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1 – 10 of over 13000
Article
Publication date: 4 November 2014

Jose M. Barrutia and María Paz Espinosa

The main purpose of this paper is to study the effect of consumer expertise on mortgage loan prices. We argue that consumer expertise should affect price due to two…

1092

Abstract

Purpose

The main purpose of this paper is to study the effect of consumer expertise on mortgage loan prices. We argue that consumer expertise should affect price due to two reasons: (1) loan mortgage prices in non-price-regulated settings are usually the result of a bank-customer negotiation process; and (2) a mortgage loan is a complex product.

Design/methodology/approach

Data on mortgage loan prices were used for a sample of 1,055 households for 2005 (Bank of Spain Survey of Household Finances, EFF-2005).

Findings

The regression results indicate that consumer expertise-related metrics are highly significant as predictors of mortgage loan prices. Findings also indicate that cost-related variables and a measure of risk with low discrimination power (i.e. having a permanent employment contract, which accounts for 70 per cent of contracts in Spain) affect price. Surprisingly, more sophisticated measures of credit risk do not have such a significant impact on mortgage prices.

Research limitations/implications

Empirical results refer to the credit conditions prior to the financial crisis and could shed some light on the factors that led to it.

Practical implications

Findings seem to indicate that, in the period under study, bank managers prioritized capturing new business in the short-term against normative prescriptions, which suggest that price should be credit-risk adjusted (financial literature) and long-term consumer potential adjusted (marketing literature). The post-2008 difficult economic situation of Spanish banks (linked to an excessive portfolio of mortgage loans granted at very low prices) shows that these strategies were wrong.

Originality/value

An uncommon perspective was adopted. The importance of consumer expertise-related variables on price has been underemphasized by prior research. The effect of consumer expertise is assessed by using a large and comprehensive database.

Details

European Journal of Marketing, vol. 48 no. 11/12
Type: Research Article
ISSN: 0309-0566

Keywords

Article
Publication date: 9 August 2018

Pablo Farías

The purpose of this paper is to examine the influence of consumer-related and bank-related characteristics on the knowledge of the total cost of consumer loans paid by…

Abstract

Purpose

The purpose of this paper is to examine the influence of consumer-related and bank-related characteristics on the knowledge of the total cost of consumer loans paid by consumers and test the hypothesized relationships between them.

Design/methodology/approach

In order to identify the proportion of consumers who do not know the total cost of consumer loans and reasons for it in the Chilean consumer loans industry, an empirical study using a survey administered through personal in-home interviews was carried out.

Findings

Results show that knowledge of a consumer loans total cost is positively associated with product satisfaction as well as recent and infrequent purchases. This study also shows that a big market segment, comprising 37.2 percent of the probability sample, represents vulnerable consumers with high self-reported knowledge but low actual knowledge of the total costs of consumer loans. This study shows that this market segment has a higher use of the price-quality cue and a higher purchase frequency of consumer loans.

Originality/value

The present study contributes to the existing literature in the following ways. First, while previous research measured only self-reported knowledge for financial services, the present study examines actual knowledge of the total cost of consumer loans. Second, while previous research for financial services only examined the effects of the use of the price-quality cue and price advertising exposure, the present study also examines 11 other determinants, which are relevant for managers, regulators and researchers.

Propósito

Este trabajo examina la influencia de las características relacionadas con el consumidor y las relacionadas con el banco en el conocimiento del costo total que se paga en los préstamos de consumo.

Diseño/metodología/enfoque

Con el fin de identificar la proporción de consumidores que desconocen el costo total que se paga en los préstamos de consumo y las razones de ello, se realizó un estudio empírico mediante una encuesta realizada a través de entrevistas personales en el hogar.

Resultados

Los resultados muestran que el conocimiento del costo total que se paga en los préstamos de consumo está asociado positivamente con la satisfacción del producto, así como con las compras recientes e infrecuentes. Este estudio también muestra que un gran segmento de mercado, que comprende el 37,2% de la muestra probabilística, representa a consumidores vulnerables con un alto conocimiento auto-reportado pero bajo conocimiento real del costo total que se paga en los préstamos de consumo. Este estudio muestra que este segmento de mercado tiene un mayor uso del precio como señal de calidad y una mayor frecuencia de compra de los préstamos de consumo.

