How Do Consumers Avoid Penalty Fees?
Evidence From Credit Cards

70 Pages Posted: 1 May 2017  

John Gathergood

University of Nottingham - School of Economics

Hiroaki Sakaguchi

University of Warwick

Neil Stewart

University of Warwick

Joerg Weber

University of Nottingham - School of Economics; University of Nottingham - Centre for Decision Research and Experimental Economics

Date Written: April 15, 2018

Abstract

Consumer heterogeneity in adopting account management features of financial products, such as automatic repayments, is important for understanding how some consumers avoid financial mistakes. Using detailed data from multiple card issuers we show that credit card late payment fees decline sharply over the first few months of card life. This may suggest that consumers learn to remember to repay on time, but we show that memory does not drive this decline in fees. Instead, it is wholly due to consumers switching to automatic payments – thereby avoiding the need to remember to repay altogether. Not all consumers make this switch. Those who continue with manual payments and rely on memory to repay on time see the likelihood of future fees unchanged at 20% per month.

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 (April 15, 2018). 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 )

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

University of Warwick ( email )

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

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

Joerg Weber

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 (0)115 95 15870 (Phone)

University of Nottingham - Centre for Decision Research and Experimental Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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