The Unprecedented Fall in U.S. Revolving Credit

McMaster University Economics, 2020-05

53 Pages Posted: 8 Jun 2020

Date Written: May 11, 2020


Revolving credit in the U.S. declined drastically in the last decade after several years of upward trending growth. We show that the Ability to Pay provision of the Credit CARD Act of 2009, which places restrictions on credit card limits, accounts for this decline. Extending a model of revolving credit to analyze this policy, we account for changes in credit statistics by income and age. Although the goal was consumer protection, the policy has led to welfare losses. Even consumers with time inconsistent preferences who could benefit from tighter credit constraints are worse off. An alternative policy considered by policymakers - an interest rate cap - improves welfare.

Keywords: Revolving Credit, Credit Limits, Ability to Pay, Credit CARD Act

JEL Classification: E21, E44, E65, G28, G50

Suggested Citation

Raveendranathan, Gajendran and Stefanidis, Georgios, The Unprecedented Fall in U.S. Revolving Credit (May 11, 2020). McMaster University Economics, 2020-05, Available at SSRN: or

Gajendran Raveendranathan (Contact Author)

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4

HOME PAGE: http://

Georgios Stefanidis

York University ( email )

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