Working Paper: NBER ID: w19484
Authors: 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%.
Keywords: Consumer Financial Regulation; Credit Card Fees; CARD Act; Behavioral Economics; Repayment Behavior
JEL Codes: D0; D14; G0; G21; G28; L0; L13; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CARD Act (G28) | overall borrowing costs for consumers (G51) |
| CARD Act (G28) | over-limit fees (G33) |
| CARD Act (G28) | late fees (G14) |
| reduction in over-limit fees (G28) | annual savings for U.S. consumers (D12) |
| reduction in late fees (G51) | annual savings for U.S. consumers (D12) |
| disclosure requirement (G28) | repayment behavior (G51) |
| repayment behavior (G51) | aggregate interest payments (E10) |
| CARD Act (G28) | interest charges (E43) |
| CARD Act (G28) | credit volume (E51) |