Board of Governors of the Federal Reserve System

May 2011

Credit Supply to Personal Bankruptcy Filers: Evidence from Credit Card Mailings

Song Han, Benjamin J. Keys, and Geng Li

Abstract:

Are consumers who have filed for personal bankruptcy before excluded from the unsecured credit market? Using a unique data set of credit card mailings, we directly explore the supply of unsecured credit to consumers with the most conspicuous default risk--those with a bankruptcy history. On average, over one-fifth of personal bankruptcy filers receive at least one offer in a given month, with the likelihood being even higher for those who filed for bankruptcy within the previous two years. However, offers to bankruptcy filers carry substantially less favorable terms than those to comparable consumers without a bankruptcy history, with higher interest rates, lower credit limits, a greater likelihood of having an annual fee, and a smaller likelihood of having rewards or promotions. In addition, our analysis of credit terms typically disclosed only in the fine print suggests that offers to filers tend to include more "hidden" costs.

Keywords: Personal bankruptcy, credit supply, credit card, mail solicitation, shrouding

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