditors' remedies/collection practices; Interest rate (usury) ceilings Stationary instantaneous utility, 152 Statistical risk evaluation, 216–19, 229 Statute of Anne, 585 Statute of George II, 585 Statute of Merchants, 585 Stavins, Joanna, 601, 606, 607 Stearns, Maxwell, 534, 536 Stegman, Michael A., 412 Stein, Eric, 412 Steinbuks, Jevgenijs, 213, 413 Stephenson, James, 119n22 Stich, Stephen, 143n26, 149 Stigler, George, 128, 378n33 Stiglitz, Joseph E., 210, 212, 213, 242, 485n4, 524n40 Stigma of bankruptcy, 617–19, 625 Stock items, 46–51 Stock-to-flow ratio, 46, 48 Stock-to-stock ratio, 46, 47 Straight bankruptcy See Chapter bankruptcy Strain, Michael R., 387–88 Straka, John W., 223 Strotz, R H., 129, 151, 153 Structured securities, 232, 235 Student loans, 2, 31, 40; bankruptcy and, 620; credit card use by students applying for, 404–5; federal direct, 30; growth of, 54; trends in use of, 395–98 Student Monitor study, 401, 403, 404, 405 Sturges v Crowninshield, 586n2 Sturm, Thomas, 135n13 Subjective yield, 119 Subordination, 232, 233, 237 Subprime credit cards, 357–59 Subprime lending, 369, 409 Subprime mortgage loans, 4, 177–78n4, 202, 207–8, 209, 236, 277, 408–14; in debt burden, 41; debt protection and, 553, 556–57, 564–65; disregard of borrower risk factors and, 267–68; SPEs and, 28; studies on impact of regulation, 411–13 Subramanian, Narayanan, 613n25 Substitution effect, 601, 602n14 See also Product substitution Sugden, Robert, 148n29 Suits, Daniel B., 108 Sullivan, A Charlene, 428n15, 508 Sullivan, Teresa A., 601, 604, 605, 607, 617, 618 Sunden, Annika E., 82n15 Sunk costs, 148 Supply of credit, 6–9, 173–240; creditors' remedies and, 528, 529–30; credit rationing and, 202–16; credit scoring and, 216–29; default risk and, 202–13; financial intermediation and, 173–78; funding and securitization, 229–38; lending costs and, 179–201; risk evaluation and, 216–19 Supreme Court, Arkansas, 511 Supreme Court, U.S., 269, 423n7, 497–98, 516, 564n16 Surette, Brian J., 82n15, 299n10 Survey Research Center (University of Michigan), 127–30, 308, 339 Surveys of Consumer Finances: on bankruptcy, 606–7; on credit card use, 11–12, 299, 302, 305, 325, 326–27; on credit rationing, 214, 215; on distribution of credit use, 68–84; on interest rate ceilings, 508, 509, 530; on life insurance, 563; on switching costs, 168, 169, 170 Sweden, 486, 585n1 Switching costs, 157, 166–71 Sylla, Richard E., 5n4, 31n17, 88n1, 415n2, 483n2 Szykman, Lisa R., 632n34 Tabb, Charles Jordan, 585, 596 TALF See Term Asset Backed Securities Facility Tapscott, Tracy R., 53, 62 Targeted amortization class tranches, 232, 234 Taste for discrimination, 425–29, 440, 441, 448–49, 452 Tax obligations, bankruptcy and, 609 Tax refund anticipation loans See Income tax refund anticipation loans TD Bank, 19 Telemarketing Sales Rule, 634n36 Temin, Peter, 515 Temporal intermediation, 177–78 Tenenbaum, Joshua B., 135n13, 144–45, 149 TERI study, 401, 402–3, 404, 407 Term Asset Backed Securities Facility (TALF), 237–38 Term insurance, 544–46, 557, 559–62; annual renewable, 556n12; examples of premiums for, 560–61(table) Term to maturity, 54; for automobile loans, 235; cognitive biases and, 135; for high-rate credit, 379; for home equity loans, 236; JusterShay model and, 114, 121, 122; monthly payments model and, 108–9; for small loans, 355, 356; temporal intermediation and, 177–78 Tertilt, Michele, 594n6, 