Critic charges credit cards pose product liability issue

By Jeremy M. Simon

Credit cards allow millions of consumers to borrow money, making purchases they might not otherwise be able to afford.  To finance their credit card programs, card issuers charge interest on the loans they provide to consumers.  The interest rates on these loans are based on the risk represented by the cardholder, with consumers who are less likely to pay back these unsecured loans charged a higher rate.

As such, credit cards are a tool for consumers and a way to earn revenue for the credit card companies.

But a criticism leveled against the credit card industry by Adam J. Goldstein in the University of Illinois Law Review is that credit cards could be subject to a case of products liability, based upon legal theories of defective design.  Goldstein's article is titled, "Why 'It Pays' to 'Leave Home Without It': Examining the Legal Culpability of Credit Card Issuers Under Tort Principles of Product Liability." 

With credit cards' minimum payment feature, a consumer's overall indebtedness increases while the banks benefit from the high interest assessed on the revolving balance, Goldstein argues.  He writes, "Because the goal of products liability is to force manufacturers to internalize the costs associated with product risks, it follows that credit-card features that have minimum payment structures should be recognized as defects."

A key principle of product liability is that the product's design is defective and that safer alternatives exist.  He comments that a unique feature of credit cards is the that "they allow debt to be incurred bit by bit, in a series of charges, none of which exceed $20 or $30 each, that can amass quickly into thousands of dollars."

Goldstein, who is a former editor of the Illinois Law Review and now works for a Chicago law firm, has other complaints about the credit card industry, as well.  He attacks the fact that even those with bad credit histories, bankruptcies in their pasts or low incomes will be approved for credit cards with overly-generous credit lines and high-interest credit.

He also challenges way credit cards are marketed and the incentive programs that encourage overspending and debt.  Separately, he cites evidence that college students are especially vulnerable to credit card debt, which can result in poor grades, dropping out and trouble finding a job due to the increasing use of credit checks for job applicants.

Published: June 12, 2007

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