Credit Where Credit Is Due: Drivers of Subprime Credit

45 Pages Posted: 21 Jun 2017 Last revised: 1 Jul 2018

See all articles by Elizabeth Berger

Elizabeth Berger

Cornell University

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Erik J. Mayer

Southern Methodist University - Cox School of Business

Date Written: June 25, 2018

Abstract

We use individual credit histories to study how creditor-friendly repossession rights in auto lending affect borrowers. Results from a quasi-experimental setting show that bankruptcy rates among subprime auto borrowers increase twice as much following natural disasters in states with strong creditors’ rights compared to states with more borrower protection. Further tests show that auto repossessions increase the likelihood of bankruptcy, and reduce borrowers’ future access to both uncollateralized and collateralized credit, including home mortgage loans. Our findings suggest that creditors’ rights can have broad, negative effects on borrowers that extend beyond merely losing a collateralized asset.

Keywords: auto, credit, creditor rights, collateral, repossession, household, consumer

JEL Classification: D10, D14, G21, G28

Suggested Citation

Berger, Elizabeth and Butler, Alexander W. and Mayer, Erik J., Credit Where Credit Is Due: Drivers of Subprime Credit (June 25, 2018). Available at SSRN: https://ssrn.com/abstract=2989380 or http://dx.doi.org/10.2139/ssrn.2989380

Elizabeth Berger

Cornell University ( email )

Ithaca, NY 14853
United States

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Erik J. Mayer

Southern Methodist University - Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

HOME PAGE: http://sites.google.com/site/erikjmayer/

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