Credit card policies for allocating payments
its impact on risk-based pricing and comprehension by consumers
DOI:
https://doi.org/10.61190/fsr.v18i3.4950Keywords:
Credit cards, Payment, Allocation, PricingAbstract
Credit card borrowers can have balances on the same card at several different rates at once. By choosing a favorable method of allocating payments to balances, issues can substantially raise the interest rates paid by borrowers. The impact of this policy on risk-based pricing is examined using computer-simulated accounts. It is found that the prevailing policy used by issues causes inverse risk-based pricing. In addition, a survey shows that few credit acrd users understand the impact of payment allocation. The impact of recent legislation on payment allocation policy is also examined.
Downloads
Published
Issue
Section
License
Copyright (c) 2009 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.
This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.
