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Credit card borrowing, delinquency, and personal bankruptcy


  • Joanna Stavins


Credit card delinquencies and personal bankruptcy rates increased during the mid 1990s, despite the strength of the U.S. economy. Even though per capita income rose during that period, household borrowing grew at an even faster pace. The rise in revolving debt-mainly credit card loans-was especially noticeable, and the increase in personal bankruptcy rates was also substantial. This article examines the relationship between consumer credit card borrowing, delinquency rates, and personal bankruptcies. The author looks at developments involving borrowers, the demand side, and lenders, the supply side. ; Credit card loans have been extended to higher-risk consumers over time. Using data collected in the 1998 Survey of Consumer Finances, the author examines the effect of credit card borrowing on consumer payments delinquency and the relationship between credit card debt and the increase in bankruptcy rates. She also tests whether credit card lenders face an adverse selection problem, whereby banks making worse credit card offers attract more risky customers and have higher delinquency and charge-off rates than others. She finds that banks that charge higher interest rates and some fees have higher delinquency rates, but not higher charge-off rates. Moreover, banks that charge higher interest rates were found to have higher net revenues from credit card lending than other issuers.

Suggested Citation

  • Joanna Stavins, 2000. "Credit card borrowing, delinquency, and personal bankruptcy," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 15-30.
  • Handle: RePEc:fip:fedbne:y:2000:i:jul:p:15-30

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    References listed on IDEAS

    1. Glenn B. Canner & Arthur B. Kennickell & Charles A. Luckett, 1995. "Household sector borrowing and the burden of debt," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 323-338.
    2. David K. Musto, 1999. "The Reaquisition of Credit Following Chapter 7 Personal Bankruptcy," Center for Financial Institutions Working Papers 99-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, February.
    4. Edward J. Bird & Paul A. Hagstrom & Robert Wild & Janet A. Weiss, 1999. "Credit card debts of the poor: High and rising," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(1), pages 125-133.
    5. Sandra E. Black & Donald P. Morgan, 1999. "Meet the new borrowers," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Feb).
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    Cited by:

    1. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston.
    2. Singh, Shweta & Murthi, B.P.S. & Steffes, Erin, 2013. "Developing a measure of risk adjusted revenue (RAR) in credit cards market: Implications for customer relationship management," European Journal of Operational Research, Elsevier, vol. 224(2), pages 425-434.
    3. Massoud, Nadia & Saunders, Anthony & Scholnick, Barry, 2011. "The cost of being late? The case of credit card penalty fees," Journal of Financial Stability, Elsevier, vol. 7(2), pages 49-59, June.
    4. Mamie Marcuss, 2004. "A look at household bankruptcies," Communities and Banking, Federal Reserve Bank of Boston, issue Spr, pages 15-20.
    5. Irina A. Telyukova, 2013. "Household Need for Liquidity and the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1148-1177.
    6. Kartik B. Athreya, 2004. "Shame as it ever was : stigma and personal bankruptcy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-19.
    7. Gross, Tal & Notowidigdo, Matthew J., 2011. "Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 767-778, August.
    8. Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2016. "The Marginal Propensity to Consume Over the Business Cycle," NBER Working Papers 22518, National Bureau of Economic Research, Inc.
    9. Kartik B. Athreya & Hubert P. Janicki, 2006. "Credit exclusion in quantitative models of bankruptcy: does it matter?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 17-49.
    10. Wang, Lili & Lu, Wei & Malhotra, Naresh K., 2011. "Demographics, attitude, personality and credit card features correlate with credit card debt: A view from China," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 179-193, February.
    11. Christian Weller, 2010. "Have Differences in Credit Access Diminished in an Era of Financial Market Deregulation?," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 1-34.
    12. Oh, Joon-Hee & Johnston, Wesley J., 2014. "Credit lender–borrower relationship in the credit card market – Implications for credit risk management strategy and relationship marketing," International Business Review, Elsevier, vol. 23(6), pages 1086-1095.

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    Credit ; Credit cards ; Bankruptcy ; Consumer credit;


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