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Using a dataset 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. We exploit changes in issuers' minimum payment formulas to distinguish between liquidity constraints and anchoring as explanations for the prevalence of near-minimum payments. Nine to twenty percent of all accounts respond more to the formula changes than expected based on liquidity constraints alone, representing a lower bound on the role of anchoring. Disclosures implemented by the CARD Act, an example of one potential policy solution to anchoring, resulted in fewer than 1% of accounts adopting an alternative suggested payment. Based on back-of-envelope calculations, the disclosures led to $62 million in interest savings per year, but would have saved over $2 billion per year if all anchoring consumers had adopted the new suggested payment. Our results show that anchoring to a salient contractual term has a significant impact on household debt.

Zonder onderwerpscode: economie

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This paper estimates how the marginal propensity to consume (MPC) varies over the business cycle by exploiting exogenous variation in credit card borrowing limits. Ten years after an individual declares Chapter 7 bankruptcy, the record of the bankruptcy is removed from her credit report, generating an immediate and persistent increase in credit score. We study the effects of "bankruptcy flag" removal using a sample of over 160,000 bankruptcy filers whose flags were removed between 2004 and 2011. We document that in the year following flag removal, credit card limits increase by $780 and credit card balances increase by roughly $290, implying an "MPC out of liquidity" of 0.37. We find a significantly higher MPC during the Great Recession, with an average MPC roughly 20-30 percent larger between 2007 and 2009 compared to surrounding years. We find no evidence that the counter-cyclical variation in the average MPC is accounted for by compositional changes or by changes over time in the supply of credit following bankruptcy flag removal. These results are consistent with models where liquidity constraints bind more frequently during recessions.

Zonder onderwerpscode: economie

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Digital technologies and fintech firms have rapidly reshaped the consumer financial landscape in recent years, and have the potential to help consumers make better decisions and improve their financial health. Existing technologies such as autopay are also experiencing increased takeup, a trend that could be accelerated by innovations such as open banking. I examine the extent to which autopay affects payment behavior for customers of a credit card serviced by a fintech company. Using sharp changes in the company's practices in a regression discontinuity design, I find that a small nudge accounts for half of all autopay enrollment during the sample period, and that enrollment at account opening is persistent. Autopay increases the likelihood of making the minimum payment by 20 to 29pp, more than doubling the baseline rate. The results show that seemingly minor technological defaults can have economically large effects on consumer credit outcomes.

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Inspired by the field experiment in Bertrand and Morse (2011), the state of Texas adopted an information disclosure for consumers taking out payday loans starting in January, 2012. The disclosure compares the cost of payday loans with other credit products, and presents their likelihood of renewal in easy-to-understand terms. Simultaneously, Austin and Dallas implemented stricter supply restrictions through city ordinances. We analyze both types of regulations, and find that the statewide disclosures led to a significant and persistent 13% decline in loan volume in the first six months after implementation. The city ordinances led to a 61% decline in loan volume in Austin and a 44% decline in Dallas, with the timing of the effect driven by the start of enforcement rather than the effective date of regulation. The results show that both behaviorally-motivated disclosures and city-level supply restrictions can have a significant impact on equilibrium loan quantities, with no effect on prices or evidence of evasive income falsification.