The Effects of Information on Credit Market Competition: Evidence from Credit Cards

66 Pages Posted: 2 Apr 2020 Last revised: 6 Nov 2022

See all articles by C. Fritz Foley

C. Fritz Foley

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Agustin Hurtado

University of Chicago - Booth School of Business

Andres Liberman

Betterfly

Alberto Sepulveda

Financial Conduct Authority

Date Written: February 28, 2020

Abstract

We show empirically that public credit information increases competition in credit markets. We access data that cover all credit card borrowers in Chile and include details about relationship borrowers have with each lender. We exploit a natural experiment whereby a non-bank lender’s portfolio was sold to a bank. Because of this transaction, the lender’s borrowers, who were previously not identifiable unless in default, become observable by banks through the credit bureau but remain unobservable to other non-bank lenders. Using a difference-in-differences strategy, we find that after the transaction the lender’s borrowers receive higher credit limits from other banks relative to other non-bank borrowers. This result is mediated by individuals whose predicted probability of bank default drops as a result of the change to banks’ information set. After the transaction, the lender shifts originations to safer borrowers with higher initial limits, a result that is consistent with cross-sectional evidence that banks tend to lend to safer borrowers. Our results imply that by increasing competition, public credit information can reduce lenders’ incentive to “learn by lending”, potentially excluding riskier populations from access to credit.

Keywords: Information, Consumer Credit, Financial Intermediaries

JEL Classification: G21, D12, D82, D40

Suggested Citation

Foley, C. Fritz and Hurtado, Agustin and Liberman, Andres and Sepulveda, Alberto, The Effects of Information on Credit Market Competition: Evidence from Credit Cards (February 28, 2020). Available at SSRN: https://ssrn.com/abstract=3550904 or http://dx.doi.org/10.2139/ssrn.3550904

C. Fritz Foley

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Agustin Hurtado (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://sites.google.com/view/agustinhurtado/home

Andres Liberman

Betterfly ( email )

Santiago
Chile

Alberto Sepulveda

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

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