Debt Collection Agencies and the Supply of Consumer Credit

The activities of third-party debt collectors affect millions of borrowers. However, relatively little is known about their impact on consumer credit. To study this issue, I investigate whether state debt collection laws affect the ability of third-party debt collectors to recover delinquent debts and if this, in turn, affects the amount of credit being provided. This paper constructs, from state statutes and session laws, a state-level index of debt collection restrictions and uses changes in this index over time to estimate the impact of debt collection laws on revolving credit. Stricter debt collection regulations appear to reduce the number of third-party debt collectors and to lower recovery rates on delinquent credit card loans. This, in turn, leads to fewer openings of credit cards