Consumer credit code disclosure: Does it work?

Since 1996 all consumer credit transactions in Australia have been regulated by the Consumer Credit Code. The principal means by which the Code purports to protect consumers and prevent market failure is a detailed and prescriptive disclosure regime. There has been little empirical work done on whether or not such disclosure actually improves consumers’ understanding of their credit contracts. By exposing participants to typical consumer credit documents, this research discovered quite poor comprehension of important features of the relevant transactions. Most significantly, there appeared to be little difference in comprehension when the consumers read contracts which complied with the disclosure requirements of the Code, and when they read contracts which did not. These results cast doubt on the effectiveness of the Code disclosure regime.

Micro-Foundations of Financialization. Status Anxiety and the Market for Consumer Credit in Chile

This project investigates why people in Chile acquired so much consumer debt in contexts of material prosperity, and asks what the role of inequality and commodification is in this process. The case raises an important challenge to the literature. Insofar as existing accounts assume that the financialization of consumption occurs in contexts marked by wage stagnation and a general deterioration of the middle classes, they engender two contradictory explanations: while political economists argue that people use credit in order to smooth their consumption in the face of market volatility, economists maintain that concentration of wealth at the top pushes middle income consumers to emulate the expenditures of the rich and consume beyond their means. These explanations do not necessarily fit the reality of developing countries. Triangulating in-depth interviews with middle class families, multivariate statistical analysis and secondary literature, the project shows that consumers in Chile use credit to finance “ordinary” forms of consumption that do not aim either at coping with market instability or emulating and signaling status to others. Rather, Chileans use department store credit cards in order to acquire a standard package of “inconspicuous” goods that they feel entitled to have. From this point of view, the systematic indebtedness of consumers originates in a major concern with “rank”, “achievement” and "security" that – following De Botton -- I call “status anxiety”. Status anxiety does not stem from the desire to emulate rich consumers, but from the impossibility of complying with normative expectations about what a middle class family should be (and have) that outweigh wage improvements. The project thus investigates the way in which “status anxiety” is systematically reproduced by means of two broad mechanisms that prompt people to acquire consumer debt. The first mechanism generating debt stems from an increase of real wages and high levels of inequality. It is explained by a general sociological principle known as relative deprivation, which points to the fact that general satisfaction with one´s income, possessions or status, is assessed not in absolute terms such as total income, but in relation with reference groups. In this sense, I explore the mechanisms that operate as catalyzers of relative deprivation, by making explicit social inequalities and distorting the perception of others´ wealth. Despite upward mobility and economic improvement, Chileans share the perception of “falling behind,” which materializes in an “imaginary middle class” against which people compare their status, possessions and economic independence. Finally, I show that the commodification of education, health and pension funds does not directly prompt people to acquire consumer debt, but operate as “income draining” mechanisms that demand higher shares of middle class families’ “discretionary income.” In combination with “relative deprivation,” these “income draining” mechanisms leave families with few options to perform their desired class identities, other than learning how to bring resources from the future into the present with the help of department store credit cards.

The Cash discount act : the Fair credit practices act : hearing before the Subcommittee on Consumer Affairs of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, Ninety-sixth Congress, second session, on H.R. 6928 ... H.R. 7038 ... April 23, 1980.

Mode of access: Internet.

Amendments to the Fair Credit Reporting Act : hearing before the Subcommittee on Consumer Affairs and Coinage of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, One Hundred First Congress, second session, June 12, 1990.

Mode of access: Internet.

Catching up with consumer realities: the need for legislation prohibiting unfair terms in consumer contracts

In the policy debate about the need for legislation to prohibit the use of unfair terms in consumer contracts, substantive unfairness is often distinguished from procedural unfairness. Current consumer protection laws appear to offer the potential for relief on substantive unfairness grounds alone. However, a review of cases involving credit contracts shows this potential is rarely realised. This reluctance to provide relief for substantive injustice reflects a preoccupation with freedom and certainty of contract, the notions underpinning classical contract theories. As a class, consumers are vulnerable in the marketplace, and they do need protection from substantively unfair terms. A new framework for regulating consumer contracts is needed, one that relies less on classical contract theories and takes the reality of consumer contracting and consumer behavior as its starting point. Unfair contract terms legislation will be a step on the path towards this new framework.

