How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards

Gathergood, John; Sakaguchi, Hiroaki; Stewart, Neil; Weber, Joerg

doi:10.1287/mnsc.2019.3568

Cited by 10 publications

(4 citation statements)

References 39 publications

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“…Unlike other leading credit card datasets, our data allow us to link together multiple credit card accounts held by the same individual. 1 We study how individuals choose to allocate repayments across their credit cards, holding the total repayment in each month fixed. 2 The credit card repayment decision is an ideal laboratory for studying borrowing because behavior that minimizes interest charges, what we refer to as optimal behavior, can be clearly defined.…”

Section: How Do Individuals Repay Their Debt?mentioning

confidence: 99%

How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

Gathergood

Mahoney

Stewart

et al. 2019

American Economic Review

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131

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Section: How Do Individuals Repay Their Debt?mentioning

confidence: 99%

How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

Gathergood

Mahoney

Stewart

et al. 2019

American Economic Review

Self Cite

131

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“…The model includes a single hurdle of a repayment being made (i.e., not missed) before cardholders making a “choice” of a positive repayment value. As an exclusion restriction we draw on card tenure, exploiting the tendency of missed payments to decrease with card tenure due to cardholders’ tendency to forget to repay their cards when that are first issued, a feature of credit card repayments we document and explore in a recent paper (Gathergood et al 2021). This provides an arguably exogenous source of variation in missed payments.…”

Section: Field Data Study: Automatic Minimum Paymentsmentioning

confidence: 99%

Default Effects of Credit Card Minimum Payments

Sakaguchi¹,

Stewart²,

Gathergood³

et al. 2022

Journal of Marketing Research

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Credit card minimum payments are designed to ensure that individuals pay down their debt over time, and scheduling minimum automatic repayments helps to avoid forgetting to repay. Yet minimum payments have additional, unintended psychological default effects by drawing attention away from the card balance due. First, once individuals set the minimum automatic repayment as the default, they then neglect to make the occasional larger repayments they made previously. As a result, individuals incur considerably more credit card interest than late payment fees avoided. Using detailed transaction data, the authors show that approximately 8% of all of the interest ever paid is due to this effect. Second, manual credit card payments are lower when individuals are prompted with minimum payment information. Two new interventions to mitigate this effect are tested in an experiment, prompting full repayment and prompting those repaying little to pay more, with large counter effects. Hence, shrouding the minimum payment option for automatic and manual payments and directing attention to the full balance may remedy these unintended effects.

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“…A more limited option has been to obtain access to transaction data directly from credit card firms (e.g., Einav & Klenow 2021) or credit card issuers (e.g., Gathergood et al 2021). Such sources are limited to spending through particular channels and cards, and likely they have no information regarding income for a given individual or household.…”

Section: Banks Financial Intermediaries and Fintechmentioning

confidence: 99%

Household Financial Transaction Data

Baker

Kueng

2022

Annu. Rev. Econ.

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The growth of the availability and use of detailed household financial transaction micro data has dramatically expanded the ability of researchers to understand both household decision making and aggregate economic fluctuations across a wide range of fields. This class of transaction data is derived from a myriad of sources, including financial institutions, FinTech apps, and payment intermediaries. We review how these detailed data have been utilized in finance and economics research and analyze both their benefits and limitations as compared to more traditional measures of income, spending, and wealth. Finally, we discuss the future potential of this flexible class of data in firm-focused research, real-time policy analysis, and macro statistics.

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How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards

Abstract: Please refer to published version for the most recent bibliographic citation information. If a published version is known of, the repository item page linked to above, will contain details on accessing it.

Cited by 10 publications

References 39 publications

How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

How Do Individuals Repay Their Debt? The Balance-Matching Heuristic

Default Effects of Credit Card Minimum Payments

Household Financial Transaction Data

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