The Credit CARD Act of 2009: What Did Banks Do?

29 Pages Posted: 24 Oct 2013

See all articles by Vikram Jambulapati

Vikram Jambulapati

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Joanna Stavins

Federal Reserve Bank of Boston

Date Written: October 23, 2013

Abstract

The Credit CARD Act of 2009 was intended to prevent practices in the credit card industry that lawmakers viewed as deceptive and abusive. Among other changes, the Act restricted issuers’ account closure policies, eliminated certain fees, and made it more difficult for issuers to change terms on credit card plans. Critics of the Act argued that because of the long lag between approval and implementation of the law, issuing banks would be able to take preemptive actions that might disadvantage cardholders before the law could take effect. Using credit bureau data as well as individual data from a survey of U.S. consumers, we test whether banks closed consumers’ credit card accounts or otherwise restricted access to credit just before the enactment of the CARD Act. Because the period prior to the enactment of the CARD Act coincided with the financial crisis and recession, causality in this case is particularly difficult to establish. We find evidence that a higher fraction of credit card accounts were closed following the Federal Reserve Board’s adoption of its credit card rules. However, we do not find evidence that banks closed credit card accounts or deteriorated terms of credit card plans at a higher rate between the time when the CARD Act was signed and when its provisions became law.

JEL Classification: D14, D18, G28

Suggested Citation

Jambulapati, Vikram and Stavins, Joanna, The Credit CARD Act of 2009: What Did Banks Do? (October 23, 2013). FRB of Boston Public Policy Discussion Paper No. 13-7, Available at SSRN: https://ssrn.com/abstract=2344336 or http://dx.doi.org/10.2139/ssrn.2344336

Vikram Jambulapati

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Joanna Stavins (Contact Author)

Federal Reserve Bank of Boston ( email )

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Boston, MA 02210
United States
617-973-4217 (Phone)
617-973-4218 (Fax)

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