Why are credit card rates sticky?
This paper investigates credit card rate stickiness using a screening model of consumer credit markets. In recent years, while the cost of funds has fallen, credit card rates have remained stubbornly high, spurring legislators to consider imposing interest rate ceilings on credit card rates. The model incorporates asymmetric information between consumers and banks, regarding consumers' future incomes. The unique equilibrium is one of two types: separating (in which low-risk consumers select a collateralized loan and high-risk consumers select a credit card loan), or pooling (in which both types of consumers choose credit card loans). I show that a change in the banks' cost of funds can have an ambiguous effect on the credit card rate, so that the credit card rate need not fall when the cost of funds does. Usury ceilings on credit card rates are detrimental to consumer welfare, so would be counter to their legislative intent.
(This abstract was borrowed from another version of this item.)
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1993|
|Contact details of provider:|| Postal: 10 Independence Mall, Philadelphia, PA 19106-1574|
Web page: http://www.philadelphiafed.org/
More information through EDIRC
|Order Information:|| Web: http://www.phil.frb.org/econ/wps/index.html Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:93-16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul)
If references are entirely missing, you can add them using this form.