601 Test scores, predicting performance from, 430–32 Texarkana, Arkansas, 512, 513 Texas, 380, 512, 588, 589, 590 Texas Finance Code Chapter 342-E, 355–56 Thaler, Richard H., 129, 139–40, 141n23, 147, 150 Thalheimer, Richard, 609 Theodos, Brett, 360n13 Thin-file/unscorable population, 228 Thomas, Lyn C., 219, 222, 227, 228 Three-party credit cards, 290, 292–93, 295, 298; increased consumer holding of, 302; profitability of plans, 343–48 TIL Act See Truth in Lending Act Time preferences See Intertemporal choice; Marginal rate of time preference Time price doctrine, 90, 487, 489, 492 Timmons, Heather, 277n41 TISA See Truth in Savings Act Title I of Consumer Credit Protection Act See Truth in Lending Act Title V of Consumer Credit Protection Act See Equal Credit Opportunity Act Title VI of Consumer Credit Protection Act See Fair Credit Reporting Act Title X of Dodd-Frank Act, 32 Tobacman, Jeremy, 389–91 Tobin, James, 166 Todd, Richard M., 26n13 Tollison, Robert D., 533 Tooby, J., 143 Touche Ross study, 343n20 Toyota Motor Credit Corporation, 19, 21 Tranches, 232–33, 235, 236, 237 Transaction costs, 166–67, 616 Transaction utility, 140 Transamerica Life Insurance, 562 Trans Union, 225, 247, 630 Travel and entertainment cards, 293, 295, 302, 343–44n22 Treasury Department Report, 537 Trends in credit use, 51–67; Enthoven model, 54–56; Hunter model, 57; Luckett and August model, 51–54; 1970s, 57–60; 1980s, 61–62; 1990s and beyond, 63–67 Trost, Robert P., 452 Trustees Education Network (TEN), 632 Truth in Lending (TIL) Act (1968), 12, 32, 62, 104–5n13, 106, 122, 129, 130, 291n4, 338n17, 355, 365n25, 417, 418, 422, 455, 456–81, 482, 496, 520, 581, 639; behavioral research stimulated by, 127, 132; compliance issue, 466; conceptual stumbling block, 465–66; concerns about, 470–71n6–8; credit card users and, 316, 319–24, 329, 348, 458–59(table), 475–76, 479–80; on credit insurance, 552, 556; disclosure requirements, 457–64; evaluating as a consumer protection, 469–80; extent issue, 466–69; goals of, 470–74; growth of, 464–69; high-rate credit products and, 352; opinions on helpfulness of, 321(table); outlay issue, 135n14, 466, 468; passage of, 31; on residential real estate, 31–32n18, 410, 414; survey information on impact of, 474–80; unknown future events issue, 466, 468 Truth in Savings Act (TISA, 1991), 454, 480, 481 Turner, Michael A., 228, 229, 266, 282–83, 284, 286n50, 358n11 Turner, Pamela R., 407, 408 Tversky, Amos, 127, 133–39, 143, 144, 145, 152 Two-party credit cards, 290, 292, 295, 342–43 Tyagi, Amelia Warren, 609 Udell, Gregory F., 228n48 Umbeck, John, 242, 528n44 Uncertainty, decision making under, 133, 175–76 Unemployment, bankruptcy and, 604 Uni-card, 290n3 Uniform Consumer Credit Code (UCCC), 497, 520 Uniform Small Loan Law, 491 United Airlines Employees Federal Credit Union, 28 United Kingdom, 256, 363n20, 517n35 United of Omaha Life Insurance Company, 562 University of Michigan Institute for Social Research, 82 University of Michigan Survey Research Center See Survey Research Center (University of Michigan) "Unsafe At Any Rate" (Warren), 536 Unsecured credit, 291, 589–90, 616, 622, 623, 625, 627, 629, 632 Uppal, Raman, 135n13, 149 Upward deviations, 555 Urban Institute, 388 USLife Credit Corp v Federal Trade Commission, 564n16 Usury laws/ceilings See Interest rate (usury) ceilings Utility independence, 152 Utility maximization, 124–26 