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
In the U.S., creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collection agencies. This paper argues that an important incentive for this is creditors’ concerns about their reputations. Using a model along the lines of the common agency framework, the authors show that, under certain conditions, debt collection agencies use harsher debt collection practices than original creditors would use on their own. This appears to be consistent with empirical evidence. The model also fits several other empirical facts about the structure of the debt collection industry and its evolution over time. The authors show that the existence of third-party debt collectors may improve consumer welfare if credit markets contain a sufficiently large share of opportunistic borrowers who would not repay their debts unless faced with “harsh” debt collection practices. In other cases, the presence of third-party debt collectors can result in lower consumer welfare. The model provides insight into which policy interventions may improve the functioning of the collections market.
Working Paper Released: Out of Sight, Out of Mind: Consumer Reaction to News on Data Breaches and Identity Theft
We use the 2012 South Carolina Department of Revenue data breach to study how data breaches and news coverage about them affect consumers’ take-up of fraud protections. In this instance, we find that a remarkably large share of consumers who were directly affected by the breach acquired fraud protection services immediately after the breach. In contrast, the response of consumers who were not directly exposed to the breach, but who were exposed to news about it, was negligible. Even among consumers directly exposed to the data breach, the incremental effect of additional news about the breach was small. We conclude that, in this instance, consumers primarily responded to clear and direct evidence of their own exposure to a breach. In the absence of a clear indication of their direct exposure, consumers did not appear to revise their beliefs about future expected losses associated with data breaches.
The emergence of high-frequency administrative data and other big data offers an opportunity for improvements to economic forecasting models. This paper considers the potential advantages and limitations of using information contained in anonymized consumer credit reports for improving estimates of current and future economic conditions for various geographic areas and demographic markets. Aggregate consumer credit information is found to be correlated with macroeconomic variables such as gross domestic product, retail sales, and employment, and can serve as leading indicators such that lagged values of consumer credit variables can improve the accuracy of forecasts of these macro variables.
Entry barriers into social insurance programs will be effective screening devices if they cause only those individuals receiving higher benefits from a program to participate in that program. We find evidence for this by using plausibly exogenous variations in travel-related entry costs into the Canadian consumer bankruptcy system. Using detailed balance sheet and travel data, we find that higher travel-related entry costs reduce bankruptcies from individuals with lower financial benefits of bankruptcy (unsecured debt discharged, minus secured assets forgone). When compared across filers, each extra kilometer traveled to access the bankruptcy system requires approximately $11 more in financial benefits from bankruptcy.