Phase two of the National Credit Reforms : examining the regulation of payday lenders

This study seeks to analyse the adequacy of the current regulation of the payday lending industry in Australia, and consider whether there is a need for additional regulation to protect consumers of these services. The report examines the different regulatory approaches adopted in comparable OECD countries, and reviews alternative models for payday regulation, in particular, the role played by responsible lending. The study also examines the consumer protection mechanisms now in existence in Australia in the National Consumer Credit Protection Act 2009 (Cth) (NCCP) and the National Credit Code (NCC) contained in Schedule 1 of that Act and in the Australian Securities and Investments Commission Act 2001 (Cth).

Revisiting the Australian code of banking practice: Is self-regulation still relevant for improving consumer protection standards?

The Code of Banking Practice is one of the oldest examples of consumer protection provided through self-regulation in the Australian financial services sector. However, since the Banking Code was first released in 1993, the volume of consumer protection legislation applying to banks has increased exponentially and parts of the Banking Code that once provided new consumer rights have now been largely superseded by legislation. In light of the increasingly complex set of laws and regulations that govern the relationship between banks and their consumer and small business customers it could be argued that the Banking Code has a limited future role. However, an analysis of the Banking Code shows that it adds to the consumer protection standards provided by legislation and can continue to facilitate improvements in the standards of subscribing banks and of other institutions in the financial services sector. Self-regulation and industry codes should continue to be part of the regulatory mix. Any regulatory changes that flow from the recent Financial System Inquiry should also facilitate and support the self-regulation role, but the government should also consider further changes to encourage improvements in industry codes and ensure that the implicit regulatory benefits that are provided, in part, because of the existence of industry codes, are made explicit and made available only to code subscribers.

Socialized credit and the working-class family economy: a comparative history of Britain and France 1900-2000

This paper provides a comparative analysis of working class consumer credit in Britain and France from the early twentieth century through to the 1980s. It indicates a number of similarities between the two nations in the earlier part of the period: in particular, in the operation of doorstep credit systems. For the British case study, we explore consumer finance offered by credit drapers (sometimes known as tallymen) whilst in France the paper explores a similar system that functioned in the coalmining communities around the city of Lens. Both methods operated on highly socialised relationships that established the trust on which credit was offered and long-term creditor/borrower relationships established. In the second part of the paper, we analyse the different trajectories taken in post-war France and Britain in this area of working class credit. In France this form of socialized credit gradually dwindled due to factors such as ‘Bancarisation’, which saw the major banks emerge as modern bureaucratized providers of credit for workers and their families. In contrast, in Britain the tallymen (and other related forms of doorstep credit providers) were offered a new lease of life in the 1960s and 1970s. This was a period during which British credit providers utilised multiple methods to evade the hire purchase controls put in place by post-war governments. Thus, whilst the British experience was one of fragmented consumer loan types (including the continuation of doorstep credit), the French experience (like elsewhere in Europe) was one of greater consolidation. The paper concludes by reflecting on the role of these developments in the creation of differential experiences of credit inclusion/exclusion in the two nations and the impact of this on financial inequality.

Congratulations, you're pre-approved! : an analysis of credit limit upselling letters

Consumer Action commissioned Dr Paul Harrison, Deakin Business School, Deakin University and Marta Massi, School of Marketing and Communication, Lumsa University (Rome), to study the psychological aspects of one form of credit marketing – unsolicited credit card limit-increase offers (UCCLIOs). The researchers studied 21 UCCLIO letters – 17 provided by consumers and four provided by banks – and applied theories developed from previous research in the fields of marketing, consumer behavior, behavioural economics and cognitive psychology, to describe likely ways in which UCCLIO’s influenced consumer behavior and decision making. The researchers make some recommendations from a behavioural perspective based on their findings, and Consumer Action proposes how these findings might be applied to consumer policy.

Social responsibility and credit availability

There has been a widespread increase in the use of consumer credit and therefore consumer indebtedness. Some of this increase has been within that segment of the population least able to afford debt of any kind – welfare recipients. This qualitative study demonstrates some interesting attitudes to debt, as well as differences in peoples’ perceptions of acceptable debt and their debt-management strategies. This study suggests that action is required by those responsible for the marketing of credit to this vulnerable group and government policymakers to provide a socially responsible approach to manage this societal concern.

Meeting the credit needs of minority communities : hearing before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, Ninety-sixth Congress, second session, May 29, 1980.

"Serial no. 96-65."

Credit practices : final report to the Federal Trade Commission and proposed trade regulation rule (16 CFR part 444) /

"Staff report and recommendation on proposed trade regulation rule. 16 CFR part 444, public record 215-42."

Profiteering in a non-profit industry : abusive practices in credit counseling : hearing before the Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, United States Senate, One Hundred Eighth Congress, second session, March 24, 2004.

Shipping list no.: 2005-0006-P.