Working Papers
Removing the Fine Print: Standardized Products, Disclosure, and Consumer Outcomes
(with G. Iberti and S. Truffa)
Revise and Resubmit at Journal of Financial Economics
Prospective borrowers must study the fine print of loan contracts or risk surprises. To mitigate fine print, regulators have historically (a) improved disclosure or (b) standardized products. We use Chilean administrative data for a multi-stage natural experiment to separately identify the eects of disclosure and standardized products on borrower outcomes. We do this using Chile's unique dual-currency system, which generates exogenous variation around regulatory cutos. For financially sophisticated borrowers in our discontinuity sample disclosure reduces delinquencies by 13.7 percentage points or approximately 40%. We therefore use a difference-in-differences analysis to show that only standardized products benet less sophisticated borrowers.
Estimating The Information Component in Switching Costs: A Structural Approach
(with G. Iberti and S. Truffa)
We exploit a unique natural experiment to structurally estimate the information frictions associated with switching costs. Specically, we study a Chilean policy that simplied and standardized the presentation of loan characteristics in contracts and quotes. Using administrative data from the banking regulator, we exploit how this policy change affected the price-sensitivity in consumer decisions to identify the reduction in information frictions. We then incorporate this estimate into a dynamic structural model to explore the link between reduced informational frictions and welfare in long-term market equilibrium. We find that after the policy information frictions fell around 10 percent, which translated into an interest reduction of 180 basis points. We estimate a welfare improvement for consumers of 15 percent in the long run.
Works in Progress
Price Comparison Tools in Consumer Credit Markets (with Erik Berwart, Sean Higgins, and Santiago Truffa).
Don’t Lend So Close to Me: Payday Lending Spillover Effects on Formal Credit (with Michael Boutros, Sahil Raina, and Barry Scholnick).
We examine the impact of a hyper-local payday loan supply shock on debtor uses of formal credit, by matching debtor-level credit bureau data with location of individual payday lender entry and exit in a difference-in-differences setting. We find that payday lender entry into a neighborhood worsens the financial stress of borrowers who do not have the ability to borrow against housing, while only increasing credit card balances for those who do. However, we find that payday borrowing helps borrowers who are credit constrained, as their credit card balances under stress increase and credit scores drop significantly when a payday lender exits their neighbourhood. We also exploit exogenous variation in provincial regulation of payday lenders and find that 7 day cool-down periods between payday loans increase credit card stress, which persists for two years after payday lender entry. Regulations that restrict borrowers to one loan per lender increase their credit card balances under stress and damage their credit scores, though these effects are relatively short-lived. These results suggest that there are important heterogeneities in how payday borrowing interacts with formal credit products.