Consumer Credit Counseling: Credit Card Issuers' Perspectives

Two years following the 1997-98 Korean financial crisis, the Korean government attempted to bolster consumer spending and re-invigorate the national economy by pursuing a series of policies that directly promoted the use of consumer credit cards. Subsequently, consumer credit card spiked upward, which led to a dramatic surge in individual debtor defaults. The government in response mode again thereafter initiated a three-pronged legislative effort to counter the post-1997 individual debtor polemic: (i) the Individual Debtor Rehabilitation Act (“IDRA” or the “Act”); (ii)) the Korea Asset Management Company’s Bad Bank (KAMCO or “Bad Bank”); and (iii) the Credit Counseling and Recovery Service (CCRS) (collectively, the “Legal Acts”). This paper surveys and analyzes the Legal Acts approach to resolving South Korea’s post-1997 consumer credit card spending polemic.

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Why Did Credit Card Balances Decline so Much during the COVID-19 Pandemic

FEDS Notes ◽

10.17016/2380-7172.3021 ◽

2021 ◽

Vol 2021 (3025) ◽

Author(s):

Robert M. Adams ◽

◽

Vitaly M. Bord ◽

Bradley Katcher ◽

◽

...

Keyword(s):

United States ◽

Credit Card ◽

Consumer Credit ◽

The United States ◽

History Of

Consumer credit card balances in the United States experienced unprecedented declines during the COVID-19 pandemic. According to the G.19 Consumer Credit statistical release, revolving consumer credit fell more than $120 billion (11 percent) in 2020, the largest decline in both nominal and percentage terms in the history of the series.

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The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data

Finance and Economics Discussion Series ◽

10.17016/feds.2021.008 ◽

2021 ◽

Vol 2021 (008) ◽

pp. 1-55

Author(s):

Akos Horvath ◽

◽

Benjamin Kay ◽

Carlo Wix ◽

◽

...

Keyword(s):

Interest Rates ◽

Credit Card ◽

Negative Impact ◽

Consumer Credit ◽

Credit Cards ◽

Sharp Decrease ◽

Main Driver ◽

Credit Card Data ◽

Pandemic Severity ◽

The Impact

We use credit card data from the Federal Reserve Board's FR Y-14M reports to study the impact of the COVID-19 shock on the use and availability of consumer credit across borrower types from March through August 2020. We document an initial sharp decrease in credit card transactions and outstanding balances in March and April. While spending starts to recover by May, especially for risky borrowers, balances remain depressed overall. We find a strong negative impact of local pandemic severity on credit use, which becomes smaller over time, consistent with pandemic fatigue. Restrictive public health interventions also negatively affect credit use, but the pandemic itself is the main driver. We further document a large reduction in credit card originations, especially to risky borrowers. Consistent with a tightening of credit supply and a flight-to-safety response of banks, we find an increase in interest rates of newly issued credit cards to less creditworthy borrowers.

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Kueski: Revolutionizing Consumer Credit in Mexico

Kellogg School of Management Cases ◽

10.1108/case.kellogg.2021.000011 ◽

2017 ◽

pp. 1-10

Author(s):

Sarit Markovich ◽

Nilima Achwal

Keyword(s):

Financial Market ◽

Financial Services ◽

Scoring System ◽

Credit Card ◽

Consumer Credit ◽

Credit Scoring ◽

Loan Approval

This case asks students to step into the role of Adalberto Flores, co-founder and CEO of Kueski, one of the first companies to develop a proprietary algorithm for online loan approval in Mexico. Mexico lacks a standardized credit scoring system, making it difficult for many Mexicans to get approved for a loan or credit card. This, together with the fact that Mexicans generally do not trust traditional banks, makes Mexico an attractive opportunity for fintech companies. Growth, however, could require fintech companies to partner with traditional banks. Students assume the role of Flores to think about the benefits and risks associated with a partnership between Kueski and traditional banks. Students are also challenged to compare the structure of U.S. financial services markets with the Mexican structure and consider the implications on the sustainability of fintech companies in the two markets. The teaching note analyzes the Mexican financial market and the benefits and threats it holds for fintech companies, and outlines a framework for evaluating the risk associated with partnerships.

