Borrower Beware: Challenges in Providing and Using Consumer Credit

Padmasini Raman
Federal Housing Finance Agency

Pamela Lee
U.S. Department of Housing and Urban Development

The views expressed in this introduction are those of the guest editors and do not necessarily reflect the official positions or policies of the Federal Housing Finance Agency, Federal Housing Administration, U.S. Department of Housing and Urban Development, or U.S. government.

The provision of consumer credit is a critically important part of the U.S. economy. Since 1987, consumer spending has accounted for more than two-thirds of gross domestic product (GDP) and, in recent history, has averaged roughly 70 percent of GDP. Consumer spending is a key driver of economic growth, fueling demand for goods and services, which, in turn, generates jobs. This growth in consumer spending has been facilitated by the development of the consumer financial services sector, enabling households to leverage their assets and smooth consumption over time. The use of consumer financial services, including various kinds of debt instruments, has become a backbone of the U.S. economy. Access to consumer credit (including mortgage debt) has emerged as a critical bridge that must be crossed to access the mainstream economy, which in turn requires that consumers possess adequate credit histories and demonstrate their ability to manage such credit. Historically, however, the path to the provision and use of consumer credit has been uneven and strewn with pitfalls. Credit costs and access vary, and information asymmetries abound, making the path perilous for all but the savviest borrowers.