Consumer Demand for Credit Card Services

51 Pages Posted: 19 Dec 2017

See all articles by Alexei Alexandrov

Alexei Alexandrov

Independent; affiliation not provided to SSRN

Özlem Bedre-Defolie

European School of Management and Technology; European University Institute - Economics Department (ECO); European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for a Digital Society; Centre for Economic Policy Research (CEPR); University of Bergen

Daniel Grodzicki

Office of the Comptroller of the Currency

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

We estimate how demand for credit card transacting, borrowing, and late payment responds to the interest rate and late payment fee. We find that lower rates increase borrowing and lower fees increase late payments. Prime cardholders demand for all services is decreasing in any price. In contrast, subprime cardholders borrow less when fees drop, a response consistent with models of limited attention. We calculate that a 2 percentage point rise in the Federal Funds rate decreases borrowing by 16 percent, or $130 billion, that this effect is greater in higher income communities, and that it exhibits geographic agglomeration.

Suggested Citation

Alexandrov, Alexei and Alexandrov, Alexei and Bedre-Defolie, Özlem and Grodzicki, Daniel, Consumer Demand for Credit Card Services (December 2017). CEPR Discussion Paper No. DP12506, Available at SSRN: https://ssrn.com/abstract=3089763

affiliation not provided to SSRN

Özlem Bedre-Defolie

European School of Management and Technology ( email )

European University Institute - Economics Department (ECO) ( email )

Villa La Fonte
Via delle Fontanelle 18
Florence, Fiesole 50014
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for a Digital Society ( email )

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bergen ( email )

Muséplassen 1
N-5008 Bergen, +47 55 58
Norway

Daniel Grodzicki

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

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