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| Author: | Mester, L. |
| Title: | Why are credit card rates sticky? |
| Journal: | Economic Theory
1994 : VOL. 4:4, p. 505-530 |
| Index terms: | CREDIT RATING CREDIT MARKETS CONSUMER CREDIT |
| Language: | eng |
| Abstract: | This paper investigates credit card rate stickiness using a screening model of consumer credit markets. In recent years , while the cost of funds has fallen, credit card rates have remained stubbornly high, spurring legislators to consider imposing interest rate ceilings on credit card rates. The model incorporates asymmetric information between consumers and banks, regarding consumers' future incomes. Usury ceilings on credit card rates are detrimental to consumer welfare, so would be counter to their legislative intent. |
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