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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.
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.
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. Read more.
The Community Development Studies and Education Department has updated its analysis of mortgage lending patterns. This analysis of Home Mortgage Disclosure Act (HMDA) data compares mortgage lending patterns in low- and moderate-income neighborhoods and among low- and moderate-income borrowers with their middle- and upper-income counterparts. The analysis of HMDA data is available on CDS&E's Community Development Data Dashboard.
The 2013 Federal Reserve Payments Study Detailed Report provides new information on card use by consumers and businesses, updated results on third-party payments fraud, new estimates of over-the-counter cash withdrawals and deposits at bank branches and wire transfers made by businesses and consumers, and a summary of emerging payments likely to replace cash and checks. Read the report.
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.
Discussion Paper Released: The Pattern of Appraisal Bias in the Third District During the Housing Crisis
(1.43 MB, 28 pages)
Appraisers have often been criticized for the inflated home values that were more prevalent during the housing boom, as well as overly conservative valuations during the housing bust. However, little research has been done to help understand how appraisal valuations respond to rapidly changing local market conditions and regulatory environments. This study provides an empirical examination of the pattern of appraisal bias during the housing crisis in the Third Federal Reserve District. Based on a unique transaction-level appraisal data set, this study evaluates how the lack of market activity, the concentration of foreclosures, and the increased use of appraisal management companies, as well as other factors, impact the incidence of low appraisals during the crisis. This study further examines the possible challenges created by low appraisals on the access to mortgage credit.
Working Paper Released: Financial Benefits, Travel Costs, and Bankruptcy
(736 KB, 48 pages)
Using detailed balance sheet, income statement, and location data from 400,000 Canadian bankruptcies, we show that the cost of personal bankruptcy filers traveling to their bankruptcy trustees affects their bankruptcy choices. We use instrumental variables to control for potential endogeneity regarding the location choices of filers and trustees. We find that increased travel costs reduce the number of filings. Furthermore, for those individuals who do file, we find that their increased travel costs are compensated by higher financial benefits of bankruptcy. Filers without cars (higher travel costs), as well as those with jobs (higher opportunity costs), receive larger per-kilometer financial benefits from bankruptcy.