News & Press

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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Out of Reach: Regressive Trends in Credit Card Access

Despite the ubiquity of credit cards, it was not until the mid-1990s that a large share of lower-income Americans gained access to these useful financial products, which enable cost-saving consumer purchases, small business financing, and economic inclusion. High credit card debt, of course, can cause individual harm, and on the aggregate, booming household debt levels are a serious policy concern. Yet credit card balances account for just 6 percent of U.S. household debt levels, and as a share of disposable personal income fell from nearly 8 percent in the mid-2000s to 5.3 percent in 2015. We identify regressive trends driving decreased card usage, including that between 2007 and 2015, originations to lower-score accounts (generally lower-income consumers) fell 50 percent, and average credit card lines for these accounts shrunk 31 percent, likely forcing down card utilization. Lower-income Americans increasingly lack credit cards.

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Encore Partners with California State Assemblyman on Legislation Protecting Consumers from Identity Theft

– Bill Provides Greater Transparency and Quicker Resolution of Identity Theft and Fraud Claims –

SAN DIEGO, Calif., January 28, 2016 — Encore Capital Group, Inc. (NASDAQ: ECPG), a San Diego-based international specialty finance company, announced today that it is partnering with California State Assemblyman Bill Dodd (D-Napa) on consumer-focused legislation to provide prompt relief for victims of identity theft or fraud and to raise debt collection industry standards.

According to the Bureau of Justice Statistics, there were 17.6 million adult victims of identity theft in the United States in 2014 – that is a victim roughly every two seconds.[1] “This legislation works to address many of the challenges associated with identity theft, ultimately providing more transparency and faster resolution for Californians,” said Sheryl Wright, Encore Capital Group’s Senior Vice President of Corporate & Government Affairs.

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Encore and Members of Congress Empower Consumers Through Debt Forgiveness Tax Relief

— Legislation Would Help Millions of Americans on Their Path to Financial Well-Being —

SAN DIEGO, July 21, 2015 (GLOBE NEWSWIRE) — Encore Capital Group, Inc. (NASDAQ:ECPG), an
international specialty finance company, announced today that it has taken its consumer-centric focus to a new level by collaborating with U.S. Reps. Scott Peters (CA-52) and Duncan Hunter (CA-50) to create a bill that would exempt up to $2,500 worth of forgiven personal and household debt from federal taxation. The bill (H.R. 2640) was recently introduced as the “Consumer Debt Forgiveness Tax Relief Act of 2015.”

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Consumer Credit Research Institute and Urban Institute study finds that one-third of Americans with a credit file has debt reported in collections

A new study by Encore Capital Group’s Consumer Credit Research Institute and the Urban Institute finds that thirty-five percent of American adults has a debt—such as a credit card balance, medical, or utility bill—so far past due that the account has been placed in collections. The study reports that these 77 million Americans owed an average of $5,200 in September 2013.

A second report indicates that average total debt in America stood at $53,850 in September 2013, among people with credit files. Average debt among people with mortgages was $209,768, while it was $11,592 for those without mortgages.

“Although household debt is a significant challenge for tens of millions of Americans, it has received surprisingly little attention compared to other financial matters,” said Christopher Trepel, chief scientific officer at Encore Capital Group and managing director of the Consumer Credit Research Institute. “This study establishes a new fact base from which to ask important questions related to consumer financial distress, and advances our understanding of household balance sheets and the spatial patterns of debt holding in the United States.”

Read the full report (1): Debt in America »

Read the full report (2): Delinquent Debt in America »

Partial list of press coverage for this research:

Sacramento Bee
Chicago Tribune
Washington Post
CNN Money
Wall Street Journal: The Numbers
Associated Press
Huffington Post

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New perspectives on consumer financial decision making, repayment, and household recovery

We recently gave a presentation summarizing some of our latest research across a number of different areas, including the psychological characteristics of prime and subprime consumers, the ways in which people recover from financial shocks, the geographic distribution of U.S. consumer debt, and the efficacy of financial literacy interventions. Our data shed new light on consumer decision making, and the results were discussed in the contexts of collections and the evolving consumer experience, personal financial health, and public policy.

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Three new research projects presented at Boulder financial decision making conference: (1) consumer recovery after financial shocks, (2) financial literacy, and (3) modifications to CARD Act disclosures

We presented three research projects at the 2014 Boulder Summer Conference on Consumer Financial Decision Making (hosted by the Leeds School of Business at the University of Colorado, Boulder). Our newest findings address several important topics in the field of consumer finance including the ways in which prime and subprime credit consumers recover from financial shocks, why financial literacy training often produces lackluster results, and how best to present credit card interest rate information to improve consumer decision making.

How Consumers of Varying Credit Status Cope with Financial Shocks »

Read press coverage about our financial shocks research »

Financial Literacy Training Increases Implicit Preference for Spending »

Optimal Display of Interest Rate Information on Credit Card Statements »

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Lack of consumer awareness has prevented financial inclusion

In Colombia, one of the topics on which the government and the banking sector have worked most diligently in recent years is financial inclusion.

The results, however, have not been as expected and, according to Christopher Trepel, Executive Director of the Consumer Credit Research Institute (CCRI), one of the problems is that segmenting credit users requires access to data associated with their behavior. But, when loans have not been introduced to underserved niches, relevant information is not available.

Full Article (Spanish) »
Article Text (English) »

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Poster presentation: Psychographic field study of prime and subprime consumers (2)

We presented at the Boulder Summer Conference on Consumer Financial Decision Making, a meeting devoted to interdisciplinary work about understanding and improving household and consumer financial decision making. Participants included financial regulators, academic scientists, nonprofit leaders, and private sector experts.

Total US consumer indebtedness is $11.3 trillion and one in seven consumers has an account in collections. Nevertheless, very little psychological or mechanistic data exist concerning financially stressed consumers, despite growing interest by policy makers, business leaders, and researchers. Building on our previous work, we presented additional data contrasting prime and subprime consumers across a broad range of individual difference measures.

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From the lab to the boardroom: Using applied psychological research to improve collection models and the consumer experience

We recently completed a psychographic field study that revealed significant differences between prime and subprime consumers in the areas of financial knowledge, planning myopia, and decision-making behavior. Our results have important implications about how to describe, understand, and resolve consumer financial distress within the collection process. We discuss our findings and explore applications to business strategy and public policy.

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