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Tuesday, February 09, 2010

"Fine Print, Deceptive Pricing, and Buried Tricks"

How bad is the asymmetric information problem in credit card markets? This is from Wall Street's Race to the Bottom, by Elizabeth Warren, arguing for a Consumer Financial Protection Agency. She describes what happened when Citigroup offered its credit card customers a better deal:

Wall Street executives explain privately that they cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share.
Citigroup ... in 2007 ... decided to clean up its credit card just a little bit by eliminating universal default—the trick that allowed it to raise rates retroactively, even for consumers that did nothing wrong. Citi's reform resulted in lower revenues and no new customers, triggering an embarrassing public reversal.

Citi explained sheepishly that credit cards were now so complicated that customers couldn't tell when a company offered something a little better. So Citi went back to something a little worse...

[See also Elizabeth Warren Calls Out Wall Street by James Kwak.]

    Posted by on Tuesday, February 9, 2010 at 12:36 AM in Economics, Financial System, Market Failure, Regulation | Permalink  Comments (77)


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