Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis
Journal of Political Economy (JPE), Forthcoming
102 Pages Posted: 20 Apr 2021 Last revised: 30 Jun 2023
Date Written: April 20, 2023
We build a bridge between relationship lending and transactions lending – investigating relationship effects on contract terms for credit cards, a relatively pure transactions lending technology. Using one million+ accounts, we find during normal times, consumers with relationships obtain better terms, but small businesses with relationships do not. Both groups obtain improved terms during COVID-19, consistent with intertemporal smoothing – relationship borrowers obtain more favorable terms during crises, paid for by worse terms in normal times. Among other findings, CARES Act impediments to reporting consumer delinquencies to credit bureaus designed to protect customers reduced informational value of credit scores, penalizing safer consumers.
Keywords: Credit cards, household finance, consumers, small businesses, relationship lending, banks, credit terms, cross-sectional smoothing, financial crises, COVID-19, intertemporal smoothing
JEL Classification: D12, G01, G20, G28
Suggested Citation: Suggested Citation