How Do Consumers Fare When Dealing with Debt Collectors? Evidence from Out-of-Court Settlements
54 Pages Posted: 24 Jan 2019 Last revised: 17 Jun 2019
Date Written: May 28, 2019
Do deals with debt collectors alleviate consumer financial distress? Using new data linking court and credit registry records, we examine civil collection lawsuits where consumers can settle out of court. Random assignment of judges with different styles generates exogenous variation in the likelihood of settlement negotiations. We find that settlements increase consumer financial distress. Settlements appear to increase distress by draining liquidity without improving access to credit or lowering total payments. Consumers might agree to distress-inducing deals for non-pecuniary reasons or because they are ill-informed of their options.
Keywords: debt collection, negotiation, financial settlements
JEL Classification: D14, D18, G00
Suggested Citation: Suggested Citation