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)
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, L15working papers series
Date posted: September 26, 2013 ; Last revised: April 29, 2014
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