Abstract
We examine the effect of the U.S. Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 on the credit card lending rate pass-through. Our findings show that the Act had no impact on the long-term relationship between the lending rate and funding costs. However, in the short-term, banks were quicker to raise rates in response to an increase in funding costs after the implementation of the CARD Act. Our study shows that financial regulations can have unintended consequences.
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Source Nilson Report
Source Federal Reserve Bank of St. Louis (2018)
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Notes
Source: Survey of Consumer Finance (2018). A survey by NerdWallet showed that the outstanding credit card balance was US$944 billion in December 2018. Credit cards provide more than US$3 trillion in open credit lines for unsecured loans. About three-fifths of the approximately 85 million American households with credit cards use credit card loans at least once. About 60% of U.S. credit card households tend to actively use credit card to borrow.
Source: Federal Reserve Bank of New York (2017).
Source: www.debt.org (2017).
Source: CEIC.
FICO score: FICO score is a kind of credit score established by the Fair Isaac Corporation. Institutions take advantage of borrowers' FICO scores as well as some detailed information on their credit reports to evaluate credit risk. FICO consists of five main factors: payment history, current liabilities, credit type, time span of credit history and newly opened credit account.
Loan-to-value is a financial ratio of a loan to the value of an asset, e.g., property, purchased. Higher ratio means higher default risk exposure for the lender.
Source: The Credit Card Accountability Responsibility and Disclosure Act of 2009.
Even though the ADF test statistics for LIBOR and Treasury rates are significant at 5% level, both the PP and Zivot-Andrews test statistics indicate that these two series consist of a single unit-root. Therefore, overall we conclude that all the series consist of a single unit-root.
While the Johansen test produces results for both long-run and short-run relationships, it does not allow us to estimate the asymmetric short-term pass-through nor asymmetric adjustment of speed. FM-OLS is a non-parametric approach used to handling serial correlation.
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Liu, MH., Liu, T., Shrestha, K. et al. The impact of financial regulation on the stickiness of credit card lending rate: evidence from the USA. Rev Quant Finan Acc 57, 1195–1213 (2021). https://doi.org/10.1007/s11156-021-00975-4
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DOI: https://doi.org/10.1007/s11156-021-00975-4