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- Title
Improving Mortgage Default Collection Efforts by Employing the Decoy Effect.
- Authors
Harrison, David M.; Luchtenberg, Kimberly F.; Seiler, Michael J.
- Abstract
We test the ability of the Decoy Effect to enhance debt collection efforts and find that by disclosing the Annual Percentage Rate (APR) in settlement offers, participants are less influenced by the decoy and more apt to select the repayment option that is in their best interest. At the same time, by reporting the APR, borrowers are more willing to make repayments on the modified loan, resulting in a net gain to debt collection efforts. Because disclosing the APR is Consumer Financial Protection Bureau (CFPB) compliant, this simple disclosure has the ability to increase debt collection returns while helping borrowers make better decisions when selecting debt modification repayment plans. Our results suggest an applicability to all types of defaulted debt including mortgages, sub-prime auto loans, credit cards, student loans, and payday loans.
- Subjects
UNITED States. Consumer Financial Protection Bureau; MORTGAGE loan default; SUBPRIME automobile loans; COLLECTING of accounts; PAYDAY loans; STUDENT loans; CREDIT cards
- Publication
Journal of Real Estate Finance & Economics, 2023, Vol 66, Issue 4, p840
- ISSN
0895-5638
- Publication type
Article
- DOI
10.1007/s11146-021-09876-8