Originalidad/valor

El presente estudio contribuye a la literatura existente de las siguientes dos maneras. En primer lugar, mientras que las investigaciones anteriores midieron sólo los conocimientos auto-reportados de los servicios financieros, el presente estudio examina el conocimiento real del costo total que se paga en los préstamos de consumo. En segundo lugar, mientras que las investigaciones anteriores para los servicios financieros sólo examinaron los efectos del uso del precio como señal de calidad y la exposición a la publicidad de precios, el presente estudio también examina otros once determinantes relevantes para los administradores, reguladores e investigadores.

Content available
Article
Publication date: 8 January 2020

Barbara Czarnecka and Emmanuel Mogaji

The purpose of this paper is to examine the use of emotional appeals in advertisements for loans and explored consumers’ perceptions of advertisements featuring such…

1248

Abstract

Purpose

The purpose of this paper is to examine the use of emotional appeals in advertisements for loans and explored consumers’ perceptions of advertisements featuring such appeals in order to explore how emotional meanings are transferred to consumers via advertising.

Design/methodology/approach

Study 1 employed content analysis to examine the use of emotional appeals in loan advertisements. Over 2,900 editions of eight British newspapers were monitored for advertisements for loans containing emotional appeals. Study 2 employed 33 semi-structured interviews to explore consumers’ perceptions of emotional appeals in loan advertisements.

Findings

Loans were positioned as services providing relief, security and excitement. The use of negative emotional appeals such as guilt, fear and sorrow was sporadic. Loans that carried the most risk were advertised with positive emotional appeals the most frequently. Five dimensions of perceptions of emotional loan advertisements were conceptualised from the reported data in Study 2.

Originality/value

This is the first study in the UK to examine the use of emotional appeals in loan advertising and to explore consumers’ perceptions of loan advertisements featuring emotional appeals. The study identified five dimensions of perceptions of emotional appeals.

Details

International Journal of Bank Marketing, vol. 38 no. 3
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 7 November 2016

Mari L. Robertson

The transmission of monetary policy rates to lending rates is viewed as a crucial path of monetary policy. As an integral part of the financial system and the recent…

1749

Abstract

Purpose

The transmission of monetary policy rates to lending rates is viewed as a crucial path of monetary policy. As an integral part of the financial system and the recent financial crisis, securitized assets have the potential to affect the interest rate pass-through process and monetary policy effectiveness. This paper aims to investigate the influence of securitization on the transmission of policy rate changes to lending rates and how rate transmission has changed since the recent financial crisis. Emphasis is placed on differences among the mortgage, consumer credit and business loan securitization markets and between agency and private-label securitization transactions.

Design/methodology/approach

The empirical framework is an error-correction model augmented to directly measure the influence of securitization. Monetary policy effectiveness is measured by the size and speed of transmitted policy rate changes to lending rates. An efficiency measure of relative adjustment accounts for differences in the size of long-run responses across loan markets and changes in efficiency from securitization within loan markets.

Findings

The size and speed of interest rate pass-through tend to increase with securitization. Liquidity, capital relief and funding from securitization help to make lending rates more responsive. Increases in pass-through with securitization are less in the consumer credit and business loan markets after the recent financial crisis relative to before the crisis. In contrast, mortgage markets tend to have larger pass-through after the financial crisis. Differences in rate transmission after the recent financial crisis point to the role on nonbanks in consumer credit and business loans and asset purchase programs of the Federal Reserve in mortgage markets. Securitization tends to make the adjustment process more efficient, and gains in efficiency from securitization are larger after the financial crisis.

Originality/value

A key contribution of the study differentiates securitization across markets and types to determine the effects on the interest rate pass-through process. The results show that increases in the efficiency of the adjustment process from securitization tend to be greater in mortgage markets and for all private-label securitized assets. These findings have implications for proposed government-sponsored entity (GSE) reform to reduce the role of GSEs in the housing market, promote private-label mortgage credit and strengthen securitization deals.

Details

Journal of Financial Economic Policy, vol. 8 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 12 July 2021

Constantino Stavros, Kate Westberg, Roslyn Russell and Marcus Banks

Service captivity is described as the experience of constrained choice whereby a consumer has no power and feels unable to exit a service relationship. This study aims to…

Abstract

Purpose

Service captivity is described as the experience of constrained choice whereby a consumer has no power and feels unable to exit a service relationship. This study aims to explore how positive service experiences can contribute to service captivity in the alternative financial services (AFS) sector for consumers experiencing financial vulnerability.

