Consumer Demand for Credit Card Services

48 Pages Posted: 6 Mar 2018 Last revised: 6 Feb 2022

See all articles by Daniel Grodzicki

Daniel Grodzicki

Office of the Comptroller of the Currency

Alexei Alexandrov

Amazon.com; Independent

Özlem Bedre-Defolie

European School of Management and Technology; Centre for Economic Policy Research (CEPR)

Sergei Koulayev

Consumer Financial Protection Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2018

Abstract

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

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

Daniel Grodzicki

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Alexei Alexandrov (Contact Author)

Amazon.com ( email )

Seattle, WA 98144
United States

Independent

Özlem Bedre-Defolie

European School of Management and Technology ( email )

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Sergei Koulayev

Consumer Financial Protection Bureau ( email )

United States

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