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Learning, Liquidity and Credit Card Fees

56 Pages Posted: 1 May 2017 Last revised: 30 Jun 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: June 29, 2017

Abstract

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

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

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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