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Hey @pauldadams let's thread this! A summary of four working papers on credit cards in N tweets. Especially for those interested in #HouseholdFinance #BehavioralEconomics #debt #RCTs 1/n
1 in 4 UK credit card payments are at or close to the minimum payment (US similar). Minimum payment information on credit cards appears to act as an anchor making consumers more likely to pay at or close to the minimum. How can we help consumers to pay more? 2/n
PAPER 1 - Increasing credit card payments using choice architecture: The case of anchors and prompts... 3/n 
...normally when you make a credit card payment you are shown what the minimum payment amount is. Our lab experiment tested removing that information to try to prevent such information from anchoring payment choices... 4/n
...this seems to make a pretty big difference. Average repayments increase and the distribution of payment choices noticeably changes. 5/n
...we replicate our lab findings including an experiment in a survey of recent credit card customers finding similar effects and can whether effects vary with self-reported financial distress... 8/n
...we compare hypothetical responses in the control group of our experiment to respondents' actual credit card payments and find they are closely related. This gives us confidence respondents are taking the hypothetical task seriously. 9/n
PAPER 3: The conflict between consumer intentions, beliefs and actions to pay down credit card debt 10/n
fca.org.uk/publication/oc…
fca.org.uk/publication/oc…
...consumers who repeatedly make minimum payments often have automatic payments (Direct Debit/autopay) set up to only pay the minimum each month. We ran field experiments with three lenders to see if we could get people off only paying the minimum... 11/n
...we sent people on automatic minimum payments personalised letters/emails to show how long it would take to repay their debt if they only paid the minimum vs. monthly payment to clear debt in 1,2 or 3 years... 12/n
...results similar across firms ~1.5 in 100 people shift to higher automatic payments... 13/n
...an initial reduction in debt is not sustained. The communications appear to bring forward the timing of extra credit card payments rather than increasing the amount paid... 14/n
...we surveyed people finding the majority wanted less debt + did not report financial distress. They mistakenly believed repeatedly only paying the minimum will repay debt in a few years. Our communications were unable to prompt action to overcome such mistaken beliefs. 15/n
PAPER 4 (last one!) - The semblance of success in nudging consumers to pay down credit card debt 16/n
fca.org.uk/publication/oc…
fca.org.uk/publication/oc…
... A field experiment to try and get new credit card customers on a better repayment path of paying more than the minimum. Simple choice architecture design removed automatic minimum payments as an option at card opening.... 17/n
... This simple change caused a large shift in automatic payment choices. People increasing chose to select an automatic fixed payment (a £ amount of their choice which covers higher of £ or minimum) and this was typically above the minimum... 18/n
... we see this reduce the proportion of people paying only the minimum. It does not cause any effect on spending... 19/n
...Yet this causes no average reduction in debt. Why?! Automatic payments increase but non-automatic payments (e.g. ad-hoc made online) decrease. Non-automatic payments are infrequent but very large in value. These offset one another so no net increase in payments. 20/n
And finally...this research was designed to inform UK financial regulators on what does and does not work. And it is doing so: evidence-based policy in action! Thanks to all involved - colleagues, academics and lenders! n/n
fca.org.uk/news/news-stor…
fca.org.uk/news/news-stor…
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