Consumer Demand for Credit Card Services
48 Pages Posted: 6 Mar 2018 Last revised: 6 Feb 2022
Date Written: March 1, 2018
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