Working Paper
Automated Credit Limit Increases and Consumer Welfare
Abstract: In the United States, credit card companies frequently use machine learning algorithms to proactively raise credit limits for borrowers. In contrast, an increasing number of countries have begun to prohibit credit limit increases initiated by banks rather than consumers. In this paper, we exploit detailed regulatory micro data to examine the extent to which bank-initiated credit limit increases are directed towards individuals with revolving debt. We then develop a model that captures the costs and benefits of regulating proactive credit limit increases, which we use to quantify their importance and evaluate the implications for household well-being.
JEL Classification: D14; D18; D91; G21; G28; G51; L51;
https://doi.org/10.17016/FEDS.2025.088
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File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2025088pap.pdf
Bibliographic Information
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: Finance and Economics Discussion Series
Publication Date: 2025-09-24
Number: 2025-088