Borrowers in Search of Feedback: Evidence from Consumer Credit Markets

Inessa Liskovich and Maya Shaton

No 2017-049, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study recent technological innovation in credit markets and document their role in providing information to households. We show that households value the ability to learn detailed information about their cost of credit. This function is most valued by less creditworthy households with less experience in credit markets. To measure the demand for information provision we exploit a quasi-natural experiment in an online consumer credit market. A large lending platform unexpectedly switched from pricing loans through an auction mechanism to centralized pricing determined by broad credit grade. This change resulted in an instant decrease in the amount of tailored feedback available to market participants. We find that less experienced households immediately and disproportionately exit the market and the response is concentrated among higher risk households. We rule out alternative explanations such as changes in access to credit, borrower risk profiles, and interest rate levels. Our findings point to a potentially important role for financial innovation: enabling less experienced households to more easily learn about their credit market options.

Keywords: Consumer finance; Fintech; Household finance; Online lending markets (search for similar items in EconPapers)
JEL-codes: D12 D14 G20 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-05
New Economics Papers: this item is included in nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-49

DOI: 10.17016/FEDS.2017.049

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