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Consumer Demand for Credit Card Services

Author

Listed:
  • Daniel Grodzicki

    (Office of the Comptroller of the Currency)

  • Alexei Alexandrov
  • Özlem Bedre-Defolie

    (European School of Management and Technology (ESMT) and CEPR)

  • Sergei Koulayev

    (Amazon)

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.

Suggested Citation

  • Daniel Grodzicki & Alexei Alexandrov & Özlem Bedre-Defolie & Sergei Koulayev, 2023. "Consumer Demand for Credit Card Services," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(3), pages 273-311, June.
    • Handle: RePEc:kap:jfsres:v:63:y:2023:i:3:d:10.1007_s10693-022-00381-4
    DOI: 10.1007/s10693-022-00381-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial decision making; Credit cards;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G50 - Financial Economics - - Household Finance - - - General

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