Abstract

http://ssrn.com/abstract=2330942
 
 

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Regulating Consumer Financial Products: Evidence from Credit Cards


Sumit Agarwal


National University of Singapore

Souphala Chomsisengphet


US Department of Treasury - Office of the Comptroller of the Currency (OCC)

Neale Mahoney


University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Johannes Stroebel


New York University (NYU)

April 2014


Abstract:     
We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a difference-in-differences research design and a unique panel data set covering over 160 million credit card accounts, we find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 1.7% of average daily balances, with a decline of more than 5.5% for consumers with FICO scores below 660. Consistent with a model of low fee salience and limited market competition, we find no evidence of an offsetting increase in interest charges or a reduction in volume of credit, although we are unable to analyze longer-run effects on investments or industry structure. Taken together, we estimate that the CARD Act fee reductions have saved U.S. consumers $12.6 billion per year. We also analyze the CARD Act requirement to disclose the interest savings from paying off balances in 36 months rather than only making minimum payments. We find that this "nudge" increased the number of account holders making the 36-month payment value by 0.5 percentage points on a base of 5.7%.

Number of Pages in PDF File: 69

Keywords: Credit Cards, CARD Act, Subprime Credit, Consumer Credit, Salience

JEL Classification: D0, D14, G0, G02, G21, G28, L0, L13, L15

working papers series


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Date posted: September 26, 2013 ; Last revised: April 29, 2014

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Mahoney, Neale and Stroebel, Johannes, Regulating Consumer Financial Products: Evidence from Credit Cards (April 2014). Available at SSRN: http://ssrn.com/abstract=2330942 or http://dx.doi.org/10.2139/ssrn.2330942

Contact Information

Sumit Agarwal
National University of Singapore ( email )
15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)
HOME PAGE: http://www.ushakrisna.com
Souphala Chomsisengphet
US Department of Treasury - Office of the Comptroller of the Currency (OCC) ( email )
400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)
Neale Mahoney
University of Chicago Booth School of Business ( email )
5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Johannes Stroebel (Contact Author)
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
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