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.
Visiting Scholar Working Paper Released: Should Defaults Be Forgotten? Evidence from Variation in Removal of Negative Consumer Credit Information
(1.2 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.
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.
Discussion Paper Released: Improving Experience in the Prepaid Card Industry: A Customer Service Workshop
(931 KB, 29 pages)
Contact Solutions LLC is a provider of third-party customer service for a number of government-sponsored prepaid card programs, including the U.S. Treasury Department's Direct Express prepaid card program. Since government-sponsored prepaid programs have encountered unique challenges related to customer service, the Payment Cards Center hosted a workshop in which Contact Solutions described some of these challenges and discussed how contact centers are responding to them.
Working Paper Released: How Do Exogenous Shocks Cause Bankruptcy? Balance Sheet and Income Statement Channels
(482 KB, 42 pages)
We examine whether exogenous shocks cause personal bankruptcy through the balance sheet channel and/or the income statement channel. For identification, we examine the effect of exogenous, politically motivated government payments on 200,000 Canadian bankruptcy filings. We find support for the balance sheet channel, in that receipt of the exogenous cash increases the net balance sheet benefits of bankruptcy (unsecured debt discharged minus liquidated assets forgone) required by filers. We also find limited support for the income statement channel, in that exogenous payments reduce bankruptcy filings from individuals whose current expenses exceed their current income.