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The two-day conference featured a keynote address and eight sessions of researchers presenting their work with members of CFPB’s Office of Research serving as discussants. The conference was held in person at CFPB headquarters at 1700 G Street NW, Washington DC.

Watch: Day 1 | Day 2

Thursday, May 2, 2024

Check-in and breakfast (30 minutes)

Welcome (15 minutes)

Keynote Address by Antoinette Schoar (30 minutes)

Mortgage Lock-In, Mobility, and Labor Reallocation

  • Presenting author: Julia Fonseca (University of Illinois at Urbana-Champaign)

We study the impact of rising mortgage rates on mobility and labor reallocation. Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. decline in mortgage rate deltas (∆r), measured as the difference between the mortgage rate locked in at purchase and the current market rate, reduces moving rates by 0.68 p.p, or 9%. We find that this relationship is nonlinear: once ∆r is high enough, households’ alternative of refinancing without moving becomes attractive enough that moving probabilities no longer depend on ∆r. Lastly, we find that mortgage lock-in attenuates household responsiveness to shocks to nearby employment opportunities that require moving, measured as wage growth in counties within a 50 to 150-mile ring and instrumented with a shift-share instrument. We provide causal estimates of mortgage lock-in effects, highlighting unintended consequences of monetary tightening with long-term fixed-rate mortgages on mobility and labor markets.

Time on your Side: Labor Market Effects of Foreclosure Delays

  • Presenting author: Avantika Pal (Washington University in St. Louis)

I study the effect of foreclosure delays on labor income and employment outcomes, exploiting a temporary CFPB rule that restricted servicers from initiating foreclosures. Using detailed employee-employer matched administrative data linked with individual credit profiles in the U.S., I employ a difference-in-differences design and compare borrowers who were 120+ days delinquent one month before versus one month after the cutoff eligibility date of the rule. I estimate a 2.5 percent increase in income for borrowers eligible for up to four months of foreclosure delays. The higher income is attributed to an increased probability of job switching. Temporary liquidity and extended period of housing stability explain my findings. Furthermore, these delays lead to a persistent decrease in the probability of default and foreclosure over the year following the policy. Overall, my research suggests temporary delays, when implemented during the early stages of the foreclosure process, can empower borrowers to achieve financial stability by fundamentally reshaping their income prospects through the labor markets.

Discussant: Helen Banga

Selling Plasma to Make Ends Meet (Emma Kalish)

Expense Shocks Matter (Scott Fulford, David Low)

Sharing Credit: Associated Borrowers, Authorized Users, and Impacts on

Credit (Zach Blizard, Aly Brown, Cooper Luce, Ryan Sandler)

Consumer Financial Wellbeing: Does Scale Choice Alter the Measure? (Patrick Heck, Caroline Ratcliffe, Elle Tibbits)

Making Ends Meet in 2023 (Isaac Cotter, Scott Fulford, Emma Kalish, Zoe Kruse, Eric Wilson)

A Natural Language Processing Examination of The Link Between Stress, Financial Well-Being, and Financial Outcomes In Consumer Complaints (Joseph Harvey, Lewis Kirvan, Rebecca Martin, Katherine Mayle)

Does Rebecca Martin Complain More Than Travis Riddle? Common Names in Credit Reporting Complaints (Lewis Kirvan, Kay Mayle)

The Effects of Medical Debt Relief: Evidence from Two Randomized Experiments

  • Presenting author: Raymond Kluender (Harvard Business School)

Two in five Americans have medical debt, with about one in five owing more than $2,500. Concerned by the burden of medical debt, non-profits and governments have undertaken large, high-profile efforts to relieve medical debt. We analyze two randomized controlled trials that relieved medical debt with a face value of $172 million across 84,970 people. We track outcomes using credit reports, collections account data, and a multimodal survey. There are three sets of results. First, we estimate precise null effects of debt relief on financial distress and no statistically significant effects on credit access or utilization. Second, we find that debt relief causes a moderate but statistically significant increase in future collections accounts due to decreased repayment of existing medical bills. Third, we find no impact of medical debt relief on mental health on average, but statistically significant detrimental mental health effects for those with most relief-eligible medical debt. The negative effects on mental health are larger for a random subset of the treatment group who received additional outreach that raised awareness of the debt relief intervention. We discuss explanations for these results and implications for stakeholders and policymakers

