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Consumer finance

Navigating Credit Bureau Data: Field Notes for Researchers,” (2024)

SSRN Working Paper 4891923. [+ bibtex]

This guide instructs researchers on effectively utilizing credit bureau data for academic research. It outlines the potential research applications of credit bureau data, such as examining household debt, financial health, credit supply, and the effects of personal debt on economic activity. The guide also addresses the strengths and limitations of this data, the process of acquiring it from vendors, and best practices for merging it with other data sources.

Shale Shocked: Cash Windfalls and Household Debt Repayment,” (w/ J.A. Cookson and E. Gilje, 2022)

Journal of Financial Economics, 146(3): 905-931. [+ bibtex]

Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Personal Wealth, Self-Employment, and Business Ownership,” (w/ A. Bellon, J.A. Cookson, & E. Gilje, 2021)

Review of Financial Studies, 34(8): 3935-3975. [+ bibtex]

We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.

Growing Up Without Finance,” (w/ J. Brown and J.A. Cookson, 2019)

Journal of Financial Economics, 134(3): 591-616. [+ bibtex]

In Financial Times list of business school research with social impact

Finalist for TIAA Paul A. Samuelson Award

Early-life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using Congressional legislation that led to unintended differences in financial market development across Native American reservations. Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have 10 point lower credit scores and 4 percentage point more delinquent accounts. These effects are long-lived and depreciate slowly after individuals move to more developed areas. Formative exposures to local banking improve consumer credit behavior by increasing financial literacy and financial trust.

Politicizing Consumer Credit,” (w/ P. Akey and S. Lewellen, 2021)

Journal of Financial Economics, 139(2): 627-655. [+ bibtex]

Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.

Using High-Frequency Evaluations to Estimate Disparate Treatment: Evidence from Loan Officers,” (w/ M. Giacoletti and E. Yu)

R&R, Review of Financial Studies [+ bibtex]

Best paper winner at MFA 2021 

We develop modified benchmarking tests for disparate treatment that we apply to 25 years of mortgage lending. Our tests limit the scope for omitted variables by linking high-frequency mortgage decisions to an economic mechanism—loan officers have volume quotas that cause increased approval rates at month-end. We estimate that these quotas at least halve the unexplained 7 ppt Black approval gap. Loan officers more likely to miss their quotas have larger increases in Black approvals. Suggesting supply-side mechanisms, applications arrive at a constant rate within-month, and neither differences in credit risk nor applicant preferences explain the month-end decline in racial differences.

"The Financial Restitution Gap in Consumer Finance: Insights from Filings with the CFPB" (w/ Haendler)
Working Paper [+ bibtex]

Consumers seek restitution for disputed financial services by filing complaints with the Consumer Financial Protection Bureau (CFPB). We find that filings from low-socioeconomic (i.e., low-income and African American) zip codes were 30% less likely to be resolved with the consumer receiving financial restitution. At the same time, low- and high-socioeconomic zip codes submitted an equal share of the CFPB complaints. The socioeconomic gap in financial restitution was scarcely present under the Obama administration, but grew substantially under the Trump administration. We attribute the change in financial restitution under different political regimes to companies anticipating a more industry-friendly CFPB, as well as to the more industry-friendly leadership of the CFPB achieving less financial restitution for low-socioeconomic filers. The financial restitution gap cannot be explained by differences in product usage nor the quality of complaints, which we measure using textual analysis.

"Pushing Boundaries: Political Redistricting and Consumer Credit," (w/ Akey, Dobridge, and Lewellen)
Working Paper [+ bibtex]
Consumers lose access to credit when their congressional district boundaries are irregularly redrawn to benefit a political party (i.e., are gerrymandered). We identify this effect by matching a longitudinal panel of consumer credit data with changes in congressional district boundaries following decennial censuses. Reductions in credit access are concentrated in states that allow elected politicians to draw political boundaries and in districts where subsequent congressional elections are less competitive. We find similar reductions in credit access when state senate district boundaries are irregularly redrawn and when states make it more difficult for constituents to vote. Overall, our findings are consistent with theories suggesting that less-competitive political races reduce politicians’ incentives to cater to their constituents’ preferences.

Intergenerational Homeownership and Mortgage Distress,” (w/ N. Fritsch)

FRB-CLE Economic Commentary, June 2020.

Rates of US homeownership have declined in the past two decades, and the decline has been especially pronounced for young adults. Motivated by recent research that explores the ways in which personal experiences can affect financial attitudes and beliefs, we explore whether the negative homeownership experiences of parents during the 2008 financial crisis could have caused their children to view homeownership less favorably. We find that parental mortgage distress negatively correlates with the probability that a child will purchase a home, and we explore various channels through which this link may occur.

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