The program in Consumer Credit & 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.
The Payment Cards Center and the Research Department of the Federal Reserve Bank of Philadelphia are co-organizing their ninth biennial conference focusing on new research in consumer credit and payments. The conference will be held at the Bank on Thursday, September 7, and Friday, September 8, 2017. The call for papers is available here.
This paper presents a brief exposition of the history of the secured credit card and documents a series of stylized facts about the secured card market. The author uses a December 2015 cross section of the secured card market to characterize current market offerings and contrasts them with standard (unsecured) cards. He also investigates the effects of opening, and keeping open, a secured card on consumers' creditworthiness over the next two years.
In this paper, the authors examine how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. They show that many identity theft victims experience persistent, positive changes in credit characteristics. The authors argue that these changes are consistent with increased salience of credit file information to the consumer at the time of severe identity theft.
Supersedes Working Paper 14-28.
MPOWER Financing has taken an innovative approach to student loan underwriting. Using empirical data, MPOWER designed a scoring model that helps predict future loan repayment for high-potential students who have yet to establish a credit history. MPOWER presented its approach at a Payment Cards Center workshop. This paper recaps that event.
Conference Announcement and Call For Papers: New Perspectives on Consumer Behavior in Credit and Payments Markets
Conference dates: Thursday, September 7, and Friday, September 8, 2017
Submission deadline: June 15, 2017
The Payment Cards Center and the Research Department of the Federal Reserve Bank of Philadelphia are co-organizing their ninth biennial conference focusing on new research in consumer credit and payments.
The landscape of household finance and consumer payments is evolving rapidly, and this conference seeks to capture the latest research. We encourage researchers to submit theoretical and empirical studies that reflect the entire range of approaches and methodologies. We also encourage submissions that address the design and efficacy of regulations for consumer credit markets. Additional details are available here.
Discussion Paper Released: The Secured Credit Card Market
In this paper, the author presents a brief exposition of the history of the secured credit card, beginning with its origins in California in the 1970s. He presents a series of stylized facts based on a December 2015 cross section of the secured card market. He finds that most secured cards require an annual fee, tend not to have promotional offers or rewards, and often have higher purchase annual percentage rates than their unsecured counterparts. The author also finds that the percentage of secured card accounts in a delinquency status is more than double that of unsecured cards and that far fewer secured cards are inactive compared with unsecured cards. In addition, the annual income of secured card consumers is about 43 percent lower than unsecured card consumers. Last, he examines how the credit scores of consumers opening a secured card account change during the first two years of account history. The author finds that keeping a secured card account open is correlated with improved creditworthiness, while closing an account, either in good standing or in default, is correlated with significantly reduced creditworthiness.
Working Paper Released: Identity Theft as a Teachable Moment
This paper examines how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. Using a unique data set of linked consumer credit data and alerts indicating identity theft, the authors show that the immediate effects of fraud on consumers are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved risk scores (indicating lower default risk). The authors argue that these changes are consistent with increased salience of credit file information to the consumer at the time of severe identity theft.
Supersedes Working Paper 14-28.
The authors provide new causal evidence that keeping up with the Joneses behavior causes financial distress by examining whether lottery prizes of random dollar magnitudes increase bankruptcy filings of very close neighbors of the winner. They find that a 1% increase in the lottery prize causes a 0.04% rise in subsequent bankruptcies among the winners’ close neighbors. The authors also provide evidence on conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (e.g., houses, cars) but not invisible assets (e.g., cash, financial assets), appearing on the bankruptcy balance sheets of neighboring bankruptcy filers.
Supersedes Working Paper 16-04.
Discussion Paper Released: Future Potential versus Past Performance: MPOWER Financing's Innovation in Student Loan Underwriting
The Payment Cards Center hosted a February 2016 workshop featuring MPOWER Financing, a start-up public benefit corporation created to be a source of student loans for high-potential scholars who either do not qualify for federal aid or who face a gap between federal aid maximums and the full cost of their educations. MPOWER has taken a unique approach to loan underwriting that is based on future potential rather than past credit experience and has developed a scoring model that helps predict loan repayment for young adults who have yet to establish a credit history. This paper summarizes highlights from the MPOWER workshop.