The effect of debt collection laws on access to credit

• Published in: Journal of public economics Vol. 195; p. 104320
• Main Authors: Romeo, Charles, Sandler, Ryan
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-03-2021
• Subjects: Access to credit; Debt collection; Public policy; Regulation; State policies; Access to credit; Regulation; Public policy; Debt collection; State policies
• ISSN: 0047-2727; 1879-2316
• DOI: 10.1016/j.jpubeco.2020.104320

•Restrictions on debt collection may affect access to credit.•We use administrative data to estimate the effect of recent state laws on credit cards.•Event study results show limited practical effect of restrictions on credit access.•Heterogeneous responses by lenders drive the null market-level result.
Debt collection is an important part of the consumer credit ecosystem, but has received little attention in the economics literature. Regulations on collection practices can protect consumers, but may also lead to unintended consequences if the costs of better practices are passed on to creditors, who in turn restrict consumers’ credit access or raise prices. Using detailed data on new credit card accounts, we study the effects of recent laws and regulations in four states that instituted conduct restrictions. We find that such restrictions reduce access to credit card accounts and raise interest rates, but that this effect is very small.