Credit card debt is an issue for many families – according to The National Foundation for Credit Counseling, one in three Americans roll over a balance from month to month. Despite that figure, a new Harvard study finds that credit card debt is less of a problem for Americans today than it used to be, and that while credit card demand remains fairly high, more consumers are choosing not to use credit cards at all. The researchers find numerous reasons for the decrease in consumer demand, but focus primarily on their finding that fewer consumers are using credit cards because government regulations are making it harder for them to open credit card accounts in the first place.

The study looks closely at the relationship between regulatory actions taken by the Consumer Financial Protection Bureau (CFPB) and how those actions have affected consumers, both in terms of financial protection and access to financial products. The study doesn’t gloss over the potential negative consequences of credit card debt, but considers those negatives, such as an unsustainable accumulation of debt, in context with the many positive ways that consumers use credit products in their daily lives, such as through using credit to buy something online or make an emergency purchase. 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.

All that said, it’s not just regulations that are affecting consumer 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.

In general, the authors of the Harvard study find that credit cards are a good thing for consumers, and recommend a few steps that they think would make things better for creditors and consumers.

  1. Policymakers should modify and repeal aspects of the CARD Act from 2010 that apply to lenders, specifically the limits of the ability of card issuers to modify the terms of card agreements and prohibitions on fees charged on outstanding balances.
  2. The CFPB should be reformed to place more emphasis on access to consumer financial products, instead of focusing as much as they currently do on consumer protection.
  3. Banking regulations need to be simplified, in order to make it easier for average Americans to open an account.
  4. Congress should establish a bipartisan commission to take a closer look at current regulations in order to figure out how to simplify and streamline them into something that more truly protects and helps consumers.

The researchers argue against the CFPB’s attempts to protect consumers from themselves in regards to accumulating credit card debt, and say that the best thing for the most consumers is ensuring that people can access credit products easily and without incurring excessive expenses.

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