Abstract
This paper assesses the impact on consumption and debt repayment from a credit card promotional campaign offering cash-back rewards. Using account-level administrative data from a large U.S. financial institution, we employ a generalized difference-in-differences design and find that even with a small 1% cash-back incentive, the rewards program leads to a substantial change in consumer behavior. Cardholders joining the rewards program increase their credit card spending by 32% and their debt by 8%, with such behavior persisting in the long run. Evidence from credit bureau confirms that the higher spending and debt are not driven by cross-card substitution or similar promotions by other card issuers. Different consumer segments respond differentially to the promotional campaign. Consumers with a higher level of liquidity constraints and who are less financially literate demonstrate more pronounced responses.
| Original language | English |
|---|---|
| Article number | 107616 |
| Journal | Journal of Banking and Finance |
| DOIs | |
| Publication status | E-pub ahead of print - 5 Jan 2026 |
Bibliographical note
The authors thank Anna Lunn, Sujit Chakravorti, Gene Amromin, Marc Bourreau, Rich Rosen, Marianne Verdier, seminar participants at the Federal Reserve Bank of Chicago and the University of Paris Ouest Nanterre la Défense, and seminar participants at the Department of Economics at Lingnan University for helpful comments and suggestions.Keywords
- Consumption
- Spending
- Credit card
- Behavioral bias
- Rewards
- Debt repayment