For many debt-laden consumers, including the minimum required payment information on their account statements can reduce the amount they pay each month by as much as 24% – about $120 less on a $2,000 balance – Lemon, Salisbury and their British co-authors report in the current edition of the Journal of Marketing Research.
The findings are based on surveys of more than 500 U.S. consumers and an analysis of anonymous data for more than 100,000 British cardholders from 11 different lenders.
“The mere presence of minimum payment information acts like an anchor on borrowers’ repayments, pulling them downward,” said Salisbury, an assistant professor of marketing whose research examines influences on consumer decision-making. “This presents a tricky balancing act for lenders: removing the minimum required payment may increase repayments overall, but it would also put lenders at greater risk of increasing default levels.”
With credit card debt hovering at slightly more than $10,000 for the typical American household and regulations mandating a range of debt and repayment information be included in monthly statements, researchers sought to find out if the data actually motivate consumers to pay down their debt.
Increasing the minimum required payment – typically from 2 percent to 5 percent of the loan balance – actually had a positive effect on repayment for most consumers. However, that alone wasn’t enough to overcome the negative effects of posting the minimum required payment, according to the researchers from Boston College and the University of Warwick, University of Essex and University College London, all in the United Kingdom.
In addition, displaying information like payment scenario timelines and potential long-term interest costs – as is now required on US credit card statements – did not encourage increased payments. Disclosing future interest costs significantly increased the likelihood a cardholder would pay only the minimum required.
Borrowers’ credit limit, balance due and propensity to pay the minimum required payment all factored into the influence of statement data on payment behavior, the team found.
For borrowers who typically pay the minimum each month, increasing the minimum required amount has a positive effect, but this is not the case for borrowers who typically pay more than the minimum required; increasing the minimum had no effect for them.
While the U.S. CARD Act of 2009 mandated many of these new information disclosures, researchers point out that disclosure alone is not likely to increase debtors’ monthly repayments to the levels expected.
The researchers urged “clinical trials” to test the impact of debt information disclosure, noting that the U.S. Office of Management and Budget had drawn the same conclusion in their guiding principles for the use of information disclosures in the regulatory process.
“By testing new regulations more thoroughly before implementing them, regulators can avoid unintended consequences such as those identified in this research,” said Lemon, the Carroll School’s Accenture Professor, whose research focuses on customer management, customer equity, and the dynamics of customer-firm relationships.
--Ed Hayward, Office of News & Public Affairs, email@example.com
Ed Hayward | EurekAlert!
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik
More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.
Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...
Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.
"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...
The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.
Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...
The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...
Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.
Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...
20.04.2017 | Event News
18.04.2017 | Event News
03.04.2017 | Event News
27.04.2017 | Life Sciences
27.04.2017 | Physics and Astronomy
27.04.2017 | Earth Sciences