What A CARD

Harold Pollock on a relatively unappreciated achievement from the two-year period in which both houses of Congress were controlled by non-wingnuts:

Millions of Americans, particularly those with modest incomes or those who are just starting out, struggle with their credit cards. My wife and I often had high balances when we lived on one modest income and had two kids in day care. My students often face similar issues. More than a few choose not to reveal their monthly credit card bill to their live-in romantic partners.

My favorite finance paper published last year makes clear that struggling with credit cards is not unusual. The study examined 2008–2012 data from a mammoth database of 160 million credit card accounts at America’s eight largest banks to analyze the practical impact of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which Congress passed in 2009. The authors found that the CARD Act was a triumph of financial regulation.

“The CARD Act did two main things,” according to Neale Mahoney, a co-author of the study and my cross-campus colleague at the University of Chicago. “First, it restricted a number of credit card fees. Second, it required credit card issuers to provide information on annual statements that was designed to ‘nudge’ consumers into making larger monthly payments on their cards.”

Mahoney and his co-authors found that the legislation saved consumers $11.9 billion per year, largely by reducing fees imposed on the least sophisticated consumers who have the lowest credit scores.