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The program in Consumer Credit and Payments is a Bank-wide effort to advance our understanding of these markets and to make this information available to industry, consumers, policymakers, researchers, and the public at large. On these pages you will find research and analysis produced by the Bank's subject matter experts in Community Development Studies and Education, the Payment Cards Center, Research, Supervision and Regulation, and other areas.
Fraud alerts — initial fraud alerts, extended fraud alerts, and credit freezes — help protect consumers from the consequences of identity theft. We analyze a unique data set of anonymized credit bureau files to understand how consumers use these alerts. Read more.
This paper examines how instances of identity theft that are sufficiently severe to induce consumers to place an extended fraud alert in their credit reports affect their risk scores, delinquencies, and other credit bureau variables on impact and thereafter. Read more.
The Payment Cards Center's September 2012 policy conference advanced the discussion of targeted design and outcome measurement as central features of public policy in the area of consumer financial protections. This conference summary describes the discussion of the data and methodology required and available for assessing the contribution of consumer financial protections to the advancement of, and the challenges inherent in, measuring social welfare.
This paper reports on the findings of Phoenix Marketing International's 2013 Consumer Payments Monitor survey, including the discovery of a "power user" segment of the market composed of young and mid- to upper-income consumers who own and use GPR cards at rates well above the market average. Read more.
Most industrialized countries have laws that mandate the removal of negative information about borrowers' debt repayment behavior from credit bureau files after a certain period of time.
In this paper, Marieke Bos, Payment Cards Center visiting scholar, and Leonard Nakamura, FRB Philadelphia vice president and economist, examine how a reduction in the retention time of negative information by a credit bureau impacts lenders' and borrowers' behavior.
Discussion Paper Released: Consumer Use of Fraud Alerts and Credit Freezes: An Empirical Analysis
Fraud alerts — initial fraud alerts, extended fraud alerts, and credit freezes — help protect consumers from the consequences of identity theft. At the same time, they may impose costs on lenders, credit bureaus, and, in some instances, consumers. We analyze a unique data set of anonymized credit bureau files to understand how consumers use these alerts. We document the frequency and persistence of fraud alerts and credit freezes. Using the experience of the data breach at the South Carolina Department of Revenue, we show that consumers who file initial fraud alerts or credit freezes likely do so out of precaution. Consumers who file extended alerts are more likely to be actual victims of identity theft. We find that consumers are heterogeneous in their choice of alerts and that their choices are correlated with important characteristics found in their credit bureau files. These facts are useful for interpreting consumer responses to data breaches and for policymakers.
Working Paper Released: Identity Theft as a Teachable Moment
This paper examines how instances of identity theft that are sufficiently severe to induce consumers to place an extended fraud alert in their credit reports affect their risk scores, delinquencies, and other credit bureau variables on impact and thereafter. We show that for many consumers these effects are relatively small and transitory. However, for a significant number of consumers, especially those with lower risk scores prior to the event, there are more persistent and generally positive effects on credit bureau variables, including risk scores. We argue that these positive changes for subprime consumers are consistent with the effect of increased salience of credit file information to the consumer at the time of the identity theft.
The Payment Cards Center's September 2012 policy conference advanced the discussion of targeted design and outcome measurement as central features of public policy in the area of consumer financial protections. Speakers considered regulations addressing the disclosure of credit terms; standards for assessing the unfairness, deceptiveness, and abusiveness of lending acts or practices; the management of revolving credit accounts; and the challenges of analyzing consumer complaints in the context of consumer financial protections. The concluding panel discussed unanswered questions and research priorities going forward. Discussion focused on the data and methodology required and available for assessing the contribution of consumer financial protections to the advancement of, and the challenges inherent in, measuring social welfare. Panelists also considered the intended and unintended effects of these regulations on prices, quantities, competition, innovation, and the overall business risk market participants face.
Discussion Paper Released: Millennials with Money: A New Look at Who Uses GPR Prepaid Cards
(417 KB, 37 pages)
Phoenix Marketing International is a top 40 Honomichl market research company that annually fields an omnibus financial services survey that collects information from a representative sample of American households. Beginning in 2012, the survey added a series of questions designed to gather data on ownership and use of general-purpose reloadable (GPR) prepaid cards. This paper reports on those findings, including the discovery of a "power user" segment of the market composed of young and mid- to upper-income consumers who own and use GPR cards at rates well above the market average. Younger adults also appear to be combining both mainstream and alternative financial services in ways that complicate some attempts to classify consumers as "banked" or "underbanked."
Working Paper Released: Should Defaults Be Forgotten? Evidence from Variation in Removal of Negative Consumer Credit Information
(1.3 MB, 52 pages)
Practically all industrialized economies restrict the length of time that credit bureaus can retain borrowers' negative credit information. There is, however, a large variation in the permitted retention times across countries. By exploiting a quasi-experimental variation in this retention time, we investigate what happens when negative information is deleted earlier from credit files. We find that the loss of information led banks to tighten their lending standards significantly as the expected retention time was diminished from on average three-and-a-half to three years exactly. Simultaneously, we find that borrowers who experience this shorter retention time default more frequently. Since borrowers nevertheless obtain more net access to credit and total defaults do not increase overall, we cannot rule out that this reduction in retention time is optimal.
Discussion Paper Released: Fair Lending Analysis of Credit Cards
(564 KB, 50 pages)
This paper discusses some of the key fair lending risks that can arise in various stages of the marketing, acquisition, and management of credit card accounts, and the analysis that can be employed to manage such risks. The Equal Credit Opportunity Act (ECOA) and its implementing Regulation B prohibit discrimination in all aspects of credit transactions and include specific provisions relating to processes that employ credit scoring models. This paper discusses some of the areas of credit card operations that may be assessed in an effort to manage the risk of noncompliance with fair lending laws and regulations. Particular attention is focused on approaches to testing for the risk of disparate impact on a prohibited basis in credit scoring models and model-intensive prescreened marketing campaigns, as well as in judgmental credit card underwriting. The paper concludes by discussing how the fair lending risks associated with credit scoring models may be managed by synchronizing compliance oversight with an institution's model governance framework. The methods discussed in this paper are also applicable to other consumer credit products that utilize credit scoring models.
Special Report Released: The Effectiveness of Pre-Purchase Homeownership Counseling and Financial Management Skills
(829 KB, 49 pages)
Homeownership remains a cherished goal for many people. However, developments in mortgage products and drastic changes in the housing market have made the realization of becoming a homeowner more challenging. Fortunately, homeownership counseling is available to help navigate prospective homebuyers in their quest. But the effectiveness of such counseling over time continues to be contemplated. Previous studies have made important strides in our understanding of the value of homeownership counseling, but more work is needed. More specifically, homeownership education and counseling have never been rigorously evaluated through a randomized field experiment.
This study is based on a long-term (five-year) effort undertaken by the Federal Reserve Bank of Philadelphia on the effectiveness of pre-purchase homeownership and financial management skills counseling. The study improves upon previous efforts by employing a different methodology that relies on an experimental design and tracks study participants' creditworthiness over time. View summary. Download the full report.