Consumer Credit and Competition: The Puzzle of Competitive Credit Markets

"Consumer credit markets in the US present a puzzle. As competing explanations are offered for the recent sub-prime mortgage crisis and skyrocketing default rates for unsecured consumer credit, two seemingly inconsistent facts confound the discussion. While consumer credit markets are, by all accounts, competitive, consumers find themselves saddled with unsustainable amounts of debt that accrues interest at rates that are exorbitant. How could these two situations exist simultaneously? It is an article of antitrust faith that competitive markets are good for consumers. In a world of competitive markets, there is a limited role for consumer protection. So long as products are transparent, then consumer preferences, price competition and the invisible hand should produce market nirvana."