Description:
The CARD Act restricts consumer credit card issuers’ ability to raise interest rates. We examine whether the Act influences the degree to which an issuer adjusts offered interest rates in response to changes in interest rates offered by other lenders—the price responsiveness. Using small business card offers as a control group, we find a significant decline in the price responsiveness after the Act. The decline is greater for other lenders’ rate reductions, as opposed to rate increases, and is more pronounced in areas with more subprime borrowers. The results underscore an unintended consequence of regulating the consumer credit market