Behavior-Based Repricing – Definition

Cite this article as:"Behavior-Based Repricing – Definition," in The Business Professor, updated April 16, 2020, last accessed October 27, 2020,


Behavior-Based Repricing

Behavior-based repricing is a pricing model that credit card companies use to attach interest rates to certain behaviors of an account holder, especially risky behaviors such as default in payments. Through a behavior-based repricing, the interest rate charged on a credit card can be adjusted according to the payment history or risky behaviors of the cardholder.

Credit card issuers can charge cardholder higher interest rates if they fail to act right, for instance, if a cardholder does not make the required monthly payment on his card, a higher interest rate can apply.  Also, behavior-based pricing is a positive thing for cardholders who have a good history of an established payment pattern, in this case, the credit card company can charge lower interest rates.

A Little More on What is Behavior-Based Repricing

Behavior-based repricing is a strategy used by credit card companies or issuers to evaluate the number of risks that a credit card holder poses. While this form of repricing is beneficial to cardholders with positive history, it is detrimental to those who have a negative history and have established a default record overtime. For example, if a consumer fails to make the monthly payment due, the interest rate for such consumers can increase, since such action triggers the annual percentage rate penalty. Typically, missed payments attract penalties which this repricing model seeks to achieve.

The main idea behind a behavior-based repricing is to measure the amount of credit risk a credit cardholder shows by checking how well they pay their minimum monthly payments. This strategy deters defaults or delinquencies amongst cardholders. Behavior-based repricing offers advantages to responsible cardholders who make due payments by giving them lower interest rates.

Behavior-Based Pricing and the Card Act

Given the tendency of certain credit card issuers to use the behavior-based pricing to defraud card issuers, certain regulations exist to prevent that. The Credit Card Accountability, Responsibility, and Disclosure Act (2009) is a federal law that seeks to safeguard card issuers from unfair deductions, payments, and other lending practices. Although the behavior-based repricing is a lawful mode, the act restricts the way credit card issuers use it. For instance, credit card issuers cannot impose penalties such as an increased interest rate in cardholders until the delinquency on the account reaches 60 days. In other words, if the cardholder makes the missed payments before 60 days, he can be exempted from the penalty. The act also limits the amount credit card issuers can charge for default and stipulates that cardholders be duly notified before charges are made.

Reference for “Behavior-Based Repricing”

Academics research on “Behavior-Based Repricing”

Credit card pricing: The card act and beyond, Bar-Gill, O., & Bubb, R. (2011). Credit card pricing: The card act and beyond. Cornell L. Rev., 97, 967.

Credit Cards and Bankruptcy, Zywicki, T. J. (2008). Credit Cards and Bankruptcy. From 1980 to 2005 consumer bankruptcy filings increased five-fold. Conventional wisdom holds that a primary cause of rising bankruptcy filing rates was increased household financial distress caused by increased indebtedness caused in turn by increased credit card borrowing. In 2005, Congress enacted the bipartisan Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The legislation was enacted in response to twenty-five years of rising bankruptcy filings and a perception of widespread fraud and abuse that threatened the fairness and integrity of the system. BAPCPA marked the most profound and far-reaching overhaul of America’s bankruptcy system in over a generation. In the two years since BAPCPA’s enactment, bankruptcy filings have plunged. From over 2 million filings in 2005, filings plummeted to less than 600,000 in 2006 and 800,000 in 2007. Critics of the legislation argue that the drop in filings will be temporary, as the legislation does not address what they believe to be the underlying cause of the rise in bankruptcy filings in the 1980s and 1990s—excessive consumer debt caused by profligate lending by credit card issuers especially to risky borrowers. This article reviews three hypotheses about the relationship between credit cards and bankruptcy: the substitution model, the “distress” or “overindebtedness model,” and the “strategic model” and concludes that the conventional wisdom is flawed. A review of empirical evidence and available data indicates that in fact the growth in credit card lending has not led to an increase in the consumer debt service ratio or financial distress more generally, suggesting that the rise in credit card borrowing has been primarily a substitution from other traditional types of consumer credit, such as retail store credit, personal finance companies, friends and family, pawnbrokers, and other types of consumer credit. The article then briefly examines the substitution hypothesis in more depth, describing how a substitution to credit card debt can bring about a rise in consumer bankruptcy filings even holding overall consumer debt obligations constant. Finally, the article examines the rationale and effects of the credit card provisions of BAPCPA for the substitution and distress models. To date, the response of consumers to BAPCPA has been consistent with the substitution model, suggesting that with respect to addressing particular problems regarding the relationship between credit cards and bankruptcy BAPCPA has been accomplishing its stated purposes

Expansion of Interbank Business and the Risk in Chinese Listed Bank: the Empirical Analysis Based on Quarterly data for 2007-2013, Guangyu, Z., Yujie, H., & Xiaoxia, S. (2015). Expansion of Interbank Business and the Risk in Chinese Listed Bank: the Empirical Analysis Based on Quarterly data for 2007-2013. Review of Investment Studies, (2), 4.

Prime rate assets: An efficient funding solution, de Vassal, V. (1995). Prime rate assets: An efficient funding solution. Journal of Performance Management, 8(1), 17.

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