Template-Type: ReDIF-Paper 1.0
Author-Name: Hong Ru
Author-X-Name-First: Hong
Author-X-Name-Last: Ru
Author-Name: Antoinette Schoar
Author-X-Name-First: Antoinette
Author-X-Name-Last: Schoar
Title: Do credit card companies screen for behavioural biases?
Abstract: Using granular data on the contract terms and design details of more than 1.3 million credit card offers, we document how card issuers shroud unappealing, back-loaded features of an offer (e.g., high default APRs, late or over-limit fees) via the position of the information, font size, or complexity of the language used. More heavily shrouded offers that rely on back-loaded fees are also more likely to be offered to less-educated consumers. In addition, we document a novel interaction between behavioral screening and adverse selection: Using changes in state-level unemployment insurance (UI) as positive shocks to consumer creditworthiness, we show that issuers rely more on shrouded and back-loaded fees when UI increases, especially for less-educated consumers. Card issuers weigh short-term rent maximization against increased credit risk when targeting consumers' behavioral biases.
Length: 53 pages
Creation-Date: 2020-02
File-URL: https://www.bis.org/publ/work842.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work842.htm
File-Format: text/html
Number: 842
Classification-JEL: G02, G1, G21, G23
Keywords: credit card, shrouding, back-loaded
Handle: RePEc:bis:biswps:842