EconPapers    
Economics at your fingertips  
 

The economics of debt collection: enforcement of consumer credit contracts

Viktar Fedaseyeu and Robert Hunt ()

No 15-43, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Superceded by WP 18-04 In the U.S., creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collection agencies. This paper argues that an important incentive for this is creditors' concerns about their reputations. Using a model along the lines of the common agency framework, we show that, under certain conditions, debt collection agencies use harsher debt collection practices than original creditors would use on their own. This appears to be consistent with empirical evidence. The model also fits several other empirical facts about the structure of the debt collection industry and its evolution over time. We show that the existence of third-party debt collectors may improve consumer welfare if credit markets contain a sufficiently large share of opportunistic borrowers who would not repay their debts unless faced with \harsh" debt collection practices. In other cases, the presence of third-party debt collectors can result in lower consumer welfare. The model provides insight into which policy interventions may improve the functioning of the collections market.

Keywords: Debt collection; Contract enforcement; Consumer credit markets; Regulation of credit markets; Credit cards; Fair Debt (search for similar items in EconPapers)
JEL-codes: D18 G28 L24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mkt
Date: 2015-11-01, Revised 2018-01-29
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.philadelphiafed.org/-/media/research-a ... 15/wp15-43.pdf?la=en Full text (application/pdf)

Related works:
Working Paper: The Economics of Debt Collection: Enforcement of Consumer Credit Contracts (2015) Downloads
Working Paper: The Economics of Debt Collection: Enforcement of Consumer Credit Contracts (2015) Downloads
Working Paper: The economics of debt collection: enforcement of consumer credit contracts (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:15-43

Ordering information: This working paper can be ordered from
http://www.phil.frb.org/econ/wps/index.html

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().

 
Page updated 2019-04-22
Handle: RePEc:fip:fedpwp:15-43