Consumer Credit Fundamentals

269 Pages·2009·1.775 MB·English

by  Steven Finlay (auth.)

Consumer Credit Fundamentals
Also by Steven Finlay
THE MANAGEMENT OF CONSUMER CREDIT
Theory & Practice
Consumer Credit Fundamentals
Second Edition
Steven Finlay
© Steven Finlay 2009
Softcover reprint of the hardcover 1st edition 2009 978-0-230-22015-7
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in accordance with the Copyright, Designs and Patents Act 1988.
First edition published 2005
Second edition published 2009 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
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Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth
Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
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the United Kingdom, Europe and other countries
ISBN 978-1-349-30567-4 ISBN 978-0-230-23279-2 (eBook)
DOI 10.1057/9780230232792
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10 9 8 7 6 5 4 3 2 1
18 17 16 15 14 13 12 11 10 09
To Sam and Ruby
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Contents
List of Tables and Figures xiii
Preface xiv
Acknowledgements xvi
1. Introduction 1
1.1 The rise and rise of consumer credit 2
1.2 Consumer credit defined 3
1.3 Boon or bane? 5
1.4 Working with credit 8
1.5 Chapter summary 9
1.6 Suggested sources of further information 10
2. Products and Providers 11
2.1 The features of credit agreements 11
2.2 The cost of credit 13
2.3 Credit products 14
2.3.1 Mortgages 14
2.3.2 Personal loans (installment loans) 16
2.3.3 Retail credit (retail loans) 17
2.3.4 Hire-purchase 17
2.3.5 Card accounts 18
2.3.6 Charge accounts 21
2.3.7 Revolving loans 21
2.3.8 Mail order catalogue accounts 22
2.3.9 Overdrafts 22
2.3.10 Pawning (pledging) 23
2.3.11 Payday loans and cheque cashing services 24
2.4 Productive and consumptive credit 24
2.5 Prime and sub-prime (mainstream and 25
non-mainstream) lending
2.6 Credit products permitted under Islamic (Shari’ah) law 25
2.7 Credit providers 27
2.8 Chapter summary 30
2.9 Suggested sources of further information 32
vii
viii Contents
3. The History of Credit 33
3.1 Ancient origins 33
3.2 The Greek experience 34
3.3 The Romans 36
3.4 The early Church to late middle ages 37
3.5 The Reformation 39
3.6 A modern philosophy of credit 41
3.7 From Victorian necessity to the First World War 42
3.8 Between the wars 47
3.9 The modern age 47
3.10 The impact of technology 51
3.11 Chapter summary 51
3.12 Suggested sources of further information 52
4. Ethics in Lending 54
4.1 The role of ethics in financial services 54
4.2 Ethics – a theoretical overview 56
4.2.1 Utilitarianism 57
4.2.2 Kant’s ethical theory 58
4.2.3 Higher moral authority 59
4.2.4 Natural law, virtue and human rights 59
4.2.5 Ethics in practice 60
4.3 The charging of interest 61
4.4 Interest or usury? 63
4.4.1 Jeremy Bentham’s ‘Defense of Usury’ 63
4.4.2 The principle of reasonable return 68
4.5 A right to credit? 70
4.6 The use of personal information in credit granting 71
decisions
4.7 Over-indebtedness and responsible lending 73
4.8 Chapter summary 76
4.9 Suggested sources of further information 77
5. Legislation and Consumer Rights 78
5.1 The Consumer Credit Acts 1974 and 2006 (UK) 78
5.1.1 Credit license 79
5.1.2 Requirements for a legally binding credit 79
agreement
5.1.3 The right to cancel (right of rescission) 80
5.1.4 Advertising 81
5.1.5 Credit tokens 82
5.1.6 Early settlement 83
Contents ix
5.1.7 Charges for delinquency 84
5.1.8 Court action to recover debt 84
5.1.9 Repossession of goods under hire-purchase 86
and conditional sale agreements
5.2 The Enterprise Act 2002 and bankruptcy (UK) 86
5.2.1 The road to bankruptcy 87
5.2.2 After a bankruptcy order has been granted 88
5.2.3 Individual Voluntary Agreements (IVA) 89
5.3 The Data Protection Act 1998 (UK) 89
5.3.1 The right of subject access 91
5.3.2 Data controllers and data processors 92
5.3.3 The right to prevent direct marketing 92
5.3.4 Automated decision making 93
5.4 The Consumer Credit Protection Act 1968 (US) 93
5.4.1 The Truth in Lending Act 1968 93
5.4.2 Garnishment restrictions 94
5.4.3 The Fair Credit Reporting Act 1970 94
5.4.4 The Equal Credit Opportunity Act 1974 95
5.4.5 The Fair Debt Collection Practices Act 1977 95
5.4.6 The Electronic Funds Transfer Act 96
5.5 The Federal Bankruptcy Code 1978 (US) 96
5.5.1 Chapter 7 bankruptcy 97
5.5.2 Chapter 13 bankruptcy 98
5.6 Chapter summary 98
5.7 Recommended sources of further information 99
6. The Economics of Credit and its Marketing 101
6.1 Sources of income 102
6.1.1 Arrangement and account management fees 102
6.1.2 Interest charges 103
6.1.3 Transaction fees 104
6.1.4 Late payment fees, penalty charges and early 104
redemption fees
6.1.5 Insurance 106
6.1.6 Merchant and interchange fees 108
6.2 The costs of providing credit 110
6.2.1 Infrastructure and overheads 110
6.2.2 Cost of funds 112
6.2.3 Bad debt and write-off (charge-off) 114
6.2.4 Fraud 114
6.2.5 Provision (and impairment charges) 115