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Automated Credit Limit Increases and Consumer Welfare

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Abstract

In the United States, credit card companies frequently use machine learning algorithms to proactively raise credit limits for borrowers. In contrast, an increasing number of countries have begun to prohibit credit limit increases initiated by banks rather than consumers. In this paper, we exploit detailed regulatory micro data to examine the extent to which bank-initiated credit limit increases are directed towards individuals with revolving debt. We then develop a model that captures the costs and benefits of regulating proactive credit limit increases, which we use to quantify their importance and evaluate the implications for household well-being.

Suggested Citation

  • Vitaly M. Bord & Agnes Kovacs & Patrick Moran, 2025. "Automated Credit Limit Increases and Consumer Welfare," Finance and Economics Discussion Series 2025-088, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2025-88
    DOI: 10.17016/FEDS.2025.088
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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