[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-321060-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-321060-en":130},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","the-bank-credit-card-boom-some-explanations-and-consequences-march-1-1988","The Bank Credit-Card - Boom: Some Explanations and Consequences - March 1, 1988","","Credit-card interest rates remain high because credit-card loans carry greater risk and typically lack collateral. When borrowers default, banks must charge off losses, and recent years show a sharp rise in charge-offs that signals declining credit quality. Despite this, consumer demand and improved bank profit margins drive increased credit-card lending, supported by market segmentation, mass marketing, and the ability to use card payment histories for future lending and marketing.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/the-bank-credit-card-boom-some-explanations-and-consequences-march-1-1988/321060/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/the-bank-credit-card-boom-some-explanations-and-consequences-march-1-1988/321060.png","ImageObject",300,407,{"name":42,"@type":43},"Logic","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-23","2026-09-21",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",8,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69],{"name":60,"@type":61,"acceptedAnswer":62},"Why do credit-card interest rates stay high compared with other bank loans?","Question",{"text":63,"@type":64},"Credit-card loans generally lack collateral and involve higher risk. 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Banks also use segmentation, mass-mailing, and card-related information for marketing and future credit decisions.","https://schema.org",{"og:url":32,"og:type":75,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":77,"canonical":32},"index,follow",{"doc_id":79,"site_id":7},321060,1790169826,{"code":4,"msg":82,"data":83},"success",[84,88,92,96,101,106,111,114,119,122,126],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":85,"show_sort_weight":86,"slug":87},"Story & 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Explanationsand Consequences  \nby Paul R.Watro  \nInfinancialacivies,there is tradeoff between risk and return.Thehigher the risk,the greater therequired return  \nThis fundamental principle helpsexplain why credit-card interest ratesare still in the 17-18 percent range,even though rates on most otherkinds of bank loans have fallen significantly since the early 1980s.  \nCredit-card loans have higher interestrates because they generally lack col-lateral and involve more risk.If suchloans are not repaid,banks often mustcharge them off and suffer a loss.  \nIn the last three years,the rate of suchcharge-offs has more than doubled,indicating a decline in credit quality.In spite of this,however,strong con-sumer demand and attractive profitmargins have led to greater creditcard lending by banks.  \nThis increased lending comes at atimewhen fewer potential customers arewithout credit cards and when banksare using market segmentation to com-bat the more intense competition,which has made growth in credit-cardoperations more expensive.  \nIn view of the expense,the risk,andthe higher rate of charge-offs,arebanks acting irrationally when they tryto increase their credit-card lendingbusiness?The answer depends on thetrade-off between risk and return.  \nIn this article,we discuss factorsbehind the surge in credit-card lending,and identify factors related torisk-taking that help explain whysome banks have higher charge-offrates than others.  \n# ■ Consumer Demand\n\nConsumer spending has propelledeconomic growth,particularly in theearly years of the current economicexpansion,which began in November1982.1 Rising income levels andimproved wealth positions have con·tributed to increased consumerspending.Consumers have also beenborrowing more.For instance,consumer installment debt as a percen-tage of disposable personal incomerose from 14 percent in 1982 to over18 percent in the last year or two.  \nCredit cards have been the fastest-growing form of consumer credit.Inthe last five years,credit-card balanceshave more than doubled and nowaccount for nearly 25 percent of allconsumer installment debt,compared  \nMarch 1,1988  \nWhat is behind the surge in credit-card lending and the sharp rise incredit-card charge-off rates at banks?Factors related to risk-taking helpexplain why some banks have highercharge-off rates than others.  \nto 20 percent in 1982.This growthhas occurred even though lenderscharge higher rates on credit-cardloans than on other consumer loans,such as auto loans.One reason forthe higher rates is that credit-cardcredit has no collateral.²If the cardholder defaults,the credit-card issueris without recourse against the mer-chandise purchased with the card.  \nThe growing popularity of creditcards may be attributed to many fac-tors.From a user standpoint,accep-tance,convenience,safety,and flexi-bility have encouraged consumers tomake greater use ofcharge cards.Credit-card transactions provide userswith a convenient way to maintainrecords for tax and other purposesand a way to minimize the risk andfinancial cost of carrying large cash  \nbalancesCredit cards might even besuperior to checks or cash for sometransactions,such as those in foreigncountries and those over the tele-phone and through the mail.  \n# ■ Banks'Role\n\nSpurred by growing consumerdemand,high returns,and decliningcommercial lending profits,manybanks have placed greater emphasison consumer lending,especially oncredit-card lending.As a percentageof total ban loans,credit-card receiv-ables jumped from 3 percent in 1982to over 5 percent by year-end 1986Banks now hold close to two-thirds ofthe credit-card outstanding balances,up from just over one-half in 1982.  \nTechnological advances,economies ofscale,deregulation,and favorable mar-ket conditions have encouraged lenders to mass-market credit on a nationwide basis.Banks issuing credit cardsface sizable volume requirements inorder to achieve profitability becauseof high operating costs.This is whymany ban","cbCaikUtbLwPNNXV","https://ap.wps.com/l/cbCaikUtbLwPNNXV","pdf",1478205,"English","# Consumer Demand\n## Credit-card growth and consumer borrowing\n## Reasons for higher interest rates\n# Banks' Role\n## Mass marketing and economies of scale\n## Credit limits, incentives, and riskier consumers\n## Marketing, information, and earnings","[{\"question\":\"Why do credit-card interest rates stay high compared with other bank loans?\",\"answer\":\"Credit-card loans generally lack collateral and involve higher risk. Losses from defaults often lead banks to charge off amounts, requiring higher returns.\"},{\"question\":\"What do rising charge-off rates indicate about credit quality?\",\"answer\":\"The rate of charge-offs has more than doubled, indicating a decline in credit quality.\"},{\"question\":\"What factors help explain why banks expanded credit-card lending despite higher risk?\",\"answer\":\"Strong consumer demand and attractive credit-card profit margins encouraged greater lending. Banks also use segmentation, mass-mailing, and card-related information for marketing and future credit decisions.\"}]","The Bank Credit-Card - Boom: Some Explanations and Consequences - March 1, 1988 | PDF",1789958320,18]