The Credit Card Act and Consumer Debt Structure

We investigate whether the Credit Card Accountability, Responsibility, and Disclosure (CARD) of 2009 influenced the debt structure of consumers. By debt structure, we mean the proportion of total available credit from credit cards for each consumer. The act enhances disclosures of contractual and related information and restricts card issuers’ ability to raise interest rates or charge late or over-limit fees, primarily affecting subprime borrowers. Using the credit history via the Federal Reserve Bank of New York/Equifax Consumer Credit Panel during 2006–2016, we find that the average ratio of credit limit on cards to total available credit declined for subprime borrowers in comparison to near-prime and prime borrowers after the introduction of the CARD Act. The decline did not occur before the bill was first proposed by the Federal Reserve and introduced in Congress; it took place afterward and continued through the end of our sample period. The results suggest unintended consequences as the CARD Act likely had an adverse effect on subprime borrowers.