Saving and consumption responses to student loan forbearance

  • Presenting author: Justin Katz (Harvard Business School)

I study the saving and consumption impacts of debt relief compared to cash transfers by analyzing borrower responses to federal student loan forbearance in the 2020 CARES Act. Borrowers manage liquidity from the payment pause nonoptimally: many make large voluntary prepayments on 0%-interest student debt instead of repaying high-interest obligations, despite correctly prioritizing high interest debt repayment when receiving stimulus checks. This flypaper effect indicates that borrowers treat debt relief liquidity as non-fungible with other windfalls. As this effect predicts, the marginal propensity to spend (MPX) out of forbearance liquidity is less than half as large as the stimulus check MPX. I survey borrowers to identify drivers of non-fungibility and incorporate results into an incomplete markets lifecycle model. The estimated flypaper effect has quantitatively large impacts on the effectiveness and cost of forbearance as a countercyclical fiscal tool.

Discussant: Michael Murto

Competition and Shrouded Attributes in Auto Loan Markets

  • Presenting author: Morteza Momeni (Tennessee Tech University)

Auto dealers acting as intermediaries often charge a discretionary markup on auto loans. Using loan-level data and a novel identification strategy, I study the effect of competition among auto dealers on the joint pricing of cars and car loans. I find that increased competition causes dealers to decrease vehicle prices to attract consumers. They, however, offset a large portion of their loss through charging higher prices on loan markups as a non-salient margin. Consistent with the heuristic budgeting channel, I find that (1) consumers bunch at salient monthly payment amounts, and (2) increased competition does not change consumers’ monthly payments.

Auto Finance in the Electric Vehicle Transition

  • Presenting author: Chaehee Shin (Federal Reserve Board)

Financing cost differentials tilt the calculus for households toward electric vehicles (EVs). Previous research shows that incentives and costs of owning and operating EVs—for example, tax incentives and maintenance costs—influence consumer decisions to transition from traditional cars to EVs. We show that auto finance—auto loans and the auto ABS that pool those loans—is also a key channel to support the transition. We use 85 million monthly observations on auto loans backing publicly-placed auto ABS to show three things. After controlling for borrower risk characteristics, auto loans backing EVs default 30 percent less in percentage change terms relative to combustion engine vehicles. The pricing market seems to know this; EVs have, on average, 2 percentage point lower interest rates than combustion vehicles, equivalent to a $2,000 lower price on the vehicle. Part of the lower default rate is attributable to insulation from gasoline price shocks: a one standard deviation increase in gas prices results in 1 percentage point lower default rate for EV borrowers relative to combustion engine borrowers. That said, the pass-through of some characteristics of the EV loans to ABS pricing appears incomplete, as the lower default rates do not translate one-for-one into higher prices for ABS.

Discussant: David Low

Coffee Break (15 minutes)

Language Frictions in Consumer Credit

  • Presenting author: Chao Liu (Northwestern University)

This paper studies how language barriers between lenders and borrowers translate into differences in borrower outcomes in the U.S. mortgage market. I use survey data to infer and machine learning techniques to predict borrowers’ English proficiency. I document significant descriptive differences in perceptions of mortgages, application experiences, and mortgage rates between limited English proficient (LEP) and non-LEP borrowers. To measure the causal effects of language frictions, I exploit a Federal Housing Finance Agency policy that provided translated mortgage documents in Spanish to mortgage lenders. After the policy change, LEP Hispanic borrowers had a streamlined application process, contacted more lenders, understood mortgage contracts better, and enjoyed lower borrowing costs. Reducing language frictions also led to expanded access to credit, reduced loan risks, and a more competitive mortgage market for LEP borrowers. Overall, my findings highlight a cost-effective way to create a responsible inclusion of well- qualified LEP borrowers in the mortgage market.

The Long-Term Impact of High School Financial Education: Evidence from Brazil

  • Presenting author: Miriam Bruhn (World Bank)

As the financial system expands to new clients and services, countries are promoting financial education, with unknown long-run returns. In 2011, we studied the short-run impact of a comprehensive financial education program through a randomized controlled trial with 892 high schools in Brazil. This paper uses administrative data for 16,000 students over the next nine years to measure the program’s long-term impact. We find that treatment students are less likely to borrow from expensive sources or to make delayed loan repayments than control students. The program also caused students to shift from formal jobs to microenterprise ownership.

