[UPDATED Dec. 20, 10:11am to clarify that changes in debt collection law are central to the paper, and to add detail about the author’s position.]
A working paper from the Federal Reserve Bank of Philadelphia argues that increased restrictions in the form of additional restrictions in state debt collection laws has a negative effect on both collection agency hiring in the state and on the extension of revolving lines of credit for consumers.
In a paper entitled “Debt Collection Agencies and the Supply of Consumer Credit,” author Viktar Fedaseyeu finds that for every new restriction codified in state law, the number of new revolving lines of credit decreased by 2.2 percent. The research found no such correlation with secured credit consistent with the notion that third party debt collectors are typically hired to help with unsecured credit.
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