Bank Credit Card Charges and the Interest Free Period: Balancing Equity and Efficiency

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Abstract:

Regulators have for some time been concerned about the high interest rates and charges levied by credit card system operators, as well as the shifting of the incidence of some of their costs by cross subsidizing parts of their operation. While Regulators have attempted to address the problem of crosssubsidies linked with the interchange fee, no serious attempt has been made to address the related issue of who pays for the interest free period enjoyed by some credit card users. This paper highlights the emergence of a curious form of upside down equity, whereby the poor (those unable to pay their debts within the interest free period and hence subject to interest charges and various penalties), are being made to subsidise the rich (those who pay in time and hence able to enjoy the interest free period). The paper recommends the adoption of a user pay system as a means of overcoming this upside down equity problem.

Document Type: Research Article

Publication date: January 1, 2007

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  • Until 2007 the King's Law Journal was known as the King's College Law Journal. It was established in 1990 as a legal periodical publishing scholarly and authoritative Articles, Notes and Reports on legal issues of current importance to both academic research and legal practice. It has a national and international readership, and publishes refereed contributions from authors across the United Kingdom, from continental Europe and further afield (particularly Commonwealth countries and USA). The journal includes a Reviews section containing critical notices of recently published books.
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