56 Pages Posted: 1 May 2017 Last revised: 30 Jun 2017
Date Written: June 29, 2017
Declining penalty fees on financial products are often interpreted as evidence of consumers learning from experience. Using data from a quarter of a million new credit card openings we investigate how consumers respond to penalty fees. Following a late payment fee, more sophisticated consumers switch to automatic repayments, thereby insuring themselves against forgetting to repay again in the future. But less sophisticated consumers continue with manual repayments and incur ongoing fees. In contrast, cash advance and over-limit fees decline due to time-varying liquidity constraints, which are concentrated at the time of account opening.
Keywords: learning, liquidity constraints, credit cards, automatic payments
JEL Classification: D10, D12
Suggested Citation: Suggested Citation
Gathergood, John and Sakaguchi, Hiroaki and Stewart, Neil and Weber, Joerg, Learning, Liquidity and Credit Card Fees (June 29, 2017). Available at SSRN: https://ssrn.com/abstract=2960004