New research suggests risk-based pricing stemming from the CARD Act (2009) and Fed 2008 credit card rule-makings have produced a 50% drop in annual credit card originations to lower-risk-score Americans.
The new study by a senior fellow and a research associate at the Harvard Kennedy School of Government’s Mossavar-Rahmani Center for Business and Government, also found originations to high-score consumers edged 1.3 million accounts per year higher.
However, despite the regulatory surge, the share of U.S. households dissatisfied with their credit cards remained low between 2001 and 2012 (6% vs. 8%, respectively). In fact, 73% report that cards make personal financial management easier.
The report finds mitigating regressive trends in credit card access and use would likely not contribute meaningfully to household debt levels, which have grown sharply in recent years due to an uptick in student loan debt. Instead, mitigating unintended regulatory impacts would improve economic mobility and growth.
Credit cards are essential for small business financing. Nearly 1 in 5 small businesses with one to nine employees report using revolving balances on personal credit cards to finance expenses.
Americans unable to obtain a credit card will likely be pushed into more expensive and widely available forms of credit. Notably, there were more payday lenders than McDonald’s in the U.S. in 2012.
The CFPB reports that nearly half of Americans in low-income neighborhoods have no credit score. Regressive credit card trends can worsen this, impeding economic mobility.
The research recommends some bans on risk-based pricing be removed and that the CFPB should be transformed into a bipartisan FTC-like commission. The authors also call for a repeal of the Durbin Amendment, and for cost-benefit analysis at U.S. financial regulators to prevent regressive unintended consequences.
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