I cannot pull out the reference but I have read that consumers are very responsive to credit cards; that those who do not carry balances know little about the rate that they would be charge while they know more about the perks they get from using the card, cash back etc.
It is shown that many of those who carry balances on the cards pick cards with lower rates and move balances when rates rise.
Some get trapped but is this trap worse than payday loans? If one over regulates unsecured lines of credit then the supply of unsecured credit will decrease and those in need of it will resort to black markets. The rate on a CC may be high but is far better than the options available 50 years ago. How can rates be low on a population with high default rates?
I don’t know if that was your source, but the empirical results of people selecting CCs based on their usage pattern were mentioned on the Zywicki on Debt and Bankruptcy Econtalk episode starting at 17:40. Zywicki doesn’t mention a specific source for those empirical results in the podcast, but he also included them in The Economics of Credit Cards (page 28ff. of the pdf), which does have sources.
Credit Cards vs Payday Loans and Layaway.
I cannot pull out the reference but I have read that consumers are very responsive to credit cards; that those who do not carry balances know little about the rate that they would be charge while they know more about the perks they get from using the card, cash back etc.
It is shown that many of those who carry balances on the cards pick cards with lower rates and move balances when rates rise.
Some get trapped but is this trap worse than payday loans? If one over regulates unsecured lines of credit then the supply of unsecured credit will decrease and those in need of it will resort to black markets. The rate on a CC may be high but is far better than the options available 50 years ago. How can rates be low on a population with high default rates?
I don’t know if that was your source, but the empirical results of people selecting CCs based on their usage pattern were mentioned on the Zywicki on Debt and Bankruptcy Econtalk episode starting at 17:40. Zywicki doesn’t mention a specific source for those empirical results in the podcast, but he also included them in The Economics of Credit Cards (page 28ff. of the pdf), which does have sources.
Indeed!
A great Econtalk episode. I highly suggest people interested in the topic listen.