Consumer Demand for Credit Card Services

We apply a demand-based approach to study consumer behavior in the credit card market. Using a national database of U.S. card accounts, we find consumers internalize both rates and fees when making purchasing, borrowing, and late payment decisions on their card. Moreover, price effects broadly align with a rational model of card use. An exception is less borrowing in response to declining late-fees among subprime consumers. Extension of the rational model based on “focusing theory” explains this behavior. It also implies substantial indirect benefits of the CARD Act’s late-fee cap from subprime users’ re-focusing toward reducing their debt.

JEL Classification: D12, D90, G50

Suggested Citation: Suggested Citation

Grodzicki, Daniel and Alexandrov, Alexei and Alexandrov, Alexei and Bedre-Defolie, Özlem and Koulayev, Sergei, Consumer Demand for Credit Card Services (March 1, 2018). Consumer Financial Protection Bureau Office of Research Working Paper No. 2018-03, Available at SSRN: https://ssrn.com/abstract=3135421 or http://dx.doi.org/10.2139/ssrn.3135421