Summary
Research from King's Business School and the Federal Reserve Board shows that many banks increase credit limits without customers requesting them. This often leads to higher debt levels as customers use the additional credit made available. The study highlights concerns about this practice, noting that it mostly affects people already carrying debt.
Key Facts
- Banks initiate about 80% of credit-limit increases in the U.S., not the customers.
- These increases provide over $40 billion in additional credit every three months.
- Most of the increased credit goes to those already carrying debt.
- Algorithmic systems often decide which customers receive credit-limit increases.
- Around one-third of unpaid U.S. credit-card balances exist due to these automatic increases.
- Borrowers with lower credit scores are more likely to receive automatic credit-limit hikes.
- U.S. policies are compared to U.K. and Canadian safeguards, which require consumer consent for credit-limit increases.
- Introducing such regulations in the U.S. could improve consumer financial health and reduce debt levels.
