The Economics of Debt Collection: Enforcement of Consumer Credit Contracts

54 Pages Posted: 1 Feb 2018

See all articles by Viktar Fedaseyeu

Viktar Fedaseyeu

China Europe International Business School (CEIBS)

Robert M. Hunt

Consumer Finance Institute, Federal Reserve Bank of Philadelphia

Multiple version iconThere are 3 versions of this paper

Date Written: 2018-01-29

Abstract

Creditors often outsource the task of obtaining repayment from defaulting borrowers to third-party debt collectors. We argue that by hiring third-party debt collectors, creditors can avoid competing in terms of their debt collection practices. This explanation fits several empirical facts about third-party debt collection and is consistent with the evidence that third-party debt collectors use harsher debt collection practices than original creditors. Our model shows that the impact of third-party debt collectors on consumer welfare depends on the riskiness of the pool of borrowers and provides insights into which policy interventions may improve the functioning of the debt collection market.

Keywords: debt collection, contract enforcement, consumer credit markets, regulation of credit markets, credit cards, Fair Debt Collections Practices Act

JEL Classification: D18, G28, L24

Suggested Citation

Fedaseyeu, Viktar and Hunt, Robert M., The Economics of Debt Collection: Enforcement of Consumer Credit Contracts (2018-01-29). FRB of Philadelphia Working Paper No. 18-4, Available at SSRN: https://ssrn.com/abstract=3112956 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2018.04

Viktar Fedaseyeu (Contact Author)

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

HOME PAGE: http://https://www.ceibs.edu/fviktar

Robert M. Hunt

Consumer Finance Institute, Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3806 (Phone)
215-574-7101 (Fax)

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