Consumer Attitudes Toward Credit Cards
and Card Issuers

Few industries in recent years have been the object of sharper love-hate feelings by their customers than the credit card business. A large majority of Americans own credit cards and use them regularly. At the same time, the public image of card issuers has taken a beating over issues such as excessive late fees, deceptive advertising, encouraging too much debt, marketing to college students, contributing to personal bankruptcy, etc. An article in the September 2000 issue of the Federal Reserve Bulletin contains some fascinating, survey-based observations that explain the source of negative feelings for such a popular product.

In "Credit Cards: Use and Consumer Attitudes: 1970-2000," Federal Reserve Board economist Thomas Durkin summarizes three decades of survey research on credit cards. The 1970-2000 period is a time during which revolving credit outstanding grew from about $2 billion to $626 billion in absolute terms and from 2% to about 43% as a proportion of all consumer (non-mortgage) debt. A substantial portion of the growth in revolving credit's share of total consumer credit has occurred because consumers used credit cards in place of traditional (less convenient) installment loans. Another large component of the growth in revolving balances has been "convenience credit," that is, balances that result from the use of credit cards as a payment device in place of cash or checks. Convenience balances get incorporated into the revolving credit statistics but are actually paid in full when the consumer receives the monthly statement.

In 1970, 51% of U.S. families had a credit card of any kind; by 1998 this was up to 73%. The growth for bank-type credit cards (Visa, MasterCard, Discover, American Express Optima) was even more dramatic, up from 16% in 1970 to 68% by 1998. Over the same period revolving behavior became more commonplace across U.S. households. In 1970, only 6% of families had a bank-type credit card with an outstanding balance after their most recent payment. By 1998, this proportion was up to 37%. However, the percent of families who have bank-type credit cards and who report that they hardly ever pay their revolving accounts in full has not changed much: it was 18% in 1977 and 27% in 1998.

Bank-type credit cards are more frequently held today across all income levels. (See chart below for more detail.) Among families in the lowest income quintile, 2% had such a card in 1970, compared to 28% in 1998. For those in the highest income quintile the percentage nearly tripled from 33% to 95% during the same period. Durkin notes that the size of the revolving balances carried by each income group has grown over the past three decades, but the share of total revolving balances on these cards held by each income group has not changed dramatically, "perhaps contrary to popular impressions." For example, although the percent of families owning bank-type cards in the lowest income group rose sharply, the group's share of total revolving debt on such cards rose only to 5% in 1998, up from 2% in 1970, but still not a large proportion of the total.

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The article used survey information to characterize consumers' overall impressions of their card-using experiences as well as their card issuers and the amount of information made available. Highlights include the following.

• Overall opinions about credit cards are somewhat more negative and polarized in 2000 than they were a generation ago, especially among holders of bank-type cards. Negative attitudes were held by 42% of bank-type cardholders in 2000, as compared to 14% in 1977, an interesting finding given that card usage is much greater today.

• Interestingly, the negative views are somewhat more common among those who use credit cards as credit devices rather than as a payment mechanism (convenience credit). Specifically, cards are viewed less positively by those who have 3 or more cards, have an outstanding balance of more than $1,500, have transferred a balance between cards, hardly ever pay their outstanding balance in full, hardly ever pay more than the minimum or have received a collection call within the past year. This result is consistent with an observation made by economic historian Lendol Calder that, throughout American history, there has been a curious dichotomy in attitudes toward credit and debt: credit is a good thing when you need it but debt is a bad thing when you have it. (See Lendol Calder, Financing the American Dream: A Cultural History of Consumer Credit, Princeton University Press, 1999)

• Further analysis suggests that the current negativity may stem from concerns about other consumers' experience with credit cards, rather than from the individual's own experiences. Bank-type cardholders in the most recent survey (January 2000) believe that too much credit is available, that consumers are confused about some issuer practices, and that credit card users have difficulty getting out of debt. A bit more than half said that issuers should not be allowed to market to college students. They also believe that consumers bring on themselves many of the problems associated with credit cards: 90% agree to some extent that overspending is the fault of consumers, not of card issuers.

• The evidence does not suggest that these negative views arise from bad personal experiences. Consumers opinions about their own relations with their current card issuers are much more favorable than their opinions about the relations of consumers in general. Nine out of 10 bank-type cardholders said they are satisfied with their dealings with card companies, that their companies treat them fairly, and that it is easy to get another card if they are not treated fairly. Almost 7 in 10 trust that their own card companies would keep their personal information confidential, substantially more than the percent who believe that card companies in general show enough concern about protecting privacy. Durkin concludes that "this reversal from their views about consumers' experience in general suggests considerable concern over the behavior of others and possibly a belief that "I can handle credit cards, but other people cannot."

• Only 8% of all respondents and 7% of bank-type cardholders think that obtaining information on credit terms is very difficult. The survey asked whether card companies "usually gave enough information to people to enable them to use their cards wisely." Only about 46% of bank-type cardholders said yes. Further analysis showed that respondents who were not strongly negative (concerned) about other consumers were somewhat more likely to believe that issuers give cardholders enough information. The follow-up analysis suggests that there is a mild bias exerted on this question by those who hold stronger concerns about "the other guy" in the card market.

• Bank-type cardholders who didn't think banks gave enough information were asked "what kind of information do you think would be helpful?" Responses are summarized in the table nearby, and suggest a concern about the clarity of information already available. Those who said that more information would be helpful seem to be also saying that they do not understand the information already provided, since many of the features that they said would be helpful - clear statement of interest rates and change in rates, and a clear definition of fees for cash advances and other services - are already required by disclosure regulations. This raises the question for policymakers as to whether the required information provided now is so extensive and frequent that it has become overwhelming.

Source: Federal Reserve Bulletin, September 2000, p.633; Surveys of Consumers.
Note: Respondents were allowed to answer with up to two responses.