publication . Article . 2009

The Cost of Anchoring on Credit-Card Minimum Repayments

Neil Stewart;
Open Access English
  • Published: 01 Jan 2009
  • Publisher: Wiley-Blackwell Publishing, Inc.
  • Country: United Kingdom
Abstract
About three quarters of credit card accounts attract interest charges. In the US, credit card debt is $951.7 billion of a total of $2,539.7 billion of consumer credit. In the UK, credit card debt is £55.1 billion of £174.4 billion of consumer credit. The 2005 US Bankruptcy Abuse Prevention and Consumer Protection Act and the 2003 UK Treasury Select Committee's report require lenders to collect a minimum payment of at least the interest accrued each month. Thus people are protected from the effects of compounding interest. But including minimum payment information has an unintended negative effect, because minimum payments act as psychological anchors.
Subjects
free text keywords: HG, BF, General Psychology, Installment credit, Psychology, Payment, media_common.quotation_subject, media_common, Social psychology, Credit crunch, Chargeback, Credit history, Credit card interest, Credit reference, Credit card
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Author Note Neil Stewart, Department of Psychology, University of Warwick, Coventry, CV4 7AL, UK. Email: neil.stewart@warwick.ac.uk. I acknowledge ESRC grant RES-062-23-0952.

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