Design/methodology/approach

A total of 31 interviews were undertaken with Australian consumers of payday loans and/or consumer leases.

Findings

The authors reveal a typology of consumers based on their financial vulnerability and their experience with AFS providers. Then they present three themes relating to how the marketing practices of these providers create a positive service experience, and, in doing so, can contribute to service captivity for consumers experiencing financial vulnerability.

Research limitations/implications

The benefits derived from positive service experiences, including accessible solutions, self-esteem, and a sense of control over their financial situation, contribute to the service captivity of some consumers, rendering alternative avenues less attractive.

Practical implications

AFS providers must ensure a socially responsible approach to their marketing practices to minimize potentially harmful outcomes for consumers. However, a systems-level approach is needed to tackle the wider issue of financial precarity. Policymakers need to address the marketplace gaps, regulatory frameworks and social welfare policies that contribute to both vulnerability and captivity.

Originality/value

This research extends the understanding of service captivity by demonstrating how positive service experiences can perpetuate this situation. Further, specific solutions are proposed at each level of the service system to address service captivity in the AFS sector.

Details

Journal of Services Marketing, vol. 35 no. 6
Type: Research Article
ISSN: 0887-6045

Keywords

Book part
Publication date: 19 October 2020

Anson T. Y. Ho

Financial systemic risk is often assessed by the interconnectedness of financial institutes (FI) in terms of cross-ownership, overlapping investment portfolios, interbank…

Abstract

Financial systemic risk is often assessed by the interconnectedness of financial institutes (FI) in terms of cross-ownership, overlapping investment portfolios, interbank credit exposures, etc. Less is known about the interconnectedness between FIs through the lens of consumer credits. Using detailed consumer credit data in Canada, this chapter constructs a novel banking network to measure FIs’ interconnectedness in the consumer credit markets. Results show that FIs on average are more connected to each other over the sample period, with the interconnectedness measure increases by 19% from 2013 Q4 to 2019 Q4. FIs with more diversified portfolios are more connected in the network. Among various types of FIs, secondary FIs have the notable increase in interconnectedness. Domestic Systemically Important Banks and secondary FIs offering a broad range of loan products are more connected to large FIs, while those specialized in single loan types are more connected to their industry peers. FI connectedness is also significantly related to their participation in the mortgage markets.

Book part
Publication date: 8 November 2010

John O’Keefe

Purpose – This chapter investigates the influence of bank loan underwriting practices on loan losses and identifies potential determinants of lending practices for five…

Abstract

Purpose – This chapter investigates the influence of bank loan underwriting practices on loan losses and identifies potential determinants of lending practices for five categories of loans: business, consumer, commercial real estate, home equity, and construction and land development loans.

Methodology/approach – Using data on the riskiness of lending practices obtained from the U.S. Federal Deposit Insurance Corporation (FDIC) bank examiner surveys from January 1996 to March 2009, I fit a two-step treatment effects model to measure the effects of underwriting practices on loan losses, controlling for the potential endogeneity of lending practices.

Findings – In the selection step, I find that for business loans, the likelihood that bank management will adopt low-risk lending practices increases with bank financial performance and management quality hierarchical complexity and decreases with market competition. Results for the selection of lending practices for consumer loans and three categories of real estate loans are similar to those found for business loans but show weaker statistical relationships to all explanatory variables. In the loss determination step, I find that lower (higher) risk underwriting practices are generally associated with lower (higher) gross loan charge-offs (as percentage of gross loans and leases) for five categories of loans: business, consumer, commercial real estate, home equity, and construction and land development loans.

Originality/value of chapter – This is the first study to model the determinants of loan underwriting practices with the practices being characterized in terms of their risk to the bank. In addition, this is the first study to consider the effects of the riskiness of lending practices on loan losses, controlling for the endogeneity of practices.

Details

International Banking in the New Era: Post-Crisis Challenges and Opportunities
Type: Book
ISBN: 978-1-84950-913-8

Article
Publication date: 28 September 2020

Ken B. Cyree

This study investigates the relation of bank loan delinquencies to Fed Survey delinquency data from 2003 to 2017. Bank-generated loans have lower delinquencies than all…

Abstract

Purpose

This study investigates the relation of bank loan delinquencies to Fed Survey delinquency data from 2003 to 2017. Bank-generated loans have lower delinquencies than all Fed Survey loan types. Survey mortgage and auto loan delinquencies are positively related to bank loan delinquencies indicating complimentary delinquency decisions for borrowers. Conversely, student loans delinquencies are negatively related to bank loans, consistent with borrowers substituting student loan payments for bank debt for the entire sample period. Student loan delinquencies are negatively related to per-capita bankruptcy, and all other types of debt have a positive relation. The relation between Fed Survey loan delinquencies and bank-generated loan delinquencies is time varying and changed after the financial crisis in 2008.

