Bank-Initiated Credit Limit Increases Face New Scrutiny

Approximately 80% of credit limit increases on U.S. credit cards don’t originate from cardholder requests but instead come from banks that proactively extend limit increases to customers, according to a new study from the Federal Reserve Board and King’s College London.

Moreover, the study revealed that the issuer-initiated credit limit increases, which bank algorithms can automatically apply to accounts, often go to cardholders who are already in debt.

Credit card issuers in the U.S. will need to stay abreast of any moves by regulating agencies that could make the practice of applying credit limit increases to a borrower’s credit card account — without first receiving their consent — one they should avoid.

Other countries have already taken steps to bring an end to certain practices for credit limits. Canada doesn’t permit credit card issuers to increase credit limits unless they have consent from a customer to do so, according to the study. And, in the U.K., rules prevent issuers from extending limit increases to cardholders who have ongoing revolving debt.

Dr. Agnes Kovacs, Senior Lecturer in Economics at King’s Business School, completed the study alongside economists from the Fed. In a recent report, she commented on the findings she and her colleagues uncovered as they completed their analysis.

“Banks are using increasingly sophisticated models to predict which customers will borrow more if their limit is raised,” Kovacs explained. “For many, that means an automatic increase they never asked for and may not fully understand.”

Not every issuer is increasing limits on cards this year. The Fed released findings from a survey of senior loan officers earlier this year indicating that some banks have been tightening credit limits in 2025.

But for institutions that are increasing limits with the assistance of machine learning algorithms, Kovacs’s remarks point to problems that could catch the attention of groups that monitor financial protections for consumers in the U.S.

“Automated credit-limit increases can expand access to credit and help households smooth consumption,” Kovacs said. “But our findings show that when algorithms target borrowers already in debt, the result is often higher borrowing and greater financial vulnerability.”

Issuers that anticipate regulatory changes impacting their ability to use algorithm-driven credit limit increases may want to put plans in place to make up any revenue they stand to lose from such a change.

Automatic increases on credit limits expand the credit available to cardholders each quarter by $40 billion.

The Fed and King’s College London study reveals that automatic increases on credit card limits add up to more than $40 billion of extra available credit per quarter. And cardholders that use that additional credit can boost revenue streams for issuers.

Whether regulatory groups in the U.S. will impose restrictions on raising limits similar to those in Canada and the U.K. on raising limits is yet unclear, but the study shines a spotlight on the issue that may prove difficult for regulators to ignore. 

“Our model suggests that modest regulation, such as requiring consent or limiting increases for indebted customers, could improve welfare for many households while only slightly restricting access to credit,” Kovacs said. “It’s an example of how well-designed policy can guide the use of data-driven decision-making in finance.”