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Medical Debt and Consumer Credit Counseling Services

Journal of Health Care for the Poor and Underserved ◽

10.1353/hpu.2004.0041 ◽

2004 ◽

Vol 15 (3) ◽

pp. 336-346 ◽

Cited By ~ 3

Author(s):

Deborah Gurewich ◽

Jeffrey Prottas ◽

Robert W. Seifert ◽

Susan Seager

Keyword(s):

Consumer Credit ◽

Counseling Services ◽

Credit Counseling ◽

Medical Debt

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Timing to the Statement: Understanding Fluctuations in Consumer Credit Use

Management Science ◽

10.1287/mnsc.2020.3720 ◽

2020 ◽

Author(s):

Sumit Agarwal ◽

Amit Bubna ◽

Molly Lipscomb

Keyword(s):

Credit Card ◽

Consumer Credit ◽

Liquidity Constraints ◽

Mental Accounting ◽

Debit Card ◽

Mixed Support

We show that consumers spend 15% more per day in the first week following the receipt of a credit card statement than in the days just prior to the statement. This increase in spending includes both an increase in the likelihood that they use the credit card in the first weeks following their statement and an increase in transaction amount on days they use the credit card. In contrast to the effect on credit card spending, debit card spending is unaffected by credit card statement issuance, suggesting that consumers are not simply switching among modes of payment. Our estimates are based on exogenous variation from bank-assigned statement dates. We propose and test several alternative explanations to this spending puzzle: optimization of the free float, salience effect of the credit card statement, mental accounting, liquidity constraints, and automatic payments. We find that the consumers most apt to spend early in the credit card cycle tend to be those who do not revolve balances and are not close to their credit limit. Thus, this paper documents a puzzle with mixed support for several alternative explanations. This paper was accepted by David Simchi-Levi, finance.

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Credit counseling: a substitute for consumer financial literacy?

Journal of Pension Economics and Finance ◽

10.1017/s1474747215000219 ◽

2015 ◽

Vol 14 (4) ◽

pp. 466-491 ◽

Cited By ~ 10

Author(s):

RICHARD DISNEY ◽

JOHN GATHERGOOD ◽

JÖRG WEBER

Keyword(s):

Financial Literacy ◽

Consumer Credit ◽

Safety Net ◽

Financial Situation ◽

Financial Advice ◽

Credit Counseling

AbstractIs financial literacy a substitute or complement for financial advice? We analyze the decision by consumers to seek financial advice in the form of credit counseling. Credit counseling is an important component of the consumer credit sector for consumers facing debt problems. Our analysis accounts for the endogeneity of an individual's financial situation to financial literacy, and the endogeneity of financial literacy to exposure to credit counseling. Results show counseling substitutes for financial literacy. Individuals with better literacy are 60% less likely to use credit counseling. These results suggest that credit counseling provides a safety net for poor financial literacy.

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The “Everything Card” and Consumer Credit in the United States in the 1960s

The Business History Review ◽

10.1017/s0007680511000808 ◽

2011 ◽

Vol 85 (3) ◽

pp. 551-575 ◽

Cited By ~ 5

Author(s):

Christine Zumello

Keyword(s):

New York ◽

Commercial Bank ◽

Credit Card ◽

Consumer Credit ◽

Credit Cards ◽

The United States ◽

Retail Banking ◽

Mass Consumption ◽

Legislative Action ◽

The 1960S

First National City Bank (FNCB) of New York launched the Everything Card in the summer of 1967. A latecomer in the field of credit cards, FNCB nonetheless correctly recognized a promising business model for retail banking. FNCB attempted not only to ride the wave of mass consumption but also to capitalize on the profit-generating potential of buying on credit. Although the venture soon failed, brought down by the losses that plagued the bank due to fraud, consumer discontent, and legislative action, this final attempt by a major single commercial bank to launch its own plan did not signify the end of credit cards. On the contrary, the Everything Card was a harbinger of the era of the universal credit card.

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