A pair of researchers within the Consumer Financial Protection Bureau have issued a report that analyzes the effects of debt collection laws on consumers’ access to credit.
The researchers concluded that debt collection laws do have an impact on access to credit, but a minimal impact at best. The impact of a debt collection law is equivalent to an error on a consumer’s credit report that lowers his or her credit score by eight points. As well, the researchers concluded that dealing with additional disputes does raise the cost of collecting for third-party collection agencies, but “that this is not signicant enough to be consistently passed on to upstream creditors.”
A copy of the report can be accessed here.
In developing their research, the authors of the report looked at a handful of states and municipalities which have enacted collection-related laws, including California, Arkansas, North Carolina, New York state, and New York City.
Credit limits are about $123 lower in states and municipalities where collection laws are on the books, according to the report. This reflects about a five-point drop in a consumer’s credit score, which the researchers deemed to be “quite small.”
The researchers concluded:
We nd that these requirements reduced access to credit and credit limits on average and increased interest rates or reduced the prevalence of zero APR introductory rates, but that the eects are very small in magnitude; the eect on consumers of these additional requirements is equivalent to a reduction in consumer credit scores of 5 points or less. Running separate regressions for consumers with sub-prime and prime credit scores we nd that eects on credit access, credit limits and zero APR introductory rates are con- centrated on sub-prime consumers.