Design/methodology/approach

Seemingly Unrelated Regression is used to study delinquencies for three bank loan types and whether or not they are related to Fed Survey loan delinquencies. The sample is split into pre-financial crisis before 2008 and post-crisis after 2008.

Findings

Seemingly Unrelated Regression (SUR) results show that bank delinquencies for second mortgages and “Other” loan types are consistently complementary to Fed Survey mortgage loan delinquencies. Fed Survey auto loans delinquencies are also consistent with a complimentary relation, and these results are largely driven by the relation after the financial crisis of 2008 since pre-crisis regression results are not significant for every dependent variable. Credit card loan delinquencies have a negative and substitute relation with bank-generated first mortgage loan delinquencies prior to the crisis in 2008, and with bank-generated second mortgages after the crisis. Conversely, student loan delinquencies from the Fed Survey are negatively and significantly related to bank mortgages for the entire sample period, but only with bank-generated first mortgages after 2008. The student loan delinquency results are consistent with income smoothing, on average, although this is not explicitly tested at the micro level since this study uses macro-level data and not borrower-specific data. These findings are also consistent with conventional wisdom that student loans provide “financial slack” and borrower flexibility.

Research limitations/implications

A limiting factor is this study uses macro-level data and not borrower-specific data.

Practical implications

Empirical findings are consistent with prior research that student loans provide income smoothing and “financial slack,” and borrowers with payment challenges will pay other debt before student loans.

Social implications

Borrowers in financial trouble tend to be delinquent for all debt, and more so for student debt.

Originality/value

To investigate whether Fed Survey delinquencies of auto loans, first mortgages, student loans and credit card loans from all sources have complementary or substitution effects with bank debt at a macro level. The study investigates whether bank debt follows “market trends” as a complementary effect, or if bank debt has a negative relation to other debt indicating a substitution effect.

Details

Managerial Finance, vol. 47 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 April 2002

Joshua Buch, Kenneth L. Rhoda and James Talaga

Regulators in the UK and the USA recognize the need to assist borrowers that face a huge number of mortgage products with a multitude of fee combinations offered by a…

Abstract

Regulators in the UK and the USA recognize the need to assist borrowers that face a huge number of mortgage products with a multitude of fee combinations offered by a large number of lenders. For over 25 years they attempted to make the mortgage selection process more borrower‐friendly but, for many reasons, the efficacy of the chosen comparison tool, the Annual Percentage Rate (APR), is questionable. Because many consumers are either unwilling or unable to make price comparisons between mortgages based on the APR, we suggest replacing the APR with a new measure called the Annual Effective Rate (AER). The AER is based on the actual length of time the borrower expects to maintain the loan and the assumption that all up‐front loan costs are financed. In addition, we suggest that this comparison rate only be presented for true fixed‐rate loans and that all up‐front cost categories that are used in computing the AER be standardized.

Details

International Journal of Bank Marketing, vol. 20 no. 2
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 1 January 2004

Stefan Yard

Consumers tend to have problems interpreting cost information, such as the annual percentage rate (APR), pertaining to loans. Students were used to test people's…

1593

Abstract

Consumers tend to have problems interpreting cost information, such as the annual percentage rate (APR), pertaining to loans. Students were used to test people's spontaneous estimates of loan cost when only the payment pattern was known, but not the APR or the total finance charge (FC). Experiments show that some absolute measures such as the FC seem to be used rather than relative measures when ranking loans. This leads to a bias against loans of longer duration. This can be avoided by using a heuristic, an approximate APR, by a simple development of the FC. The last section examines the problem of estimating the duration change when the interest rate is altered. Experiments show that the duration is generally underestimated when only the payment pattern and the interest rate are known. If the FC per month is known the situation improves somewhat, but still the effects on the duration of changing interest rates are underestimated.

Details

International Journal of Bank Marketing, vol. 22 no. 1
Type: Research Article
ISSN: 0265-2323

Keywords

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