Credit Card Accountability
New York University School of Law
Erin F. Delaney
Northwestern University - Pritzker School of Law
October 8, 2010
University of Chicago Law Review, Vol. 73, p. 157, 2006
NYU Law and Economics Research Paper No. 05-14
The dramatic expansion in consumer credit, particularly through the ready availability of credit cards, raises significant questions about checks on potentially unscrupulous behavior. In democratized markets characterized by large sellers and small transaction consumers, there is the risk that marginal charges may impose costs not worth the consumer's bother, but amounting in the aggregate to significant gains for the seller. This article examines the problem of insufficient regulatory responses as a result of the creation of effective barriers against deterrence-based oversight of the credit card market. The first barrier is the ability of small states to export favorable treatment of banks issuing credit cards under the National Banking Act and the role of federal preemption in foreclosing any response by other states. The second is the spreading use of binding arbitration clauses precluding class actions by most major credit card companies in their agreements, thereby effectively threatening any ex-post accountability for misbehavior.
This article is a first cut examination of the role of ex post accountability as a form of weak paternalistic regulation, regulatory responses that leave wide berth for contractual initiatives ex ante but demand effective checks after the fact. From this perspective, we suggest these impediments to collective enforcement mechanisms are of sufficient consequence as to require exacting judicial scrutiny. The recent decision by the California Supreme Court views arbitration clauses from a functional perspective, one that assesses both the vulnerability of consumers and the availability of meaningful means of redress. Ultimately, the California court's decision may provide the best method of achieving some accountability within the boundaries of weak paternalism.
Number of Pages in PDF File: 27
Keywords: credit cards, class actions, behavioral law and economics
JEL Classification: K10, K41, K42
Date posted: August 26, 2005 ; Last revised: September 24, 2013