FIN 5567/369 Spring 2015
Unit 5: Credit Cards Required for both G and UG: Benson and Loftesness, Ch. 5, “Core Systems: Cards” (sections dealing with credit cards). This chapter covers both credit cards and debit cards. The sections of the chapter on debit cards are assigned in Unit 6. Evans and Schmalensee, Ch. 3, pp. 53-67; Ch. 5, pp. 115-124; Ch. 6, pp. 149-156. This reading has useful background on the evolution of credit cards in the United States, starting with the Diner’s Card in the 1950s. As you may have gathered already, Evans and Schmalensee generally side with the card networks on issues such as interchange fees and no-surcharge rules. Mann, Ch. 2, pp. 20-28; Ch. 7. This reading fills in some of the details missing from the previous two. It also has a good discussion of why credit cards have been used more in the U.S. than other countries. and why merchants should be allowed to charge different prices based on the payment system they use. King, “Chip and Pin: Success and Challenges in Reducing Fraud,” Federal Reserve Bank of Atlanta, January 2012 (posted on BB), pp. 1-4 only. This reading provides a fuller explanation than Benson and Loftesness of chip-and-pin cards, which are more secure than traditional mag stripe cards. Chip-and-pin cards have long been used in Europe and are just now being introduced in the U.S. Heun, “Why Target’s CEO Changed His Mind about EMV,” American Banker, Jan. 22, 2014 (posted on BB) This article explains why the movement to chip-and-pin cards will not eliminate all forms of payment card fraud, including data beaches like the one at Target. Required for G, optional for UG: Evans and Schmalensee, Ch. 5, pp. 129-132; Ch. 11, 285-291. This reading discusses at greater length the controversy over whether credit card interchange fees are excessive, as asserted by merchants and denied by the card networks and banks.
Mann, Ch. 11. This selection makes a good case for allowing merchants to impose surcharges on credit card use if it costs them more to accept such payments. Douglass, “An Examination of the Fraud Liability Shift in Consumer Card-Based Payment Systems,” Economic Perspectives, Federal Reserve Bank of Chicago, 2009:Q1, “Allocation of payment card fraud liability: Public laws and private rules,” pp. 44-47. This reading provides a clear explanation of fraud liability rules for consumer card payments, distinguishing between credit card and debit card payments and between card- present and card-not-present payments. It also considers whether these rules provide adequate incentives to consumers, merchants, and card issuers to prevent fraud.
