Academic journal article The Journal of Consumer Affairs

Helping Consumers Choose a Credit Card

Academic journal article The Journal of Consumer Affairs

Helping Consumers Choose a Credit Card

Article excerpt

This article focuses on consumers' use of information to choose credit cards. The objectives are to describe a Canadian governmental information program on credit card costs and present the results of a study designed to test the effectiveness of specific modifications in the information presentation format. For many people, the credit card has become a practical and natural way of purchasing consumer goods and services. Since the late 1970s the growth in use of credit cards in the United States and Canada has been substantial. In 1977 in Canada, there were 8.18 million bank ards (Visa and MasterCard) in circulation representing $3.61 billion in sales transactions. In 1988, the number of bank cards possessed by Canadian consumers had risen to 19.40 million with $30.33 billion in sales (Turner 1989). nearly ten percent of all consumer transactions are made with bank cards. These figures attest to the importance of credit card usage as a consumption phenomenon.

The utilization of credit cards incurs potential financial costs. Financial institutions may charge customers a fixed fee per annum or per transaction and interest on monthly balances not paid in full. The interest rate applied in these cases is usually much higher than the bank rate. For example, the Visa-bank rate spread in Canada at the end of September 1989, was 7.52 percentage points (Turner 1989). Consumers may end up paying more than necessary because they do not understand how interest charges are computed by card issuers. Information about fees, interest rates, and methods of calculating interest charges is often incomplete and hard to understand (Edwards 1982). Policy-makers see the lack of informaton about credit card costs as a threat to market competitiveness and to consumer interests. The Fair Credit and Charge Card Disclosure Act of 1988 passed by the U.S. Congress represents governmental intervention aimed at providing consumers cost information on credit cards at the time they are solicited by card issuers. The Act requires the disclosure of the annual percentage rate, fees, grace period, and balance calculation method associated with any credit card.

In Canada, there is no specific legislation on credit cards, although a recent report of the Standing Committee on Consumer and Corporate Affairsn and Government Operations recommends that the method of interest calculation be regulated and that a limit on credit cards' interest rates be imposed (Turner 1989). In 1987, however, the Canadian government showed its concern for credit card issues by creating a program to provide consumers with regularly updated information on credit card costs. Three times a year, the Department of Consumer and Corporate Affairs Canada (CCAC) makes available to the general public the most recent data on interest rates, grace periods, and moment at which interest charges begin for 16 bank cards (e.g., Bank of Montreal MasterCard), 12 retail cards (e.g., Sears' card), and seven charge cards like American Express. In this article, an evaluation of CCAC's consumer information program as it pertains to bank credit cards (only) is presented. An empirical study designed to examine the effects of modifications in the information presentation format is reported.


Since its inception in 1987, the CCAC information program on credit card costs has pursued the objective of informing consumers on a continuous basis about the costs involved in using credit cards so that they are able to make informed choices among the credit cards available to them (Consumer and Corporate Affairs Canada 1990). The CCAC report presents comparison information on credit cards in a matrix array (Table 1).


One presumed advantage of the CCAC information table is that it reduces the costs (time, money, frustration, etc.) that consumers must assume in order to get comparison data to make informed and eventually better choices. …

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