How Do Consumers Avoid Penalty Fees? Evidence From Credit Cards

90 Pages Posted: 1 May 2017 Last revised: 11 Dec 2019

See all articles by John Gathergood

John Gathergood

University of Nottingham - School of Economics

Hiroaki Sakaguchi

University of Warwick

Neil Stewart

Warwick Business School, University of Warwick

Joerg Weber

University of Exeter Business School - Department of Economics

Date Written: December 11, 2019

Abstract

Using data from multiple card issuers, we show that the most common penalty fee type incurred by credit card holders – late payment fees – declines sharply over the first few months of card life. This phenomenon is wholly due to some consumers adopting automatic payments after a late payment event, thereby insuring themselves against future late payment fees. Non-adopters, who remain on manual-only payments, experience an unchanged high likelihood of future fees, despite exhibiting ample levels of available liquidity. Our results show that heterogeneity in adopting account management features of financial products, such as automatic payments, is important for understanding who avoids financial mistakes.

Keywords: credit cards, penalty fees, automatic payments, direct deposit

JEL Classification: D10, D12, D4, G21

Suggested Citation

Gathergood, John and Sakaguchi, Hiroaki and Stewart, Neil and Weber, Joerg, How Do Consumers Avoid Penalty Fees? Evidence From Credit Cards (December 11, 2019). Available at SSRN: https://ssrn.com/abstract=2960004 or http://dx.doi.org/10.2139/ssrn.2960004

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

Hiroaki Sakaguchi

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Neil Stewart

Warwick Business School, University of Warwick ( email )

Gibbet Hill Road
Coventry, West Midlands CV4 8UW
United Kingdom

HOME PAGE: http://www.stewart.warwick.ac.uk

Joerg Weber

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom

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