Discussant: Caroline Ratcliffe

Consumer Surveillance and Financial Fraud

  • Presenting author: Bo Bian (University of British Columbia)

Companies near constantly surveil their customers to collect, analyze, and profit from their private information. A prevailing concern is that the market for private data and security breaches expose consumers to financial fraud. In this study, we exploit Apple’s App Tracking Transparency (ATT) policy, which greatly limited the tracking and sharing of personal information on the iOS platform, providing a major shock to the data industry. Using a difference-in- differences design and granular variations in iOS user shares across the US, we find that if 10% more people disallow tracking, the number of financial fraud complaints in the average zip code decreases by approximately 3.21%. We then show that the effects are concentrated in complaints related to lax data security and privacy, identified using keyword searches and machine learning on complaint narratives, and in complaints about firms that engage in intensive consumer surveillance and lack data safeguards. Our evidence quantifies one of the main consumer costs of lax data security standards.

Does the Disclosure of Consumer Complaints Reduce Disparities in the Mortgage Lending Market?

  • Presenting author: Xiang Li (Boston College)

The Consumer Financial Protection Bureau (CFPB) publicly disclosed consumer complaint narratives in 2015. Utilizing a difference-in-differences design, I find that, following disclosure, CFPB-supervised banks whose complaint narratives are disclosed are less prone to discriminate against minority borrowers in the mortgage lending market. This reduces racial disparities in interest rates, default rates, and rejection rates. The disclosure saves minority borrowers $102 million in interest payments and aids over 14,000 minority households in securing loans annually, thereby narrowing the racial gap in homeownership. Stakeholders including consumers, peer banks, and stock market investors facilitate the disclosure’s effects on reducing discrimination.

Discussant: Lewis Kirvan

The Admiral: 1 Dupont Cir NW, Washington DC 20036

Friday, May 3, 2024

Check-in and breakfast (30 minutes)

Branching Out Inequality: The Impact of Credit Equality Policies

  • Presenting author: Jacelly Cespedes (University of Minnesota)

We empirically examine the impact of the Community Reinvestment Act (CRA) on banks’ branching and lending decisions as the banking sector undergoes a structural transformation. We point out a CRA paradox through a model: while it fosters equal credit access in economically strong areas, it adversely affects economically disadvantaged regions where banks abstain from establishing branches to avoid the CRA compliance cost. Using a regression discontinuity (RD) design that hinges on a CRA eligibility threshold, we estimate banks’ costs of CRA violation. We then study the extent to which CRA compliance costs in the current economy lead to negative effects. We show that banks with higher costs of CRA violation retract their branches as shadow banks expand, aligning with the notion that the rise of shadow banks escalates CRA compliance costs. This retraction occurs primarily in lower-income areas, where the cost of CRA compliance is higher. Moreover, the contraction of bank branch networks in these areas leads to a reduction in small business lending, business establishments, and employment. Such dynamics presumably contributed to the worsening cross-regional disparities in credit access over the recent decade.

The Effect of Minority Bank Ownership on Minority Credit

  • Presenting author: Jung Sakong (Federal Reserve Bank of Chicago)

We study the effect of racial minority bank ownership on minority credit access. Using new linked data on bank ownership, loan officers, and minority borrowers, we present four main findings. First, minority-owned banks specialize in same-race mortgage lending. Almost 70 percent of their mortgages go to borrowers of bank owners’ same race. Second, the effect of minority bank ownership on minority credit is large and exceeds that of minority loan officers. We find that minority borrowers applying for mortgages in banks whose owners are of the same minority group are nine percentage points more likely to be approved than otherwise identical minority borrowers in non-minority banks. This effect is over six times that of a minority loan officer. Third, evidence from plausibly exogenous bank collapses suggests that the effect of minority bank ownership might reflect an expansion rather than a reallocation of credit to minorities. Fourth, the default rate of minority banks’ same-race borrowers is much lower than that of otherwise-identical borrowers of other races. These findings are consistent with minority bank ownership reducing information asymmetry and inconsistent with owners’ preferences driving the observed effects on minority credit access.

