IDEAS home Printed from https://ideas.repec.org/a/now/jnllfa/108.00000006.html
   My bibliography  Save this article

Unintended Consequences of the Credit Card Act

Author

Listed:
  • Pinheiro, Tiago
  • Ronen, Joshua

Abstract

This article evaluates the impact on consumer welfare of the constraints on increasing interest rates present in the Credit Card Act. We develop a model of consumer financing in a setting where information asymmetry between a consumer and a lender arises over time and triggers adverse selection. We find the competitive equilibrium of this setting and show that restrictions on increasing the interest rate, as in the Credit Card Act, are welfare decreasing for a large set of parameters. The Card’s restrictions lead to higher credit card interest rates for low credit-quality consumers and lower credit limit for high credit-quality consumers; these negative effects on welfare are only partially offset by lower up-front fees. We find similar results when we extend our analysis to settings in which consumers have limited rationality.

Suggested Citation

  • Pinheiro, Tiago & Ronen, Joshua, 2016. "Unintended Consequences of the Credit Card Act," Journal of Law, Finance, and Accounting, now publishers, vol. 1(1), pages 93-138, April.
    • Handle: RePEc:now:jnllfa:108.00000006
    DOI: 10.1561/108.00000006
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/108.00000006
    Download Restriction: no
    File URL: https://libkey.io/10.1561/108.00000006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yiwei Dou & Geng Li & Joshua Ronen, 2019. "Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations," Finance and Economics Discussion Series 2019-018, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:jnllfa:108.00000006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.