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Regulating Consumer Financial Products: Evidence from Credit Cards

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  • Sumit Agarwal
  • Souphala Chomsisengphet
  • Neale Mahoney
  • Johannes Stroebel

Abstract

We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a difference-in- differences research design and a unique panel data set covering over 160 million credit card accounts, we find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 1.7% of average daily balances, with a decline of more than 5.5% for consumers with FICO scores below 660. Consistent with a model of low fee salience and limited market competition, we find no evidence of an offsetting increase in interest charges or a reduction in volume of credit, although we are unable to analyze longer-run effects on investments or industry structure. Taken together, we estimate that the CARD Act fee reductions have saved U.S. consumers $12.6 billion per year. We also analyze the CARD Act requirement to disclose the interest savings from paying off balances in 36 months rather than only making minimum payments. We find that this "nudge" increased the number of account holders making the 36-month payment value by 0.5 percentage points on a base of 5.7%.

Suggested Citation

  • Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2013. "Regulating Consumer Financial Products: Evidence from Credit Cards," NBER Working Papers 19484, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19484
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    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G0 - Financial Economics - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • 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
    • L0 - Industrial Organization - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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