Nudging the Financially Vulnerable: Late Reminders in Payday Lending
22 May 2024
09:30 -11:00
Times are shown in local time.
Open to: All
Room W2.01 (Cambridge Judge Business School)
Trumpington St
Cambridge
CB2 1AG
United Kingdom
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Speaker: Dr Zixia Cao, University of Colorado Danver
About the seminar topic
Payday lenders offer financial reprieve for temporary needs to households with little or no access to traditional financial credit. This reprieve, however, comes at a significant cost in the form of high interests/fees to an (already) financially distressed consumer base. With the focus on designing interventions that would improve financial wellbeing in this context, the authors study the effectiveness of a common, yet under-researched intervention used to nudge customers – late payment reminders. Using novel customer-level data from a payday lender in Canada, the authors estimate the causal impact of repeated late reminders on debt repayment among payday borrowers. The findings indicate that late payment reminders do significantly increase debt repayment (1.16 percentage points, on average).
The effects, however, vary depending on the timing and frequency of the reminders, with the first two (sent 7-days and 30-days past the due date) significantly increasing payoffs, but not the third (sent 60-days past). The effects are more pronounced when the pressure of additional fees is higher, indicating that loan/fee pressure may be one of the driving mechanisms of the effects. The findings shed new light on the implications of a simple, yet effective nudge instrument to improve financial wellbeing among society’s most vulnerable.
Speaker bio
Zixia (Summer) Cao is an Associate Professor of Marketing at the Business School at the University of Colorado Denver. She obtained her PhD in Marketing from Texas A&M University. Her research focuses on branding, product innovation, alliances, and the financial value of marketing activities.
Her research appears in journals such as Marketing Science, Journal of Marketing, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, and others. She is on the editorial review boards of the Journal of Business Research and the European Journal of Marketing.
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