Private Information and Price Regulation in the US Credit Card Market (2018). Job Market Paper.
Abstract: The 2009 CARD Act limited credit card lenders' ability to raise borrowers' interest rates on the basis of information learned during lending relationships. This paper estimates the efficiency and distributional effects of these restrictions using account-level data from a near-universe of US credit cards. I show that two forces drove these restrictions' effects. First, I show that the Act constrained lenders from adjusting interest rates after learning new information about default risk, which I find exacerbated adverse selection among existing borrowers and caused (partial) market unraveling on new accounts. Second, the Act constrained lenders from adjusting rates in response to new information about demand, which reduced lender rents from inelastic borrowers. To study the net effect of these two forces, I estimate a model that features time-varying consumer risk, flexible correlation between risk and demand characteristics, and differentiated lenders who acquire private information about borrowers over time. When I impose the CARD Act's pricing restrictions in the model, I find that equilibrium market unraveling is most severe for subprime consumers, but lower lender rents are important throughout the market, so that on net, the Act's restrictions allow consumers of all credit scores to capture higher surplus on average. Total surplus inclusive of firm profits rises among prime consumers, whereas gains in subprime consumer surplus are greatest among borrowers who were recently prime.
Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening (2018), with Alexander W. Bartik.
Abstract: We study recent bans on employers' use of credit reports to screen job applicants - a practice that has been popular among employers, but controversial for its perceived disparate impact on racial minorities. Exploiting geographic, temporal, and job-level variation in which workers are covered by these bans, we analyze these bans' effects in two datasets: the panel dimension of the Current Population Survey (CPS); and data aggregated from state unemployment insurance records. We find that the bans reduced quarterly job-finding rates by 2.4 percentage points, and increased subsequent separation rates for black new hires by 3 percentage points. Results for Hispanics and whites are less conclusive. We interpret these findings in a statistical discrimination model in which credit report data, more for blacks than for other groups, send a high-precision signal relative to the precision of employers' priors.
Tax Refund Expectations and Financial Behavior (2018), with Sydnee Caldwell and Daniel Waldinger.
Abstract: Many economic models predict that consumption decisions today depend on beliefs about risky future income. We quantify one contributor to income uncertainty and study its effects: uncertainty about annual tax refunds. In a low-income sample for whom tax refunds can be a substantial portion of income, we collect novel survey evidence on tax filers' expectations of and uncertainty about their tax refunds; we then link these data with administrative tax data, a panel of credit reports, and survey-based consumption measures. We find that while many tax filers have correct mean expectations about their refunds, there is substantial, and accurately reported, subjective uncertainty. Tax filers borrow moderate amounts out of expected tax refunds: for each dollar of expected refund, roughly 15 cents in revolving debt is repaid after refund receipt. This borrowing and repayment is less pronounced for more uncertain filers, consistent with precautionary behavior. The unexpected component of tax refunds is not used to pay down debt, but rather induces higher debt levels. Credit report and survey evidence both suggest that these higher debt levels are driven by newly financed durable purchases such as vehicles, illustrating how unexpected income can induce propensities to consume above 1 by relaxing down-payment collateral constraints.
Research in Progress
A Bankrupt System? Debt Collection Lawsuits and Wage Garnishment, with Hoai-Luu Nguyen.
Abstract: While there is an extensive literature on consumer bankruptcy, comparatively little is known about bankruptcy's close substitute, informal default: debtors can seek to avoid repayment by dodging collection efforts and forcing lenders to pursue a debt in court. We study informal default by conducting a novel, large-scale data collection of debt-related lawsuits from county and state courts, and by then joining these data with county-level credit bureau data nationwide. We ask three closely related questions. First, how common is informal default, and what drives debtor substitution between it and formal bankruptcy? Second, after informal default, which creditors rely on the court system to enforce repayment, and which consumers are most likely to be sued? Finally, does the local court system efficiently allocate forced repayment – through means such as wage garnishment – to debtors who are most able to repay, or is repayment instead allocated to consumers least likely to have a lawyer or to defend themselves in court?