Regulating Consumer Financial Products: Evidence from Credit Cards

67 Pages Posted: 26 Sep 2013 Last revised: 28 Aug 2014

Sumit Agarwal

Georgetown University - Department of Finance

Souphala Chomsisengphet

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); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

Abstract

We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act. We use a panel data set covering 160 million credit card accounts and a difference-in-differences research design that compares changes in outcomes over time for consumer credit cards, which were subject to the regulations, to changes for small business credit cards, which the law did not cover. We estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1.6% of average daily balances, with a decline of more than 5.3% for consumers with FICO scores below 660. We find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit. Taken together, we estimate that the CARD Act saved consumers $11.9 billion per year. We also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments. We detect a small increase in the share of accounts making the 36-month payment value but no evidence of a change in overall payments.

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

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

Suggested Citation

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

Sumit Agarwal

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
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HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

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 )

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Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Johannes Stroebel (Contact Author)

New York University (NYU) ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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United States

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

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