Comparative analysis of credit card regulation: the United States and Peru

AutorVictor de la Flor
CargoEstagiário no Centro de Estudos de Direito do Consumo de Coimbra em cooperação com a Universidade do Arizona
RPDC , Setembro de 2015, n.º 83
Revista Portuguesa
de Direito do Consumo
I. Introduction
In general, credit cards improve economic efciency and economic growth1. Nowadays,
consumers can purchase goods with credit cards from virtually everywhere (e.g. through
1 Scott Schmith, credit card market: economic BenefitS and induStry trendS (2008), available at http://
Estagiário no Centro de Estudos de Direito
do Consumo de Coimbra em cooperação
com a Universidade do Arizona
Doutorando na Universidade do Arizona
RPDC , Setembro de 2015, n.º 83
Revista Portuguesa
de Direito do Consumo
e-commerce or while travelling around the world), which incentives free trade of goods
and market expansion not only for consumers but also for suppliers. Besides, credit-card-
based transactions can be made rapidly and more safely than paper-based transactions,
without incurring in higher costs2. These features of the credit card market — among
others — promote an efcient economy3. Furthermore, credit cards are an alternative
for people to get into the banking system. Bancarization is regarded as “the level of
access to and the degree of use of nancial services generally and banking ser vices in
particular”4. When people have access to credit cards they get the liquidity they require
to meet their periodic needs. Consumers might acquire certain goods with their credit
cards that they cannot acquire otherwise and delay the respective payment for a certain
agreed amount of time. Also, the massive use of credit cards boosts the nancial system,
and a sound nancial system contributes to human development. Hence, bancarization
has a positive correlation with economic growth5. In addition, the use of credit cards
might be a preferable alternative than other less desirable credit options as pawn shops
or rent-to-own stores which may be too expensive6 and may have certain objectionable
ways of debt collection7. Therefore, the use of credit cards promotes welfare not only at
a macroeconomic level but also at a microeconomic level.
Given the positive aspects of credit cards it is not difcult to see why different
countries have and promote very active credit card markets. In this paper we will analyze
the American and the Peruvian credit card markets as well as some regulatory provisions
2 ronald J. mann, charging ahead: the growth and regulation of Payment card marketS 11–13 (Cambridge
University Press 2006).
3 See Schmith, supra note 1 (indicating, for instance, that electronic payment networks have the potential
to provide cost savings of at least 1 percent of GDP annually over paper-based systems through increased
velocity, reduced friction, and lower costs.)
4 aleJandra anaStaSi et al., Bancarization and determinantS of availaBility of Banking ServiceS in argentina (2006)
at 3, available at
5 See id. at 5–6 (showing empirical evidence of the positive correlation between bancarization and
economic growth)
6 See Angela Littwin, Testing the Substitution Hypothesis: Would credit card regulations force low-income
borrowers into less desirable lending alternatives?, 2009 u. ill. l. rev. 403, 437 (2009) (stating that as of
mid-1990s, pawn shop interest rates averaged over 200% per year).
7 For instance, with “loan sharks” people might be physically injured when the lender wants to collect his
debt. See id. at 449.
RPDC , Setembro de 2015, n.º 83
Revista Portuguesa
de Direito do Consumo
of their markets. We will see that those markets are fairly different but they have similar
issues as the existence of consumer biases and imperfect information that need to be
regulated to minimize the negative effects on their markets.
In Part II we will briey mention the existing aws in the credit card market. Then,
we will compare both markets and analyze the most relevant regulatory provisions they
have in order to determine the appropriateness of each solution. The most suitable
solution might be considered as a better practice for the other country. Afterwards, we
will propose some steps that might be taken to improve their regulatory framework. We
take into account that the last objective of regulation is to enhance consumers’ well-being
without meaningfully restricting issuers’ freedom or decreasing market’s efciency.
II. A brief explanation about credit card markets aws
Credit card markets have aws that prevent them from accomplishing their objectives
of promoting economic efciency and consumers’ well-being. Consumers might have a
deviation in judgment when acting in the market due to cognitive biases. These biases
prevent consumers from acting in their own interest due to defects in their decision-
making process8. The most relevant and common ones that make people more likely to
misuse credit cards are the self-control bias and the unrealistic optimism bias9. These
biases would likely lead them to be in nancial distress10. First, the self-control bias makes
people to “overestimate their ability to resist the temptation to nance consumption
by borrowing”11. A self-control biased person typically is a hyperbolic discounter who
is very likely to overestimate his will-power and underestimate his future borrowing12.
Usually this person thinks that he will not borrow on his credit card but in the end he
8 Joshua Wright and Douglas Ginsburg, Free to Err? Behavioral Law and Economics and its Implications
to Liberty, liBrary of law and liBerty (Feb. 16, 2012),
9 Even though cognitive biases studies have not been thoroughly developed in Peru, we strongly think that
those biases might be fairly applicable to Peruvian consumers.
10 See Oren Bar-Gill, Seduction by Plastic, 98 nw. u. l. rev. 1373, 1375–77 (2004) (showing the behavioral
biases that results in the underestimation of future borrowing); see also Cass R. Sustein, Boundedly Rational
Borowing, 73 u. chi. l. rev. 249, 251–54 (2006) (explaining biases that contribute to excessive borrowing).
11 Bar-Gill, id. at 1394.
12 Id. at 1396.

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