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

See all articles by Ing-Haw Cheng

Ing-Haw Cheng

Dartmouth College - Tuck School of Business

Felipe Severino

Dartmouth College - Tuck School of Business

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management

Date Written: May 28, 2019

Abstract

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

Cheng, Ing-Haw and Severino, Felipe and Townsend, Richard, How Do Consumers Fare When Dealing with Debt Collectors? Evidence from Out-of-Court Settlements (May 28, 2019). Tuck School of Business Working Paper No. 3312448. Available at SSRN: https://ssrn.com/abstract=3312448 or http://dx.doi.org/10.2139/ssrn.3312448

Ing-Haw Cheng (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Felipe Severino

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.dartmouth.edu/~fseverino

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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