Using a data set covering one quarter of the U.S. general-purpose credit card market, we document that 29% of accounts regularly make payments at or near the minimum payment. To explain the ...prevalence of low payment amounts, we exploit changes in issuers’ minimum payment formulas to quantify the explanatory power of two potential theories: liquidity constraints and anchoring. At least 22% of near-minimum payers (and 9% of all accounts) respond to the formula changes in a manner consistent with anchoring as opposed to liquidity constraints alone. Our results show that anchoring to a salient contractual term has a significant impact on household repayment decisions.
Once there was a golden age of American thrift, when citizens lived sensibly within their means and worked hard to stay out of debt. The growing availability of credit in this century, however, has ...brought those days to an end--undermining traditional moral virtues such as prudence, diligence, and the delay of gratification while encouraging reckless consumerism. Or so we commonly believe. In this engaging and thought-provoking book, Lendol Calder shows that this conception of the past is in fact a myth.
Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly ...when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable.
Microfinance supports mainly informal activities that often have a low return and low market demand. It may therefore be hypothesized that the aggregate poverty impact of microfinance is modest or ...even nonexistent. If true, the poverty impact of microfinance observed at the participant level represents either income redistribution or short-run income generation from the microfinance intervention. This article examines the effects of microfinance on poverty reduction at both the participant and the aggregate levels using panel data from Bangladesh. The results suggest that access to microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level. Microfinance thus helps not only poor participants but also the local economy.
The Chinese government launched an ambitious program to build a social credit system in 2014. During the last six years, the State Council issued several key documents that seek to define the ...objectives and key parameters of such a system. Based on these documents and reports on the progress of the system in the media, it is evident that the Chinese government has made significant progress in conceptualizing and specifying the functionalities of its social credit system. At the moment, Beijing's current approach remains experimental, seeking to gradually improve the design and capabilities of the system through trial-and-error at the local levels. Judging by the ambitious goals set forth in the State Council's outline document issued in 2014, actual progress in building the system may be limited due to the immense technological and administrative challenges.
We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act. We use a panel data set covering 160 million ...credit card accounts and a difference-in-differences research design that compares changes in outcomes over time for consumer credit cards, which were subject to the regulations, to changes for small business credit cards, which the law did not cover. We estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1.6% of average daily balances, with a decline of more than 5.3% for consumers with FICO scores below 660. We find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit. Taken together, we estimate that the CARD Act saved consumers $11.9 billion a year. We also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments. We detect a small increase in the share of accounts making the 36-month payment value but no evidence of a change in overall payments.
This paper finds that stricter laws regulating third-party debt collection reduce the number of third-party debt collectors, lower the recovery rates on delinquent credit card loans, and lead to a ...modest decrease in the openings of new revolving lines of credit. Further, stricter third-party debt collection laws are associated with fewer consumer lawsuits against third-party debt collectors but not with a reduction in the overall number of consumer complaints. Overall, stricter third-party debt collection laws appear to restrict access to new revolving credit but have an ambiguous effect on the nonpecuniary costs that the debt collection process imposes on borrowers.
We quantify the real effects of the bank-lending channel exploiting the dramatic liquidity drought in interbank markets that followed the 2007 financial crisis as a source of variation in credit ...supply. Using a large sample of matched firm–bank data from Italy, we find had the interbank market not collapsed, investment expenditure would have been more than 20% higher and would have increased by around 30 cents per additional euro of available credit at the average firm. We also find that credit shocks affect the firm's value added, employment and input purchases, and propagate through firms' trade credit chains.
We document substantial cross-individual dispersion in U.S. credit card borrowing costs, even after controlling for borrower risk and card characteristics. That remaining dispersion arises because ...cross-lender pricing heterogeneity generates dispersion in annual percentage rate (APR) offers to borrowers, and borrowers vary in shopping intensity. Our empirics match administrative data to self-reported card shopping intensity and use instruments suggested by fair lending law to account for the endogeneity between APRs and search. The results show that shoppers versus nonshoppers pay APRs as different as those paid by borrowers in the best versus worst credit score deciles. We discuss implications for policy and practice.
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