Access to Credit and Financial Health: Evaluating the Impact of Debt Collection

Access to Credit and Financial Health: Evaluating the Impact of Debt Collection

Despite the prevalence of debt collection and the intense regulatory activity surrounding this
industry, little is known about how these practices impact consumers. This paper conducts an
empirical analysis of the effect of debt collection on consumer credit and on indicators of
financial health, employing individual credit record data and a difference-in-differences research
design that compares outcomes for consumers in states that increased the restrictiveness of
legislation with those for consumers in the remaining states. We find consistent evidence that
restricting collection activities leads to a decrease in access to credit and a deterioration in
indicators of financial health. Moreover, our estimated treatment varies considerably with the
borrower’s age and baseline credit score, with effects concentrated primarily among borrowers
with the lowest credit scores.

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