Title: What the Proposed Credit Card Regulation Really Means for Consumers

Speaker: Xiao Yu Wang, CRI Foundation

Abstract:

My work addresses the need for a theoretical framework to evaluate proposed caps on credit card interest rates and swipe fees by developing a dynamic model that produces usable insights into the patterns and interdependence of consumer spending, credit use, and repayment choices, merchant pricing and competition, and the contract decisions of card issuers. There are several key innovations. First, I derive conditions under which credit cards increase total spending instead of simply reallocating it (rather than assuming one or the other). This is critical since credit cards are a special type of two-sided platform: the lending aspect means there is scope for increasing transaction value beyond the impact of reducing buying frictions. Second, I explicitly model consumer demand given credit access in equilibrium and show how this affects merchant pricing and entry, rather than assuming fixed merchants or that demand and elasticities for goods purchased with credit cards are invariant in consumer wealth. Third, I study which consumers fall into repayment traps and why. Preliminary results identify overlooked mechanisms and externalities which have important implications for the total and distributional impact of rate caps, fee caps, and increased competition, and for optimal regulation of credit cards in general.

Zoom: https://northwestern.zoom.us/j/93537284594

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