Lender liability in the Consumer Credit Market

In many countries consumer credit legislation provides for the extension of liability for product failure to the …nancial institution that advances credit to the consumer. In particular, lender liability is imposed on those credit grantors who closely operate with the supplier of the good. This paper provides a rationale for lender-responsibility in the consumer credit market. It shows that, when judicial enforcement is ine¢cient or there is risk of seller liquidation, lender-liability helps to protect consumers who systematically underestimate the probability of product failure and overestimate the extent to which they can obtain compensation.

Informational synergies in consumer credit

Lenders can tap into multiple sources of private information to assess consumer credit risk but little is known about the informational synergies between these sources. Using unique panel data on checking accounts and credit card accounts from the same customers during 2007-2014, we find that activity measures from both account types contain information beyond credit scores and other controls. Checking accounts display warning indications earlier and more accurately than credit card accounts. We also investigate the consistency of information, the reasons for defaults, and selection effects. The evidence highlights sizeable informational synergies that lenders can use to manage credit relationships.

Probabilidade de financiamento por cartões de crédito híbridos

Esta pesquisa tem o objetivo de identificar as variáveis e sua influência na propensão à aquisição de crédito pessoal, propondo um modelo estatístico de propensão ao financiamento por cartões de crédito híbridos para maximização de contratação de crédito e otimização dos esforços de marketing. O estudo descritivo pode gerar insights para a compreensão da expansão do crédito ao consumo, sobretudo num contexto de escassez de opções de financiamento e limitação no canal de distribuição. Foram usados dados de uma base de clientes de uma instituição financeira com variáveis sócio demográficas e transacionai, e o modelo matemático foi seguido da validação de sua capacidade preditiva.

Information asymmetry and competition in credit markets: the pricing of overdraft loans in Brazil

This paper evaluates how information asymmetry affects the strength of competition in credit markets. A theory is presented in which adverse selection softens competition by decreasing the incentives creditors have for competing in the interest rate dimension. In equilibirum, although creditors compete, the outcome is similar to collusion. Three empirical implications arise. First, interest rate should respond asymmetrically to changes in the cost of funds: increases in cost of funds should, on average, have a larger effect on interest rates than decreases. Second, aggressiveness in pricing should be associated with a worseing in the bank level default rates. Third, bank level default rates should be endogenous. We then verify the validity of these three empirical implications using Brazilian data on consumer overdraft loans. The results in this paper rationalize seemingly abnormallly high interest rates in unsecured loans.