Together the three characteristics suggest that credit card debt endangers the financial health of the middle class. There has been much complaint about the fact that card issuers obtain relatively little information about consumers before issuing lines of credit of thousands of dollars. About half of all new solicitations are pre-approved, indicating that the decision to extend credit has been made with no information other than a zip code or ordering preferences from mail order catalogues. To a large extent, all the issuers know is that the debtor has had an income of a certain amount and a payment record identified by a credit agency as good, fair, or poor. Although lack of pre-issuance investigation is a serious problem, this complaint overlooks the more profound difference between traditional loans and credit card credit.
Traditional loans are discrete, but a credit card invites a continuous flow of borrowing.
Most issuers, it appears, make little or no attempt to review the borrower's financial status after the initial issuance of the card except to raise the limit. The result is an absence of the credit judgment we have traditionally associated with lending, an almost complete disconnection between the circumstances of the borrower and the granting of the credit at the time it is granted. For credit cards the premium is the minimum payment. The credit line is extended on an actuarial basis, like insurance. The issuer is lending to a category of people, most of whom will pay.