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Working Paper
The Economics of Debt Collection: Enforcement of Consumer Credit Contracts
Hunt, Robert M.; Fedaseyeu, Viktar (2018-01-29)
Creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collectors. We argue that by hiring third-party debt collectors, creditors can avoid competing in terms of their debt collection practices. This explanation fits several empirical facts about third-party debt collection and is consistent with the evidence that third-party debt collectors use harsher debt collection practices than original creditors. Our model shows that the impact of third-party debt collectors on consumer welfare depends on the riskiness of the pool of borrowers and ...
Working Papers , Paper 18-4

Discussion Paper
Balances Are on the Rise—So Who Is Taking on More Credit Card Debt?
Haughwout, Andrew F.; Lee, Donghoon; Mangrum, Daniel; Scally, Joelle; Van der Klaauw, Wilbert (2022-11-15)
Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data. Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019. An increase in credit card balances was also a boost to ...
Liberty Street Economics , Paper 20221115b

Report
Do Consumers Rely More Heavily on Credit Cards While Unemployed?
Cole, Allison (2016-12-20)
Leading up to the Great Recession, households increased their credit card debt by over 16 percent ($121 billion) during the five-year period from 2004 to 2009. The unemployment rate simultaneously began to rise in 2008, increasing from 5.0 percent in January 2008 to a high of 10.0 percent in October of 2009. During the recovery, from 2009 to 2014, credit card debt fell by more than 25 percent, as the unemployment rate returned to near prerecession levels. These coincident developments have led to speculation that consumers facing unemployment or job uncertainty may have increased their ...
Consumer Payments Research Data Reports , Paper 2016-06

Working Paper
The Conundrum of Zero APR: An Analytical Framework
Drozd, Lukasz A.; Kowalik, Michal (2023-03-13)
We document the prevalence of promotional pricing of credit card debt in the U.S. and develop an analytic framework to study how interest rates on multiperiod credit line contracts should be set when debt is unsecured and defaultable. We show that according to the basic theory of unsecured credit — suitably extended to allow for promotions — interest rates should price in the expected default risk on a period-by-period basis. The inspection of our model’s mechanism implies that time-consistent consumption behavior is crucial for this result; accordingly, modeling time-inconsistent ...
Working Papers , Paper 23-06

Discussion Paper
What Happens during Mortgage Forbearance?
Haughwout, Andrew F.; Lee, Donghoon; Scally, Joelle; Van der Klaauw, Wilbert (2021-05-19)
As we discussed in our previous post, millions of mortgage borrowers have entered forbearance since the beginning of the pandemic, and more than 2 million remain in a program as of March 2021. In this post, we use our Consumer Credit Panel (CCP) data to examine borrower behavior while in forbearance. The credit bureau data are ideal for this purpose because they allow us to follow borrowers over time, and to connect developments on the mortgage with those on other credit products. We find that forbearance results in reduced mortgage delinquencies and is associated with increased paydown of ...
Liberty Street Economics , Paper 20210519b

Report
The 2017 Diary of Consumer Payment Choice
Greene, Claire; Stavins, Joanna (2020-04-01)
This paper describes key results from the 2017 Diary of Consumer Payment Choice (DCPC), the fourth in a series of diary surveys that measure payment behavior through the daily recording of U.S. consumers' spending. The DCPC is the only diary survey of U.S. consumer payments available free to the public. In October 2017, consumers paid mostly with cash (30.3 percent of payments), debit cards (26.2 percent), and credit cards (21.0 percent). These instruments accounted for three-quarters of the number of payments, but only about 40 percent of the total value of payments, because they tend to be ...
Consumer Payments Research Data Reports , Paper 2018-5

Working Paper
Managing Risk in Cards Portfolios: Risk Appetite and Limits
Eder, Tiffany; Labonne, Claire; O'Loughlin, Caitlin; Sharma, Krish (2024-02-15)
We describe an important risk management tool at financial institutions, risk appetite frameworks. We observe those frameworks for credit cards portfolios at four large banks and analyze when and why banks adjust them. The risk appetite frameworks for these banks monitor 40 to 150 metrics. We focus on metrics related to outstanding balances of which we identified 79. Overall, we find that these frameworks are sticky. Most adjustments occur during scheduled annual reviews and are relatively limited. Limit breaches are rare. Thresholds are often changed the month after a breach or after the ...
Supervisory Research and Analysis Working Papers , Paper 24-01

Discussion Paper
Why Are Credit Card Rates So High?
Drechsler, Itamar; Jung, Hyeyoon; Peng, Weiyu; Supera, Dominik; Zhou, Guanyu (2025-03-31)
Credit cards play a crucial role in U.S. consumer finance, with 74 percent of adults having at least one. They serve as the main method of payment for most individuals, accounting for 70 percent of retail spending. They are also the primary source of unsecured borrowing, with 60 percent of accounts carrying a balance from one month to the next. Surprisingly, credit card interest rates are very high, averaging 23 percent annually in 2023. Indeed, their rates are far higher than the rates on any other major type of loan or bond. Why are credit card rates so high? In our recent research paper, ...
Liberty Street Economics , Paper 20250331

Working Paper
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada
Hayashi, Fumiko; Felt, Marie-Hélène; Welte, Angelika; Stavins, Joanna (2020-12-01)
Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all ...
Working Papers , Paper 20-13

Discussion Paper
Consumer Payment Preferences and the Impact of Technology and Regulation: Insights from the Visa Payment Panel Study
Akana, Tom (2019-07-02)
The Consumer Finance Institute hosted a workshop in August 2018 featuring Michael Marx, senior director at Visa, Inc., to discuss recent data from the Visa Payment Panel, highlighting the evolution of consumer payment preferences since the Great Recession and the passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. A number of intriguing trends were discussed. Debit card adoption and growth have shown signs of slowing, even as regulatory changes have increased its prevalence recently among younger consumers. Credit card usage continues to grow and has ...
Consumer Finance Institute discussion papers , Paper 19-1

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