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Debt Collection Laws Have Minimal Impact on Access to Credit, CFPB Researchers Conclude

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 signi cant 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 e ects are very small in magnitude; the e ect 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 e ects on credit access, credit limits and zero APR introductory rates are con- centrated on sub-prime consumers.

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