Borrowers in Search of Feedback: Evidence from Consumer Credit Markets

47 Pages Posted: 8 May 2017

See all articles by Inessa Liskovich

Inessa Liskovich

University of Texas at Austin - Department of Finance

Maya Shaton

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-05

Abstract

We study recent technological innovation in credit markets and document their role in providing information to households. We show that households value the ability to learn detailed information about their cost of credit. This function is most valued by less creditworthy households with less experience in credit markets. To measure the demand for information provision we exploit a quasi-natural experiment in an online consumer credit market. A large lending platform unexpectedly switched from pricing loans through an auction mechanism to centralized pricing determined by broad credit grade. This change resulted in an instant decrease in the amount of tailored feedback available to market participants. We find that less experienced households immediately and disproportionately exit the market and the response is concentrated among higher risk households. We rule out alternative explanations such as changes in access to credit, borrower risk profiles, and interest rate levels. Our findings point to a potentially important role for financial innovation: enabling less experienced households to more easily learn about their credit market options.

Keywords: Consumer finance, Fintech, Household finance, Online lending markets

JEL Classification: D12, D14, G20

Suggested Citation

Liskovich, Inessa and Shaton, Maya O, Borrowers in Search of Feedback: Evidence from Consumer Credit Markets (2017-05). FEDS Working Paper No. 2017-049. Available at SSRN: https://ssrn.com/abstract=2964440 or http://dx.doi.org/10.17016/FEDS.2017.049

Inessa Liskovich (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Maya O Shaton

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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