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How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards

Gathergood, John; Sakaguchi, Hiroaki; Stewart, Neil; Weber, Jörg


Hiroaki Sakaguchi

Neil Stewart

Jörg Weber


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.


Gathergood, J., Sakaguchi, H., Stewart, N., & Weber, J. (2020). How Do Consumers Avoid Penalty Fees? Evidence from Credit Cards. Management Science,

Journal Article Type Article
Acceptance Date Dec 3, 2019
Online Publication Date May 13, 2020
Publication Date May 13, 2020
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
Keywords credit cards; penalty fees; automatic payments; direct debit; management science and operations research; strategy and management
Public URL
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