Dynamic Pricing of Credit Cards and the Effects of Regulation

We construct a two-period model of revolving credit with asymmetric information and adverse selection. In the second period, lenders exploit an informational advantage respect to their own customers. Those rents stimulate competition for customers in first period. The current lender enjoys relative its competitors determines interest rates, supply, switching behavior. evaluate consequences limiting repricing existing balances as implemented by recent legislation. Such restrictions increase deadweight losses reduce ex ante consumer surplus. suggests novel approaches identify empirically effects this law. find pattern changes rates balance transfer activity before after CARD Act are consistent testable implications model.