Credit Cardholders’ Bill of Rights Act of 2009: a discussion of commodity

NOTE: This will be first in a 3 part series on this topic.


As is my want, reading the extensive online analysis of H.R. 627 has caused my brain to wander off in strange tangential directions. This post started as a mini-rant and has turned into something much longer and more in-depth. As such, and as noted above, it is the first in a series on the topic.

By now, you are no-doubt, aware of H.R. 627 which has passed the House and Senate and been presented to the President for signature. This bill, known (somewhat) affectionally, as the “Credit Cardholders’ Bill of Rights Act of 2009” is incredibly intriguing.

It is tempting to discuss my view on the impact that this could have on the credit market…to compare and contrast to other countries who have passed similar legislation…to wax poetic about our political system in general. However, there is substantial detailed analysis that can be found about the bill (from both perspectives). For me, it was a post on Credit Slips that prompted the next few days of blogging. I will note that the author, Adam Levitin, is someone who I always find compelling to read…regardless of whether I agree or disagree with his stance.

The quote is as follows (and the post in its entirety is here):

The key thing to remember in credit card regulation is that we are regulating a commodity. BoA’s credit is just as good as Citi’s (and not just because they are both taxpayer-brand credit…) Commodities should be all about price competition and standardization. Credit is simply the flip-side of insurance, and standardized contracts are a hallmark of insurance regulation (and one of the things insurance regulation does right.) The card industry does everything it can to avoid commodization–lots of bundling and not-very-meaningful add-on features–but in the end let’s recognize that cards are just an access device to the ultimate commodity–credit–and regulate on those grounds with an eye to making an ultra-efficient commodity market.

“we are regulating a commodity”

Let that sink in for a second. Do you agree? Is credit issuance a commodity play?

Let’s begin with a definition of the term “commodity”.

4: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price – Merriam Webster

By that definition, and by others I found in my old econ textbooks, I agree wholeheartedly. But what impact does this have?

Keep in mind that credit issuance is only one part of the equation. There is an ecosystem of participants involved with the credit market…the cardholder and issuer are the most obvious. But, one cannot forget the Merchant, Acquirer, Card Association (sometimes called network), and Processor.**

My contention has been…and remains…that if credit issuance is a commodity, then credit processing, credit acceptance, and merchant account sales are also a commodity. If there is price compression on the front-end, there is inherently price compression throughout the rest of the network.

In tomorrow’s installment I will provide both experiential and concrete examples of this competition based solely on price.

The question, then, becomes whether there is an opportunity for competition in a commoditized market. And if this opportunity exists, how is it captured? Welcome to the preview of the third installment in this series.

In the interim, I ask that you undertake the following mental exercise and let me know your thoughts.

1) Do you agree with Adam Levitin’s assertion that credit issuance is a commodity?
2) If yes, does this have an impact on the remainder of the ecosystem?

As a brief aside***, there are a few learning tools (beyond those in the asterisked section below) that you may find useful. The entirety of the bill is available for your reading pleasure using the Thomas system. You can find the XML output (easier than clicking next on their HTML format) here. I will note that when I lasted viewed the XSL was a bit horked (a technical term) so there was some unfortunate table tags on display.

What’s your perspective? Agree? Disagree? Anything to add? Critiques? The comment form is below…

*The image is a wordle of the full text of the bill.
**If you aren’t familiar with these terms, allow me a brief plug of a course I taught for Microsoft (targeted at developers) entitled Understanding Electronic Commerce. You can obtain the materials from several locations:

***And, as a brief rant, read Section 512 of the bill. Reportedly widely so I will refrain from excessive commentary…seem out of place to anyone else? A brief quote is as follows:

(b) Protecting the Right of Individuals To Bear arms in Units of the National Park System and the National Wildlife Refuge System- The Secretary of the Interior shall not promulgate or enforce any regulation that prohibits an individual from possessing a firearm including an assembled or functional firearm in any unit of the National Park System or the National Wildlife Refuge System…

May 22, 2009

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