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Working Paper
New Evidence on an Old Unanswered Question : Why Some Borrowers Purchase Credit Insurance and Other Debt Protection and Some Do Not
Credit related insurance and other debt protection are products sold in conjunction with credit that extinguish a consumer?s debt or suspends its periodic payments if events like death, disability, or involuntary unemployment occur. High penetration rates observed in the 1950s and 1960s raised concerns about coercion in the sale of credit insurance. This study presents evidence on credit insurance purchase and debt protection decisions from a new survey. The findings provide little evidence of widespread or systematic coercion in purchases. Instead, findings suggest that risk aversion and ...
Working Paper
A New Look at the Effects of the Interest Rate Ceiling in Arkansas
Arkansas has been a popular place to study the effects of rate ceilings because of its exceptionally low interest rate ceiling. This paper examines the effects of the Arkansas rate ceiling on credit use by risky nonprime Arkansas consumers, which are especially vulnerable to credit rationing because of the low ceiling. We compare the level and composition of consumer debt of nonprime consumers in Arkansas with that of prime Arkansas consumers and also nonprime consumers in the neighboring states. We find that nonprime Arkansas consumers are less likely to have consumer debt and, conditional ...
Journal Article
Survey of Finance Companies, 2015
Finance companies are nondepository financial firms whose primary business is providing debt and lease financing to consumers and businesses. This article reports findings from a Federal Reserve survey of the assets and liabilities of finance companies in 2015. While the finance company industry provides a wide variety of credit and lease products, the survey indicates that firms in the industry are highly specialized. Nearly all finance companies hold a majority of their assets in one type of credit--consumer, real estate, or business credit. Firms specializing in consumer loans and leases ...
Journal Article
Financial characteristics of high-income families
Working Paper
Discrimination in consumer lending
Working Paper
FinTech and Banks: Strategic Partnerships That Circumvent State Usury Laws
Previous research has found evidence suggesting that financial technology (FinTech) lenders seek out opportunities in markets that have been underserved by mainstream banks. The research focuses primarily on the effect of bank market structure, limited income, and economic hardship in attracting FinTech companies to underserved markets. This paper expands the scope of FinTech research by investigating the role of interest rate regulation of consumer credit and institutional risk segmentation in FinTech lenders' efforts to solicit new customers in the personal loan market. We find that ...
Working Paper
Implications of behavioral research for the use and regulation of consumer credit products
This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals. While most economists and psychologists agree that cognitive errors and time ...
Working Paper
The Credit Card Act and Consumer Finance Company Lending
The Credit Card Accountability and Disclosure Act (CARD Act) of 2009 restricted several risk management practices of credit card issuers. Using a quasi-experimental design with credit bureau data on consumer lending, we find evidence consistent with the hypothesis that the act??s restrictions on risk management practices contributed to a large decline in bank card holding by higher risk, nonprime consumers but had little effect on prime consumers. Looking at consumer finance loans, historically a source of credit for higher risk consumers, we find greater reliance on such loans by nonprime ...