The Effect of BAPCPA on Credit Card Industry Profits and Prices

American Bankruptcy Law Journal, Vol. 83, No. 1, 2009

26 Pages Posted: 9 Jul 2008 Last revised: 1 Jul 2009

Michael Simkovic

Seton Hall Law School; Harvard Law School - John M. Olin Center for Law and Economics

Date Written: July 8, 2008

Abstract

The U.S. Bankruptcy code changed dramatically with the passage of The Bankruptcy Abuse Prevention and Consumer Protection Act Of 2005. This act increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies at the expense of consumers. This study tests whether the 2005 Bankruptcy Reform: (1) reduced the number of bankruptcies; (2) reduced credit card company losses; (3) lowered the cost to consumers of credit card debt; and (4) increased credit card company profits. The data suggests that although bankruptcies and credit card company losses decreased, and credit card companies achieved record profits, the cost to consumers of credit card debt actually increased. In other words the 2005 bankruptcy reforms profited credit card companies at consumers' expense.

Keywords: Bankruptcy, Credit Card, Credit Cards, Credit, Consumer, Legal Change, Debt, Bankruptcy Reform, Elizabeth Warren, Todd Zywicki, Economics, Finance, Law and Economics, Competitive Markets, Rationality, Bounded Rationality, Behavioral Economics, Free Market, Bankruptcy Tax, Strategic Bankruptcy

JEL Classification: A1, B4, D1, D2, D4, D6, D8, D9, E4, E5, G21, G28, K00, K12, K2, L1, L2, L4, M2

Suggested Citation

Simkovic, Michael, The Effect of BAPCPA on Credit Card Industry Profits and Prices (July 8, 2008). American Bankruptcy Law Journal, Vol. 83, No. 1, 2009. Available at SSRN: https://ssrn.com/abstract=1157158

Michael Simkovic (Contact Author)

Seton Hall Law School ( email )

One Newark Center
Newark, NJ 07102-5210
United States

Harvard Law School - John M. Olin Center for Law and Economics ( email )

Cambridge, MA 02138
United States

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