Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Carroll School Researchers Find Credit Card Bill Notes Curb Repayment Amounts

08.11.2011
Credit card users are likely to pay less toward their debt if their monthly bills display information about the minimum amount required, according to an international team of researchers including Boston College Carroll School of Management Accenture Professor of Marketing Kay Lemon and Assistant Professor Linda Salisbury.

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, ed.hayward@bc.edu

Ed Hayward | EurekAlert!
Further information:
http://www.bc.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Stellar cartography

The Potsdam Echelle Polarimetric and Spectroscopic Instrument (PEPSI) at the Large Binocular Telescope (LBT) in Arizona released its first image of the surface magnetic field of another star. In a paper in the European journal Astronomy & Astrophysics, the PEPSI team presents a Zeeman- Doppler-Image of the surface of the magnetically active star II Pegasi.

A special technique allows astronomers to resolve the surfaces of faraway stars. Those are otherwise only seen as point sources, even in the largest telescopes...

Im Focus: Heading towards a tsunami of light

Researchers at Chalmers University of Technology and the University of Gothenburg, Sweden, have proposed a way to create a completely new source of radiation. Ultra-intense light pulses consist of the motion of a single wave and can be described as a tsunami of light. The strong wave can be used to study interactions between matter and light in a unique way. Their research is now published in the scientific journal Physical Review Letters.

"This source of radiation lets us look at reality through a new angle - it is like twisting a mirror and discovering something completely different," says...

Im Focus: Revealing the secret of the vacuum for the first time

New research group at the University of Jena combines theory and experiment to demonstrate for the first time certain physical processes in a quantum vacuum

For most people, a vacuum is an empty space. Quantum physics, on the other hand, assumes that even in this lowest-energy state, particles and antiparticles...

Im Focus: Sussex scientists one step closer to a clock that could replace GPS and Galileo

Physicists in the EPic Lab at University of Sussex make crucial development in global race to develop a portable atomic clock

Scientists in the Emergent Photonics Lab (EPic Lab) at the University of Sussex have made a breakthrough to a crucial element of an atomic clock - devices...

Im Focus: Sensing shakes

A new way to sense earthquakes could help improve early warning systems

Every year earthquakes worldwide claim hundreds or even thousands of lives. Forewarning allows people to head for safety and a matter of seconds could spell...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

International Modelica Conference with 330 visitors from 21 countries at OTH Regensburg

11.03.2019 | Event News

Selection Completed: 580 Young Scientists from 88 Countries at the Lindau Nobel Laureate Meeting

01.03.2019 | Event News

LightMAT 2019 – 3rd International Conference on Light Materials – Science and Technology

28.02.2019 | Event News

 
Latest News

Levitating objects with light

19.03.2019 | Physics and Astronomy

New technique for in-cell distance determination

19.03.2019 | Life Sciences

Stellar cartography

19.03.2019 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>