Automated credit limit increases and consumer welfare

Research Question. Should regulators restrict banks from proactively raising credit card limits using machine-learning algorithms, and if so, how? The paper asks: to what extent are bank-initiated credit limit increases directed toward revolving borrowers (those who carry interest-accruing balances month-to-month), and what are the welfare consequences of policies that constrain such increases?

Data. The empirical analysis uses the Federal Reserve’s Capital Assessments and Stress Testing (Y-14M) regulatory data, January 2014 to December 2024, covering monthly account-level records for all credit cards issued by large stress-tested banks (assets > $100B). The 26 banks in the sample collectively represent more than 70% of U.S. credit card balances. A 0.5% sample yields more than 150 million observations across more than 3.6 million unique active credit cards. A key advantage of Y-14 over credit bureau data is that it identifies whether each limit change was bank-initiated or consumer-initiated — a distinction not available in other datasets.

Vitaly M. Bord | Macro Paper Warehouse

Automated credit limit increases and consumer welfare