The Unprecedented Fall in U.S. Revolving Credit

After decades of consistent growth, U.S. revolving credit declined drastically post 2009. We study the Ability to Pay provision of the Credit CARD Act of 2009, a policy that restricts credit card limits, as a contributing factor. Extending a model of revolving credit lines, we find that the policy accounts for 54-60 percent of the decline in revolving credit. Further, the policy accounts for lower utilization rates despite tighter credit limits and higher spreads despite lower default risk. The policy's goal of consumer protection is achieved for a few consumers with time inconsistent preferences; most individuals are hurt.