Vandenbrink, Donna C., 497 Van der Klaauw, Wilbert, 389, 390 Varghese, Robin, 266, 282, 284 Velkey, Andrew J., 591 Venkatesh, Sudhir Alladi, 362, 517 Verant, William J., 374n32 Vercammen, James A., 244 Vermeersch, Arthur, 484n3 Very small short-term consumer finance company loans, 192–94, 196(table) See also Small loans Villegas, Daniel J., 509–10, 530, 532, 533–34, 535 Visa, 16, 29, 70, 131, 155, 191, 269, 290, 292, 293, 294, 295, 476; bankruptcy studies by, 604, 615, 616; charge volume on, 298; growth in use of, 295; increased consumer holding of, 302 Visa USA, 184, 190, 628 Voth, Hans-Joachim, 515 Voting suffrage laws, 534 Wack, Kevin, 363 Wage assignments, 488, 519, 528, 529, 530 Wage garnishments, 520, 526, 527, 528, 529, 530, 614 Walk-away leases, 571–72 Walker, David A., 57, 67 Walker, Orville C., Jr., 122–23 Walker, Patrick D., 282, 284, 358n11 Wall, Howard J., 604 Wallace, George J., 509n27, 521 Wall Street Journal, 37 Wal-Mart case, 295n6 Warner, Dave, 362n16 Warner, Don C., 222, 440n33 Warren, Charles, 596 Warren, Elizabeth, 536–37, 598n8, 601, 604, 605, 607, 609, 617, 618 Warwick, Jacquelyn, 401n56 Washington, 388, 516 Washington, D.C., 514, 556, 626 Washington Mutual Bank of Seattle, 24n12 Waters, D., 327–28 Waters, W R., 119n22 Waukegan/North Chicago, Illinois, 508, 527n42 Weiss, Andrew, 210, 212, 213, 242, 485n4 Weiss, Lawrence A., 604n18, 610–11 Wells, Beverly, 228 Wells Fargo Bank, NA, 25 Wendel, Jeanne, 158n37, 162n41, 327 Wertenbach, Klaus, 153–54 Westbrook, Jay Lawrence, 601, 604, 605, 607, 617, 618 West Virginia, 501 Wheatley, John J., 516 White, James J., 158, 498 White, Lawrence H., 585 White, Michelle J., 216n38, 590, 601, 603n17, 604, 605, 606, 613, 614, 617 White, Tommye, 633 Whitford, William C., 521 Wiener, Richard L., 633 Wilde, Louis L., 524–25 Williamson, Daniel P., 604, 605, 613, 614, 623 Willingness to accept, 146–48 Willingness to pay, 146–48 Wilshusen, Stephanie M., 605, 609, 618, 624, 630, 634 Wilson, Bart J., 392 Wilson, John O S., 41n7 Winston, Clifford, 571n24 Wisconsin, 626 Wolbers, H L., 220–21 Wolken, John D., 198n21 Women See Marital status; Sex discrimination Worden, Debra Drecnik, 528, 531, 532 World Bank, 245, 257 World War I, 89, 90 World War II, 2, 31, 417n3 Wright, Joshua, 541 Xiaojie, Li, 396–97 Yang, Lien-Shay, 353n1 Yeager, Frederick C., 598 Yelowitz, Aaron, 607n21 Yezer, Anthony M J., 213, 452, 522–23, 529–30, 532 Yieh, Kaili, 326 Yoo, Peter S., 305 Younger consumers See College students Zandi, Mark, 268n25 Zeiler, Kathryn, 146–48 Zeldes, Stephen P., 42n8, 607n21 Zhang, Yan, 452 Zinman, Jonathan, 164n43, 388, 392, 393–94, 395 Zorn, Peter M., 629n31 Zywicki, Todd J., 113, 126, 156, 170, 288n2, 295n6, 359n12, 418, 516, 534, 536, 585, 593, 595, 596, 597, 599, 602n14, 604, 606, 607, 611, 615, 617, 618, 619, 623 ... of Consumer Credit Use Consumer Credit and the News Media Conclusions The Demand for Consumer Credit Emergence of Modern Consumer Credit Development of the Economics of Consumer Credit Demand... measures: total and components, 1980–2012 Consumer credit growth and mortgage credit growth, 1946–2012 Consumer credit outstanding relative to consumers’ financial assets, total assets, and net worth,... Behavioral Analysis and the Demand for Consumer Credit Cognitive Models of Consumers’ Credit Decisions Rationality of Credit Card Debt Conclusions The Supply of Consumer Credit Financial Intermediation