'The Impact of Consumer Financial Regulation: Evidence from the CARD Act'

This is from Microeconomic Insights, a new "home for accessible summaries of high quality microeconomic research which informs the public about microeconomic issues that are, or should be, in the public’s eye." ( I edited four of the articles, but this is not one of them, Twitter: http://www.twitter.com/micro_econ, RSS: http://microeconomicinsights.org/feed/):

The impact of consumer financial regulation: evidence from the CARD Act: In the wake of the financial crisis, there has been a surge of interest in regulating consumer financial products (e.g., Campbell et al., 2011). In the United States, the 2010 Dodd-Frank “Wall Street Reform and Consumer Protection Act” established a Consumer Financial Protection Bureau to monitor and regulate mortgages, credit cards, and other similar products. In July 2013, the European Commission proposed new legislation to simplify disclosures and tighten guidance requirements for financial products.

Does such regulation benefit consumers? Critics have expressed skepticism about the effectiveness of regulation, while warning of unintended consequences. Proponents argue that it is necessary, as consumer financial markets have become increasingly unfair, with firms taking advantage of consumers’ behavioral biases—such as inattention and present bias—to earn large profits.

In Agarwal et al. (2015), we aim to advance this debate by examining the consequences of one such regulation. We study two aspects of the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States:

• Restrictions on certain types of credit card fees and
• The introduction of a repayment “nudge.”

We find, first, that consumer fees declined after the regulation. But we find no evidence of an offsetting increase in interest rates or the reduced access to credit that critics had warned of (American Bankers Association, 2013).  Second, we find that the repayment nudge had a small but significant effect on consumer behavior.

These findings come from a panel dataset of 160 million credit card accounts held by the eight largest banks in the US. The data include account-level information on contract terms, utilization, and payments at the monthly level from January 2008 to December 2012. They also include consumers with different levels of credit worthiness: about 30% of consumers in our data have a FICO score of “fair or lower” (below 660) and about 17% have a score of “bad” (below 620). ...