Mandated Disclosures and Interest-rate Ceilings on Credit Cards: How the Patchwork of Legislation and the Design of Credit Card Contracts Undermine the Effectiveness of Regulation

In several jurisdictions, rules on interest rate ceilings usually treated under the concept of “usury laws” are an important part of the regulation of consumer credit, not without a constant controversy about the real bene ts to debtors, especially those with fewer resources. At rst glance, the Chilean regime of interest rate ceilings seems to be particularly robust since it considers four di erent legal sanctions if a lender charges a higher interest than allowed: (1) a criminal penalty, (2) a contractual sanction consistent with reducing the interest rate applicable to the operation, (3) an infraction of the Consumer Protection Act that enables the consumer-debtor to bring a civil liability case before the court, and (4) an administrative penalty imposed by the Chilean banking supervisor, the latter being incorporated in the most recent amendment to the act governing credit transactions of money, along with a new set of ceilings, based upon di erent amounts and types of loans. Notwithstanding the foregoing, and as we will discuss in this paper, in the case of credit cards, a review of some of the terms and conditions widely used in the market suggests that the design that suppliers have given their contracts, along with certain terminological vagueness in the regulation currently in force, provides scenarios of possible circumvention of the law. In addition, from a comparison between the substantive regulation of lending and duties of (mandated) disclosure of information in consumer credit contracts, we will highlight certain areas of discrepancy (if not downright contradiction) between these regulations that a ect how consumers can perceive the costs associated with the use of credit cards. *J.D. Universidad de Chile. Lawyer at Legal Department, Unit of Credit Unions and Non-Bank Financial Institutions Superintendency of Banks and Financial Institutions (SBIF). All the views expressed on this paper are personal opinions and do not convey any institutional view of SBIF.7 [email protected]