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The Credit Card Act and Consumer Debt Structure

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  • Yiwei Dou1
  • Julapa Jagtiani
  • Joshua Ronen
  • Ramain Quinn Maingi

Abstract

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.

Suggested Citation

  • Yiwei Dou1 & Julapa Jagtiani & Joshua Ronen & Ramain Quinn Maingi, 2022. "The Credit Card Act and Consumer Debt Structure," Journal of Law, Finance, and Accounting, now publishers, vol. 7(1), pages 91-126, April.
  • Handle: RePEc:now:jnllfa:108.00000058
    DOI: 10.1561/108.00000058
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    References listed on IDEAS

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    1. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2015. "Regulating Consumer Financial Products: Evidence from Credit Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(1), pages 111-164.
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    4. Peter Debbaut & Andra Ghent & Marianna Kudlyak, 2016. "The CARD Act and Young Borrowers: The Effects and the Affected," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1495-1513, October.
    5. Jambulapati, Vikram & Stavins, Joanna, 2014. "Credit CARD Act of 2009: What did banks do?," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 21-30.
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    Cited by:

    1. Dou, Yiwei & Li, Geng & Ronen, Joshua, 2024. "Does the CARD Act affect price responsiveness? Evidence from credit card solicitations," Journal of Banking & Finance, Elsevier, vol. 164(C).

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    More about this item

    Keywords

    CARD Act; credit cards; credit limits; consumer debt; subprime borrowers;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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