Unintended Consequences of the Credit Card Act

Ronen, Joshua; Pinheiro, Tiago

doi:10.1561/108.00000006

Cited by 9 publications

(4 citation statements)

References 20 publications

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“…This study adds to the debate on the costs and benefits of the CARD Act (Bar-Gill and Bubb, 2012;Jambulapati and Stavins, 2014;Agarwal et al, 2015;Debbaut, Ghent, and Kudlyak, 2016;Pinheiro and Ronen, 2016;Han et al, 2018;Elliehausen and Hannon, 2018;Dou, Li, and Ronen, 2019;Nelson, 2020). Bar-Gill and Bubb (2012) and Agarwal et al (2015) find that the act effectively reduced late and over-limit fees.…”

Section: Introductionmentioning

confidence: 88%

The Credit Card Act and Consumer Debt Structure

Dou

Jagtiani

Maingi

et al. 2022

LFA

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We investigate whether the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 influenced the debt structure of consumers. By debt structure, we mean the proportion of total available credit from credit cards for each consumer.The act enhances disclosures of contractual and related information and restricts card issuers' ability to raise interest rates or charge late or over-limit fees, primarily affecting non-prime borrowers. Using the credit history via the Federal Reserve Bank of New York/Equifax Consumer Credit Panel during 2006-2016, we find that the average ratio of credit limit on cards to total consumer debt declined for non-prime borrowers in comparison to prime borrowers after the introduction of the CARD Act. The decline did not occur before the bill was first introduced in Congress; it took place afterward and continued through the end of our sample period. The results suggest that the CARD Act likely had an adverse effect on non-prime borrowers.

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Section: Introductionmentioning

confidence: 88%

The Credit Card Act and Consumer Debt Structure

Dou

Jagtiani

Maingi

et al. 2022

LFA

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“…The CARD Act prompted an active line of research on its effectiveness and broader impact on the credit card market. In the theoretical domain, Pinheiro and Ronen (2016) and Tam 2011show that the Act's restrictions reduce consumer welfare by, among other things, increasing average interest rates, hence resulting in lower levels of households borrowing. The empirical findings of the Act's cost-and-benefit analysis are somewhat mixed.…”

Section: The Card Actmentioning

confidence: 99%

“…2 Second, unlike the fine-print terms that consumers may often overlook or ignore (such as international transaction fees), the regular purchase interest rate (often referred to as the "go-to rate") is one of the top-line terms that the offers saliently highlight and it directly impacts consumers' borrowing decisions (Agarwal, Chomsisengphet, Mahoney, and Stroebel, 2015;Gabaix and Laibson, 2006). Third, extant research demonstrates that individual consumers face substantial search and switching costs (Calem and Mester, 1995;Kuchler, 2017;Pinheiro and Ronen, 2016;Stango, 2002). This potentially mutes observed manifestations of rate competition in existing credit card accounts (Stango and Zinman, 2016).…”

Section: Introductionmentioning

confidence: 99%

“…intended benefits in terms of fee reductions (Agarwal et al, 2015;Bar-Gill and Bubb, 2012). On the other hand, a number of recent papers (Debbaut et al, 2016;Han et al, 2018;Jambulapati and Stavins, 2014;Levitin, 2011;Pinheiro and Ronen, 2016) suggest the Act may have limited credit supply, in particular to subprime borrowers. We show that weakened competition may add up to a yet additional cost of the Act, thereby contributing to a more comprehensive assessment of the legislation.…”

Section: Introductionmentioning

confidence: 99%

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Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations

Dou¹,

Li²,

Ronen

2019

FEDS

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We study the unintended consequences of consumer financial regulations, focusing on the CARD Act, which restricts consumer credit card issuers' ability to raise interest rates. We estimate the competitive responsiveness-the degree to which a credit card issuer changes offered interest rates in response to changes in interest rates offered by its competitors-as a measure of competition in the credit card market. Using small business card offers, which are not subject to the Act, as a control group, we find a significant decline in the competitive responsiveness after the Act. The decline in responsiveness is more pronounced for competitors' reductions, as opposed to increases, in interest rates, and is more pronounced in areas with more subprime borrowers. The reduced competition underscores the potential unintended consequence of regulating the consumer credit market and contributes toward a more comprehensive and balanced evaluation of the costs and benefits of consumer financial regulations.

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Key Lessons for the Design of Consumer Protection Legislation

Becher

2021

Law and Economics of Regulation

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Unintended Consequences of the Credit Card Act

Cited by 9 publications

References 20 publications

The Credit Card Act and Consumer Debt Structure

The Credit Card Act and Consumer Debt Structure

Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations

Key Lessons for the Design of Consumer Protection Legislation

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