The key findings from this research paper on credit cards are summarised in the FCA Research Note Helping credit card users repay their debt: a summary of experimental research designed for a broad readership and also covering companion papers Occasional Papers Nos. 42, 44 and 45.
We find it is common for consumers who are not in financial distress to make credit card payments at or close to the minimum. This pattern is difficult to reconcile with economic factors but can be explained by minimum payment information presented to consumers acting as an anchor that weighs payments down. Building on Stewart (2009), we conduct a hypothetical credit card payment experiment to test an intervention to de-anchor payment choices. This intervention effectively stops consumers selecting payments at the contractual minimum. It also increases their average payments, as well as shifting the distribution of payments. By de-anchoring choices from the minimum, consumers increasingly choose the full payment amount – which potentially seems to act as a target payment for consumers. We innovate by linking the experimental responses to survey responses on financial distress and to actual credit card payment behaviours. We find that the intervention increases payments made by less financially-distressed consumers the most. We are also able to evaluate the potential external validity of our experiment and find that hypothetical responses are closely related to consumers’ actual credit card payments.
Benedict Guttman-Kenney, Jesse Leary and Neil Stewart
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