Regulating Consumer Financial Products: Evidence from Credit Cards
National University of Singapore
US Department of Treasury - Office of the Comptroller of the Currency (OCC)
University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)
New York University (NYU)
October 3, 2013
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 an unique panel data set covering over 150 million credit card accounts, we find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 2.8% of average daily balances, with a decline of more than 10% for consumers with the lowest FICO scores. 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 access to credit. Taken together, we estimate that the CARD Act fee reductions have saved U.S. consumers $20.8 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, with a similarly sized decrease in the number of account holders paying less than this amount.
Number of Pages in PDF File: 81
Keywords: Credit Cards, CARD Act, Subprime Credit, Consumer Credit, Salience
JEL Classification: D0, D14, G0, G02, G21, G28, L0, L13, L15working papers series
Date posted: September 26, 2013 ; Last revised: November 21, 2013
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