A Tale of Two Vintages: Credit Limit Management Before and After the CARD Act and Great Recession

Santucci, Larry

doi:10.2139/ssrn.2566746

Cited by 4 publications

(5 citation statements)

References 19 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…where R n j2 (i) and R o j2 (i) denote the best interest rate offers borrower i expects to receive at the beginning of period 2. 34 In a rational expectations equilibrium, we should have…”

Section: Period 2 Borrower Choicementioning

confidence: 99%

“…They also find that offered credit limits fell and interest rate spreads increased disproportionately among subprime consumers. This appears to be reflected in banks' credit card line management strategies before and after the CARD Act and the Great Recession (Santucci, 2015). Nelson (2018) estimates a structural model using data before enactment of the CARD Act equilibrium and then imposes the CARD Act's price restrictions to study how the market responds.…”

mentioning

confidence: 99%

See 1 more Smart Citation

Dynamic Pricing of Credit Cards and the Effects of Regulation

2022

View full text Add to dashboard Cite

We construct a two-period model of revolving credit with asymmetric information and adverse selection. In the second period, lenders exploit an informational advantage with respect to their own customers. Those rents stimulate competition for customers in the first period. The informational advantage the current lender enjoys relative to its competitors determines interest rates, credit supply, and switching behavior. We evaluate the consequences of limiting the repricing of existing balances as implemented by recent legislation. Such restrictions increase deadweight losses and reduce ex ante consumer surplus. The model suggests novel approaches to identify empirically the effects of this law.

show abstract

“…where R n j2 (i) and R o j2 (i) denote the best interest rate offers borrower i expects to receive at the beginning of period 2. 34 In a rational expectations equilibrium, we should have…”

Section: Period 2 Borrower Choicementioning

confidence: 99%

mentioning

confidence: 99%

Dynamic Pricing of Credit Cards and the Effects of Regulation

2022

View full text Add to dashboard Cite

show abstract

“…Nelson (2018) examines how restrictions on re-pricing credit card rates affected the competitive equilibrium. Santucci (2015) compares credit accounts originated before the CARD Act and the Great Recession to accounts originated afterward and finds that the latter accounts had lower initial credit lines and received smaller increases. Elliehausen and Hannon (2018) find evidence that credit card lending may have declined for high-risk consumers, who may have substituted other sources of credit.…”

Section: Introductionmentioning

confidence: 99%

Income and the CARD Act’s Ability-to-pay Rule in the US Credit Card Market

Fulford,

Stavins

2024

Federal Reserve Bank of Boston Research Department Working Papers

View full text Add to dashboard Cite

In consumer credit, "ability-to-pay" (ATP) rules require lenders to consider whether the consumer can repay a loan without experiencing undue hardship. ATP rules have recently been implemented or considered in many countries and markets. Using a large panel of credit card accounts, we study the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act's ATP rule and its effect, if any, on the US credit card market. We find that the rule appears to have had no effect on bank credit decisions because actual credit limits are almost always substantially lower than reasonable ATP limits. We examine other factors that may explain banks' credit decisions. Nearly 27 percent of consumer accounts that had a change in cardholder income received a credit limit increase of $100 or more in the same month as the income change. Most credit limit increases followed an income increase, although 19 percent of the instances of an income decrease also were followed by a credit limit increase. Most credit limit increases occurred without cardholders providing banks with income updates. The magnitude of the income change coefficient when an income update occurred is estimated to be nearly zero. We conclude that after the origination of an account, the direction and size of the account holder's income updates are largely unimportant for credit limit changes from either a regulatory or bank profitability standpoint.

show abstract

“…Our results of a reduction in the proportion of available credit from credit cards complement their finding and enhance our understanding of how the CARD Act influenced the debt structure of households. Santucci (2015) conducts a univariate comparison between two vintages of credit card accounts, those opened in 2005 and 2011. He finds that the latter exhibit lower credit limits than the former.…”

Section: Introductionmentioning

confidence: 99%

The Credit Card Act and Consumer Debt Structure

Dou

Jagtiani

Maingi

et al. 2022

LFA

View full text Add to dashboard Cite

We investigate whether the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act 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 non-prime 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 consumer debt declined for non-prime borrowers in comparison to prime borrowers after the introduction of the CARD Act. The decline did not occur before the bill was first introduced in Congress; it took place afterward and continued through the end of our sample period. The results suggest that the CARD Act likely had an adverse effect on non-prime borrowers.

show abstract

A Tale of Two Vintages: Credit Limit Management Before and After the CARD Act and Great Recession

Cited by 4 publications

References 19 publications

Dynamic Pricing of Credit Cards and the Effects of Regulation

Dynamic Pricing of Credit Cards and the Effects of Regulation

Income and the CARD Act’s Ability-to-pay Rule in the US Credit Card Market

The Credit Card Act and Consumer Debt Structure

Contact Info

Product

Resources

About