How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards

Gathergood, John; Sakaguchi, Hiroaki; Stewart, Neil; Weber, J�rg

Abstract

Using data from multiple card issuers, we show that the most common penalty fee type incurred by credit card holders-late payment fees-declines sharply over the first few months of card life. This phenomenon is wholly due to some consumers adopting automatic payments after a late payment event, thereby insuring themselves against future late payment fees. Non-adopters, who remain on manual-only payments, experience an unchanged high likelihood of future fees, despite exhibiting ample levels of available liquidity. Our results show that heterogeneity in adopting account management features of financial products, such as automatic payments, is important for understanding who avoids financial mistakes.

Citation

Gathergood, J., Sakaguchi, H., Stewart, N., & Weber, J. (2021). How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards. Management Science, 67(4), 2562-2578. https://doi.org/10.1287/mnsc.2019.3568

• Journal Article Type: Article
• Acceptance Date: Dec 3, 2019
• Online Publication Date: May 13, 2020
• Publication Date: 2021-04
• Deposit Date: Dec 16, 2019
• Publicly Available Date: May 13, 2020
• Journal: Management Science
• Print ISSN: 0025-1909
• Electronic ISSN: 1526-5501
• Publisher: INFORMS
• Peer Reviewed: Peer Reviewed
• Volume: 67
• Issue: 4
• Pages: 2562-2578
• DOI: https://doi.org/10.1287/mnsc.2019.3568
• Keywords: credit cards; penalty fees; automatic payments; direct debit; management science and operations research; strategy and management
• Public URL: https://nottingham-repository.worktribe.com/output/3576798
• Publisher URL: https://pubsonline.informs.org/doi/10.1287/mnsc.2019.3568