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Repossession and the Democratization of Credit

Author

Listed:
  • Juliano J. Assunção
  • Efraim Benmelech
  • Fernando S. S. Silva

Abstract

We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the reform expanded credit to riskier, self-employed borrowers who purchased newer, more expensive cars. The legal change has led to larger loans with lower spreads and longer maturities. Although the credit reform improved riskier borrowers' access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform and highlight the crucial role that collateral and repossession play in the liberalization and democratization of credit.

Suggested Citation

  • Juliano J. Assunção & Efraim Benmelech & Fernando S. S. Silva, 2014. "Repossession and the Democratization of Credit," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2661-2689.
    • Handle: RePEc:oup:rfinst:v:27:y:2014:i:9:p:2661-2689.
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    File URL: http://hdl.handle.net/10.1093/rfs/hht080
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    Cited by:

    1. Guevara, Óscar J. & Riutort, Julio, 2024. "Strengthening secured creditors: Implications on debt financing and investment," Journal of Corporate Finance, Elsevier, vol. 84(C).
    2. Ms. Rima A Turk, 2015. "Financial Decisions and Investment Outcomes in Developing Countries: The Role of Institutions," IMF Working Papers 2015/038, International Monetary Fund.
    3. Benjamin L. Collier & Daniel A. Hartley & Benjamin J. Keys & Jing Xian Ng, 2024. "Credit When You Need It," NBER Working Papers 32845, National Bureau of Economic Research, Inc.
    4. Dimas Mateus Fazio & Thiago Christiano Silva, 2020. "Housing Collateral Reform and Economic Reallocation," Working Papers Series 522, Central Bank of Brazil, Research Department.
    5. Frederico A. Mourad & Rafael F. Schiozer & Toni R. E. dos Santos, 2020. "Bank Loan Forbearance: evidence from a million restructured loans," Working Papers Series 541, Central Bank of Brazil, Research Department.
    6. Beltratti, Andrea & Benetton, Matteo & Gavazza, Alessandro, 2017. "The role of prepayment penalties in mortgage loans," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 165-179.
    7. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España.
    8. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España.
    9. Ayyagari, Meghana & Beck, Thorsten & Hoseini, Mohammad, 2020. "Finance, law and poverty: Evidence from India," Journal of Corporate Finance, Elsevier, vol. 60(C).
    10. Carlos Carvalho & Nilda Pasca & Laura Souza & Eduardo Zilberman, 2023. "Macroeconomic Effects of Credit Deepening in Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1817-1855, October.
    11. Fedaseyeu, Viktar, 2020. "Debt collection agencies and the supply of consumer credit," Journal of Financial Economics, Elsevier, vol. 138(1), pages 193-221.
    12. Carrasco, Vinicius & Salgado, Pablo, 2014. "Coordinated strategic defaults and financial fragility in a costly state verification model," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 129-139.
    13. Bertran, Maria Paula & Echeverry, David, 2021. "What is the size of credit card debt in Brazil? Reporting Thresholds, Interest Rates and Income Distribution," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    14. Veloso,Fernando & Gabriel Roberto Zaourak, 2024. "A Literature Review on Productivity and Growth in Brazil," Policy Research Working Paper Series 10897, The World Bank.
    15. Milonas, Kristoffer, 2017. "The effect of foreclosure laws on securitization: Evidence from U.S. states," Journal of Financial Stability, Elsevier, vol. 33(C), pages 1-22.
    16. Narayanan, Rajesh P. & Pritchett, Jonathan, 2025. "The paradox of slave collateral," Explorations in Economic History, Elsevier, vol. 97(C).
    17. Olivier De Jonghe & Tong Zhao & Hans Degryse & Luc Laeven, 2025. "Collateral and credit," Working Paper Research 482, National Bank of Belgium.
    18. Zegarra, Luis Felipe, 2017. "Usury laws and private credit in Lima, Peru. Evidence from notarized records," Explorations in Economic History, Elsevier, vol. 65(C), pages 68-93.
    19. Ceyla Pazarbasioglu-Dutz & Steen Byskov & Marco Bonomo & Igor Carneiro & Bruno Martins & Adriana Perez, 2017. "Brazil Financial Intermediation Costs and Credit Allocation," World Bank Publications - Reports 26401, The World Bank Group.
    20. Xu, Bing, 2019. "Permissible collateral and access to finance: Evidence from a quasi-natural experiment," China Economic Review, Elsevier, vol. 54(C), pages 237-255.
    21. Carvalho, Carlos & Pasca, Nilda & Souza, Laura & Zilberman, Eduardo, 2019. "Macroeconomic Macroeconomic Effects of Credit Deepening in Latin America," Working Papers 2019-013, Banco Central de Reserva del Perú.
    22. Leonardo S. Alencar & Rodrigo Augusto Silva de Andrade & Klenio de Souza Barbosa, 2020. "Creditor's Protection and Bank Loans: market power and bankruptcy reform's effects," Working Papers Series 521, Central Bank of Brazil, Research Department.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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