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The Unprecedented Fall In U.S. Revolving Credit

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  • Gajendran Raveendranathan
  • Georgios Stefanidis

Abstract

After decades of consistent growth, U.S. revolving credit declined drastically post 2009. We study the Ability to Pay provision of the Credit CARD Act of 2009, a policy that restricts credit card limits, as a contributing factor. Extending a model of revolving credit lines, we find that the policy accounts for 54–60% of the decline in revolving credit. Furthermore, the policy accounts for lower utilization rates despite tighter credit limits and higher spreads despite lower default risk. The policy's goal of consumer protection is achieved for a few consumers with time‐inconsistent preferences; most individuals are hurt.

Suggested Citation

  • Gajendran Raveendranathan & Georgios Stefanidis, 2025. "The Unprecedented Fall In U.S. Revolving Credit," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(1), pages 393-451, February.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:1:p:393-451
    DOI: 10.1111/iere.12727
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