Consumer Credit and the American Economy

Chapters 1 to 5 discuss types, trends, and basic economics and psychology of consumer credit use, including credit demand, credit supply, theories from behavioral economics, and financial intermediation. Chapters 3 and 4 focus on how credit use can be productive for individuals (that is, wealth-increasing when there is a positive net present value to the transaction) and how it can change the timing of consumption to a preferred pattern. Individuals intuitively realize this, and survey evidence suggests that most uses of consumer credit involve productive purposes. Some uses of consumer credit may on occasion be less productive, even to the point of involving some sort of underlying irrational decision making, but irrationality is by no means the expectation or the norm. Chapters 5 to 8 then examine in considerable detail the credit production process known as financial intermediation. These chapters review how the development of consumer credit and its institutions reflect ongoing attempts to reduce the cost of the production process leading to technological change, evident in credit scoring, credit bureaus, and credit cards. Chapter 8 looks closely at specialized credit products sometimes known as fringe products. Chapters 9 to 13 examine the nature and effects of federal and state regulation of consumer credit. Chapter 12 includes ancillary products such as debt protection, including credit insurance, and a credit substitute in the form of automobile leasing. Chapter 13 examines what happens when things go seriously wrong, the domain of credit counseling and the consumer bankruptcy system. Chapter 14 provides a conclusion.