Contact: John Hartgen
703-739-0800
STUDY:
ENHANCED CREDIT CARD DISCLOSURES NOT LIKELY TO DISCOURAGE OVERSPENDING
BY CONSUMERS
July 5, 2007,
Alexandria, Va. — A recent empirical study, funded in part
by the American Bankruptcy Institute Endowment, reveals that the
enhanced credit card disclosure rules required by the 2005 bankruptcy
law may not be enough to curb consumers’ overuse of credit cards.
The researchers, Richard L. Wiener, Jason A. Cantone,
Michael Holtje, Ryan J. Winter, Susan Block-Lieb
and Karen Gross, conducted their study through an online
experiment to examine the effects of enhanced disclosure required by the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
on the credit card purchasing behavior among a group of consumers who
had filed for bankruptcy and another group that had not. The results of
the study are summarized in their article titled “Psychology and
BAPCPA: Does Disclosure Affect consumer Behavior? A Summary of an
Empirical Investigation,” to be published in the upcoming
July/August 2007 issue of theAmerican Bankruptcy Institute
Journal.
The study challenges the
underlying assumption of the new bankruptcy law and other proposals
presume that consumers who possess more complete credit card
information, such as information on teaser interest rates and minimum
payment obligations, will act rationally to avoid overspending. BAPCPA
amended the Truth in Lending Act to craft disclosure rules for credit
card companies to help curb overspending by consumers. The study looked
to test this rational choice model by examining the role that emotion
plays in consumer spending. “[S]imply enhancing the amount of
information in credit card disclosures is not sufficient to remedy a
consumer’s overuse of credit cards,” concludes the
article.
Specifically, the study found
that consumers who “shop to end bad moods” actually used
their credit cards more and spent more despite their exposure to
enhanced credit card disclosure information. The researchers said that
their study of random debtors from
w:st='on'>Nebraska
w:st='on'>New York City
disclosure to regulate consumer spending should consider the effects of
“mood repair shopping” as a natural outcome of enhanced
disclosure. The study also recommended that further research should be
conducted to explore how consumers make decisions to pay for purchases
and borrow when using their credit cards, as well as to research the
effectiveness of credit counseling and debtor education on consumer use
of credit.
The study was also funded by
the Ford Foundation and the Coalition for Debtor Education. To obtain a
copy of “Psychology and BAPCPA: Does Disclosure Affect Consumer
Behavior? A Summary of an Empirical Investigation,” please contact
or via email at
href='mailto:jhartgen@abiworld.org'>
color='#0000ff' size='3'>jhartgen@abiworld.org.
###
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related to insolvency.
was founded in 1982 to provide Congress and the public with unbiased
analysis of bankruptcy issues. The
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specialists and other bankruptcy professionals, providing a forum for
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