How Bank Algorithms Are Quietly Driving Up Household Debt in America

A recent study published by King’s Business School in collaboration with the Federal Reserve indicates that the financial algorithms used by American banks have become a hidden driver of rising household debt. This happens through increasing consumer credit-card limits without prior customer requests, according to Newsweek.

The study confirms that four out of every five credit-limit increases are initiated by banks—not by consumers—adding more than $40 billion in additional borrowing capacity every three months.

The findings show that most of these increases target customers who already carry outstanding balances, pushing them to gradually use the new available credit even if they had not planned to. Data revealed that consumers increase their credit usage by roughly 30% after receiving an automatic limit increase, making it—as the study describes—“a hidden but influential engine expanding household debt.”

Researchers go further, noting that one-third of all existing U.S. credit-card debt would not exist were it not for post-issuance limit increases. The percentage rises to 60% among low-credit-score holders, who are the most financially vulnerable.

The study links the issue to the evolution of banks’ decision-making tools, which now rely on AI models capable of predicting who is likely to use the higher limit and who will continue borrowing. Researcher Ágnes Kovács explained that financial institutions have become far better at forecasting consumer behavior, leading some customers to receive increases they did not request and may not understand the consequences of—especially those seeking short-term relief for emergency expenses.

Past research shows that raising a credit limit is not just a number on a banking app; it often leads to behavioral changes in spending. Previous experiments found that consumers tend to use part of the new limit even when they do not need it or did not ask for it.

Limiting Credit-Card Increases Could Boost U.S. Household Finances

Internationally, the study notes that the United States could learn from other countries like Canada and the United Kingdom, which require customer consent before raising credit limits or restrict increases for customers with persistent unpaid balances.

The researchers’ analytical model shows that adopting similar policies could improve American households’ financial well-being by about 1%, while reducing revolving debt and interest payments without significantly limiting credit availability.

The report concludes that targeted regulation, based on this data, could balance financial innovation with consumer protection—ensuring algorithms do not push consumers into deeper debt under the guise of “improving access to money.”