Evidence type: Evaluation i
Information about the programme design and rationale
Evidence about Financial Capability outcomes for programme participants
Evidence that the Financial Capability outcomes were caused by the programme
Evidence about programme implementation, feasibility, and piloting
Evidence about relative costs and benefits of the programme
Credit card debt accounted for over £900 billion in debt across the UK and US (combined) by the end of 2017. It attracts particular attention due to the amount of unsecured debt that is outstanding, the high interest rates and the widespread use of credit cards. Around one-in-four payments on credit cards are at or close to the contractual minimum in the UK. The majority of payments are made ‘manually’ – typically online – where consumers need to proactively make a payment to their credit card company once a month. This system of payments seems to be driven by there being minimal payment information available to the consumer. A smaller proportion of customers have automatic minimum payments set up, that help them avoid late-payment fees. However, in this scenario manual payments are only made infrequently, meaning that by just paying the minimum payments consumers are prolonging their debt cycle. In addition to the financial costs, struggling to repay debts has been found to have a strong negative correlation with psychological wellbeing.
This 2018 evaluation from the Financial Conduct Authority, collaborating with a UK financial lender, tests whether consumers would benefit from nudge interventions that downplay the option for automatic payments.
A randomised control trial; (RCT) is conducted on 40,708 credit cards issued in early 2017. The experiment took place from February to May 2017. A large sample size was chosen to give the experiments sufficient statistical power to determine whether the intervention was responsible for changes in consumer behaviour. The credit card options that were varied on correspondence to the consumer were the automatic payment choices, which typically allow consumers to automatically pay the full amount owed each month, a fixed amount of their choice or the contractual minimum. The option for automatic minimum payments was removed from the treatment group. It was believed that this would increase the prominence of the automatic fixed payment option, that had the potential to reduce debt faster, assuming no other behavioural or financial changes.
The control group were still given the option of setting up an automated payment that simply paid the contractual minimum amount each month.
Before going into the field, qualitative consumer testing was conducted to ensure people would understand how to navigate the intervention, and to consider the ethical implications behind the intervention.
Paul Adams, Benedict Guttman-Kenney, Lucy Hayes, Stefan Hunt, David Laibson and Neil Stewart