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Liquidity Constraints and Credit Card Delinquency: Evidence from Raising Minimum Payments

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  • d’Astous, Philippe
  • Shore, Stephen H.

Abstract

We use credit card data to estimate the impact of increasing minimum payments on delinquency, payments, spending, and write-offs. Our identification strategy exploits an unusual institutional feature: Borrowers can use their account to make purchases with both revolving loans (on which minimum payments increased) and term loans (on which there was no change). Payment increases by delinquent borrowers are insufficient to match increasing minimums, resulting in lower cure rates and an increase in write-offs. Affected borrowers migrate away from these accounts by decreasing charges and increasing payments, consequently lowering the interest earned by the bank.

Suggested Citation

  • d’Astous, Philippe & Shore, Stephen H., 2017. "Liquidity Constraints and Credit Card Delinquency: Evidence from Raising Minimum Payments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1705-1730, August.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:04:p:1705-1730_00
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    Cited by:

    1. Agarwal, Sumit & Ambrose, Brent W. & Diop, Moussa, 2022. "Minimum wage increases and eviction risk," Journal of Urban Economics, Elsevier, vol. 129(C).
    2. Keys, Benjamin J. & Wang, Jialan, 2019. "Minimum payments and debt paydown in consumer credit cards," Journal of Financial Economics, Elsevier, vol. 131(3), pages 528-548.
    3. Campbell, Daniel & Grant, Andrew & Thorp, Susan, 2022. "Reducing credit card delinquency using repayment reminders," Journal of Banking & Finance, Elsevier, vol. 142(C).
    4. Therese C. Scharlemann & Stephen H. Shore, 2022. "The effect of changing mortgage payments on default and prepayment: Evidence from HAMP resets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(5), pages 1231-1256, September.
    5. Paolina C. Medina & Jose L. Negrin, 2022. "The Hidden Role of Contract Terms: The Case of Credit Card Minimum Payments in Mexico," Management Science, INFORMS, vol. 68(5), pages 3856-3877, May.
    6. d’Astous, Philippe, 2019. "Responses to an anticipated increase in cash on hand: Evidence from term loan repayments," Journal of Banking & Finance, Elsevier, vol. 108(C).

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