Borrowing on the Wrong Credit Card: Evidence from Mexico

Abstract

We study how consumers allocate debt across credit cards they already hold using new data on credit card activity for a representative sample of consumers with two homogeneous cards in Mexico. We find that relative prices are a very weak predictor of the allocation of debt, purchases, and payments. On average, consumers pay 31 % above their minimum financing cost. Evidence on cross-card debt elasticities with respect to interest rates and credit limits show no substitution in the price margin. Our findings offer evidence against the cost-minimizing hypothesis and provide support to behavioral explanations.

Una radiografía de las tasas de interés bancarias para las pymes en México

“…Debe considerarse también que la poca respuesta de las tasas de interés activas a variaciones en las tasas de referencia puede estar influenciada por la baja elasticidad de la demanda de crédito respecto a la tasa de interés. La condición inelástica de las tasas de interés ha sido reportada para México por Ponce et al (2014), Seira, Castellanos y Jiménez (2015, y Seira, Elizondo y Laguna-Muggenburg (2017).…”

Bank Competition and The Price of Credit: Evidence Using Mexican Loan Level Data

“…Some of those measures did succeed in reducing the price of certain financial products or increasing demand for them. Other measures were less successful because of the low elasticity of credit demand with respect to the interest rate; see Ponce, Seira and Zamarripa (2014), Seira, Castellanos and Jiménez (2015), and Elizondo and Seira (2014).…”

“…Some papers study the effect of particular regulatory changes, but none focus on the effect of competition on credit conditions for non-financial firms. Ponce, Seira and Zamarripa (2014), Seira, Castellanos and Jiménez (2015), and Elizondo and Seira (2014) study specific regulatory changes and argue that these specific changes were ineffective due to the low elasticity of credit demand to interest rates. Finally, although banks faced more competition with the entry of niche banks during the last few years, important population segments kept using informal credit markets, see Campero and Kaiser (2013) and Castellanos et al (2012).…”