Consumer Demand for Credit Card Services

47 Pages Posted: 6 Mar 2018 Last revised: 13 Jan 2021

See all articles by Daniel Grodzicki

Daniel Grodzicki

Penn State Economics

Alexei Alexandrov

Independent

Özlem Bedre-Defolie

European School of Management and Technology

Sergei Koulayev

Consumer Financial Protection Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2018

Abstract

We introduce a model of a rational credit card user's rather complex usage choices and develop an empirical framework to test its predictions. Employing a large national database of U.S. card accounts, we estimate how prices impact card usage and find that price effects are mostly well explained within our model. An exception is less borrowing in response to declining late-fees among low credit-score (subprime) users. Extension of our model based on "focusing theory" predicts this behavior. It also implies substantial indirect bene fits of the CARD Act's late-fee cap due to subprime users re-focusing toward reducing their debt.

JEL Classification: D12, D90, G50

Suggested Citation

Grodzicki, Daniel 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

Daniel Grodzicki

Penn State Economics ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Özlem Bedre-Defolie

European School of Management and Technology ( email )

Sergei Koulayev

Consumer Financial Protection Bureau ( email )

United States

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