Harvard Study Finds New Regulations Are Affecting Consumer Access to Credit

by Alex Johnson 0

According to researchers at Harvard University, government regulations intended to protect consumers from harmful credit card practices have actually reduced consumers’ access to credit cards.

“In general, the researchers find that consumers have been harmed through decreased access to credit more than they’ve been helped and protected by new regulations.

The biggest player in this trend is the increasing impact of government regulations on consumer behavior and their access to credit. The researchers point out that there has been a 250 percent rise in credit card regulatory restrictions and related bans on certain kinds of creditor behavior, unpredictability in regards to what the CFPB will or won’t regulate, and a rising share of Americans who don’t have bank accounts. They point out various effects from the Fed’s 2008 rulemaking and the subsequent 2010 passage of the CARD Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, concluding that regulations are clearly affecting the market for credit cards, but that it is not possible to say exactly how much of an effect they are having yet.

The researchers also point out that the CFPB’s unpredictability is problematic due to a lack of clarity about what constitutes a UDAAP and which of their announcements are legally binding, and that the various rises in fees and minimum balances required to open a bank account now are driving many lower-income Americans to avoid opening bank accounts altogether, leaving them unable to access credit cards.”

There are always unintended consequences with any regulation. And, as this article makes clear, regulation alone doesn’t explain consumers’ changing behavior when it comes to credit cards.

“The number of new credit card users and the amount of defaulted credit accounts has declined since the Great Recession, years before the CFPB was a factor. According to the study, this trend is driven by a decrease of consumers carrying balances from month to month, an unusually large number of credit card account closures between 2008 and 2011, and fewer cards being issued to consumers with credit scores beneath 680. This will likely continue to at least some extent, as over a third of millenials (18- to 29-year-olds) have never owned a credit card.”

Overview by Alex Johnson, Director, Credit Advisory Service at Mercator Advisory Group

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