The Payment Cards Center provides meaningful insights into developments in consumer credit and payments that are of interest not only to the Federal Reserve but also to the industry, other businesses, academia, policymakers, and the public at large. The center carries out its work through an agenda of research and analysis as well as forums and conferences that encourage dialogue incorporating industry, academic, and public-sector perspectives.
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For information on all research on consumer credit and payments, go to our Program in Consumer Credit & Payments page.
Working Paper Released: The Economics of Debt Collection: Enforcement of Consumer Credit Contracts
(468 KB, 46 pages)
Why does the debt collection industry exist and why is it so large? Some obvious explanations, such as economies of scale or specialization, do not address many aspects of this industry. In this paper, we propose an alternative explanation: Delegating debt collection is a way for a creditor to protect its reputation relative to the reputation of other creditors. We develop an application of common agency theory that explains how reliance on an unconcentrated industry of third-party debt collection agencies can implement an equilibrium with more intense collections activity than creditors would implement by themselves. The model also suggests a number of policy instruments that may improve the functioning of the collections market.
Discussion Paper Released: Student Loan Repayment and College Accountability
(389 KB, 27 pages)
Student loan debt and defaults have been steadily rising, igniting public worry about the associated public and private risks. This has led to controversial attempts to curb defaults by holding colleges, particularly those in the for-profit sector, increasingly accountable for the student loan repayment behavior of their students. These efforts attempt to protect taxpayers against the misuse of public money used to encourage college enrollment and to safeguard students against potentially risky human capital investments. Recent policy proposals penalize colleges for students' poor repayment performance, raising questions about institutions' power to influence this behavior. Extant research does not conclusively establish a causal link between type of college and loan default. Available evidence, moreover, suggests that student demographics and family financial resources are related to default. As a result, policies targeting schools where students default on loans at high rates may disproportionately affect the postsecondary decisions of certain categories of students, such as low-income, minority, and financially independent students. Policymakers therefore face the challenge of promoting the efficient use of public funds and protecting students while also encouraging access to higher education.
Discussion Paper Released: Residential Migration, Entry, and Exit as Seen Through the Lens of Credit Bureau Data
(426 KB, 36 pages)
We analyze a large, nationally representative anonymized data set of consumers with a credit report from 2002 to 2010. This is a period that encompasses a boom and bust in consumer credit. Using census data, we classify consumers into four categories of relative neighborhood income and find that, over time, the number and proportion of consumers with a credit report fell in low- and moderate-income neighborhoods and rose in higher-income neighborhoods. Population trends evident from census data explain only a portion of these changes in the location of the credit bureau population. In most instances, the primary driver reflects residential migration from relatively poorer neighborhoods to ones with relatively higher incomes. Patterns of entry into or exit from the credit bureau population were correlated with the credit cycle, as well as with relative neighborhood income, resulting in slower sample growth in low- and moderate-income neighborhoods during periods of credit contraction. These results are interesting in themselves, but they are also important for interpreting empirical results estimated from credit bureau data.
Discussion Paper Released: Funding Credit Card Loans: Current and Future Considerations
(535 KB, 22 pages)
This paper examines several factors influencing credit-card-issuing banks’ decisions about how to fund credit card loans. These factors include the size and structure of the institution, economic conditions, and the regulatory environment. Against the backdrop of a much smaller market for credit-card asset-backed securitization, the Payment Cards Center (PCC) wanted to better understand how changes in any of the above factors and in the funding sources accessible to credit-card-issuing banks are affecting funding strategies now and in the future. To gain this perspective, the PCC interviewed a diverse set of credit-card-issuing bank executives. These participants were asked about the composition of their funding sources, changes in the markets for these sources of funds, and the effects of existing or potential regulation. This paper presents several themes that emerged from these discussions.