Discussant: Emma Kalish

Coffee Break (15 minutes)

To Pay or Not to Pay? Fintech Innovation and Credit Card Payments

  • Presenting author: Jialan Wang (University of Illinois at Urbana-Champaign)

Digital technologies and fintech firms have rapidly reshaped the consumer financial landscape in recent years, and have the potential to help consumers make better decisions and improve their financial health. Existing technologies such as autopay are also experiencing increased takeup, a trend that could be accelerated by innovations such as open banking. I examine the extent to which autopay affects payment behavior for customers of a credit card serviced by a fintech company. Using sharp changes in the company’s practices in a regression discontinuity design, I find that a small nudge accounts for half of all autopay enrollment during the sample period, and that enrollment at account opening is persistent. Autopay increases the likelihood of making the minimum payment by 20 to 29pp, more than doubling the baseline rate. The results show that seemingly minor technological defaults can have economically large effects on consumer outcomes.

Integrated Intermediation and Fintech Market Power

  • Presenting author: Adam Jørring (Boston College)

We document that in the US residential mortgage market, the share of integrated intermediaries acting as both originator and servicer has declined dramatically. Exploiting a regulatory change, we show that borrowers with integrated servicers are more likely to refinance, and conditional on refinance, are more likely to be recaptured by their own servicer. Recaptured borrowers pay lower fees relative to other refinancers. This trend is partially offset by a rise in integrated fintech originator-servicers, who recapture at higher frequency but at worse terms. We build and calibrate a dynamic structural model to interpret these facts and quantify their impact on equilibrium outcomes. Our model suggests that integrated intermediaries enjoy a marginal cost advantage when refinancing recaptured borrowers, and fully disintegrating them would reduce refinancing frequencies and increase fees. Fintechs use technology to reacquire customers and reduce borrower inertia against refinancing. This endogenously creates market power, which fintechs exploit through higher fees. Despite worse terms ex-post, fintechs increase consumer welfare ex-ante by increasing refinancing frequencies. Taken together, our results highlight the importance of intermediaries’ scope in consumer financial outcomes and highlight a novel, quantitatively important application of fintech: customer acquisition.

Regulating Competing Payment Networks

  • Presenting author: Lulu Wang (Northwestern University)

Payment markets are two-sided. Networks like Visa and Mastercard charge merchant fees to fund consumer rewards. I study how regulation, private entry, and public entry in this market affect prices, distribution, and welfare in equilibrium. I model two-sided multihoming, retail price-setting, and network competition. I estimate the model by matching data on consumers’ card holdings, merchant acceptance, network pricing, and the effects of debit reward reductions. The estimated model matches external evidence on networks’ costs, merchants’ margins, and the effects of AmEx’s 2016–2019 cuts in merchant fees. Using the estimated model, I compare the effects of capping credit card merchant fees, increasing entry of private credit card networks, and introducing a low-fee public option like FedNow. Capping credit card merchant fees is progressive and increases annual welfare by reducing rewards, retail prices, and credit card use. However, because consumer adoption is ten times more price-sensitive than merchant acceptance, competition raises rewards without lowering fees, lowering welfare. A public option struggles to gain consumer adoption without rewards, limiting welfare gains.

Discussant: Scott Fulford

ARC Panel Discussion (1 hour)

The Online Payday Loan Premium

  • Presenting author: Filipe Correia (University of Georgia)

Using data from a subprime credit bureau with nationwide coverage in the United States, we investigate the potential for online technology to lower fixed costs and increase lending efficiency in the expensive payday loan market. We find that prices for online loans are about 100% APR higher than storefront loans. Customers with both types of loans are much more likely to default on online loans, and pay higher prices on them. This premium is not explained by loan or customer characteristics, differences in pricing models, or traditional measures of credit risk. While part of the online payday loan premium seems to be associated with default rates that are double that for storefront loans, we show that information asymmetry explains this equilibrium.

Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans

  • Presenting author: Shihan Xie (University of Illinois, Urbana-Champaign)

This paper explores the impact of extreme weather events on payday loan market outcomes for low-income households. Using novel payday loan data covering both application- and loan-level information, we examine the impact of extreme weather days on payday loan demand, credit approval, and loan performance. Our results show that having more extreme temperature days in a month increases payday loan demand. With more extreme heat days, in addition, borrower income decreases while both delinquency rates and default rates increase. We also find that extreme heat days significantly reduce total credit issued and accounts open, suggesting a contraction in payday loan supply. Our study provides new insights into how environmental shocks impact household finance, focusing on alternative credit products used by lower-income households.

Discussant: Cortnie Shupe

2:00pm Adjourn