Default information sharing, financial incentive and loan repayment: A field experiment

Last registered on May 22, 2020

Pre-Trial

Trial Information

General Information

Title
Default information sharing, financial incentive and loan repayment: A field experiment
RCT ID
AEARCTR-0005913
Initial registration date
May 22, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
May 22, 2020, 9:31 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation
Beijing Normal University

Other Primary Investigator(s)

PI Affiliation
Renmin University of China

Additional Trial Information

Status
On going
Start date
2020-04-20
End date
2021-04-30
Secondary IDs
Abstract
We investigate the effects of reporting loan delinquency information to a nationwide official credit score system combined with the financial incentive of deducting part of the overdue loan on loan delinquents’ repayment behavior. We do this using experimental manipulation in collaboration with a large Chinese P2P lending platform. We test for difference in repayment responses across treatments.
External Link(s)

Registration Citation

Citation
He, Haoran and Qian Weng. 2020. "Default information sharing, financial incentive and loan repayment: A field experiment." AEA RCT Registry. May 22. https://doi.org/10.1257/rct.5913
Experimental Details

Interventions

Intervention(s)
Intervention Start Date
2020-05-01
Intervention End Date
2020-06-30

Primary Outcomes

Primary Outcomes (end points)
1. Whether to repay the overdue loan
2. How much in amount and in percentage is the overdue loan repaid
3. When the overdue loan is repaid
4. Net benefit of the intervention
Primary Outcomes (explanation)
Net benefit of the intervention:
Stage 1: We separately compute the benefit and the cost of the intervention to conduct the cost-benefit analysis at the treatment level. To compute the benefit for all treatments, we sum the total overdue loan repayment from the sampled delinquents who repay. To compute the cost, for all treatments, there is only the sunk cost, which is the total overdue loan amount for all sampled delinquents. To compute the net benefit, we subtract the cost from the benefit.

Stage 2: We again separately compute the additional benefit and the additional cost of the Stage 2 intervention to conduct the cost-benefit analysis at the treatment level. The benefit is computed in the same way as in Stage 1. There is only additional cost for the Deduct&Report treatment, which is the intervention cost – the cost of reporting. To compute the net benefit, we subtract the additional cost from the additional benefit.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We use a 1 × 3 factorial design in which we vary the financial incentive and reporting loan delinquency information. We implement the experimental manipulation in two stages, one stage of intervention lasting for one month. In the first stage, in the Control treatment, the delinquents are reminded to repay the overdue loan by above-described standard procedure. In the Deduct treatment, in addition to the standard procedure as in the Control treatment, the subjects are further informed that a proportion of the overdue amount would be deducted if they repaid the deducted overdue amount in full within one month. In the Deduct&Report treatment, in addition to informing the subjects of the deduction as in the Deduct treatment, they are further informed that, if they could not repay the deducted overdue amount in full within one month, their delinquency, including individual identification information and the overdue loan amount, would be reported to the credit score system. All the treatments are implemented by operators based on standard procedures that are carefully designed and recorded and the frequency of contact is on a daily basis.

In the second stage, for subjects who have not repaid the deducted overdue amount in full in the Deduct&Report treatment, the platform actually reports their delinquency to the social credit rating system and informs these delinquents right after the report. Subjects are also informed that the platform would update their record as “having fully repaid the loan” in the social credit rating system once the platform received their deducted repayment in full. In the Control and the Deduct&Report treatments, the implemented treatment conditions are identical to those in the first stage.
Experimental Design Details
Experimental setting – the online P2P lending platform and borrowers

We conduct the experiment on a P2P lending platform, which is one of the largest nationwide P2P lending platforms in China. The platform collects money from individual lenders via loan programs of various interest rates, minimum loan amounts, and program lengths. The platform’s borrowers can be broadly categorized into three types – individuals, business owners and firms. Programs of different interest rates, maximum loan amounts, and loan periods are designed specifically suitable for each type of borrowers. Borrowing can also happen both online and in its offline stores.

In this experiment, we focus only on individual borrowers. To apply for a loan, potential borrowers need to fill in an application form and provide required supporting documents including a copy of national identification card, household register, income certificate and marital status certificate, etc. The annual interest rate ranges between 3.96%-23.99% at the time of the experiment depending on the loan size, payment conditions and supporting documents provided.

After receiving the loan, borrowers need to repay the designated principal, interest and service charge in full amount monthly on the due date. To facilitate repayment, the platform sends reminder text messages or non-interactive voice phone calls from 2 days before the due date to the due date on a daily basis, specifying the due date and the due amount to be repaid as well as the official ways of repayment. If a borrower fails to repay the due amount on the due date, the platform keeps sending messages and also randomly assign the case to an operator to make phone calls. The operators follow the platform’s general guidelines and procedures to communicate with the delinquents and collect the overdue loan. They have some discretion on exactly how to communicate with the delinquents, but insulting, slandering, harassing the delinquent and their contact persons, and threatening to report the delinquency to the credit rating system or deducting the loan amount are strictly prohibited and punished. The delinquent also needs to pay the default penalty as the overdue amount times the penalty interest rate (usually daily 0.1%) times the number of days overdue, if she is overdue for over four days.

In this experiment, our eligible loan delinquents are selected based on the following criteria: (1) overdue loan amount is over 1000 CNY for online programs and 5000 CNY for offline programs; (2) number of days overdue is over 180 days for online programs and 450 days for offline programs. The population of eligible loan delinquents is drawn a week prior to the commencement of the experiment, together with loan information (online/offline program, program title, overdue loan amount, number of days overdue, etc.) as of when the population is drawn. We further obtain additional loan information (loan size, interest rate, loan period, loan purpose, repayment frequency, etc.) and individual information (including gender, date of birth, educational level, place of residence, marital status, annual income, occupation, etc.) after the experiment intervention starts.

Treatments and experimental procedure

We use a 1 × 3 factorial design in which we vary the financial incentive and reporting loan delinquency information. We implement the experimental manipulation in two stages, one stage of intervention lasting for one month. In the first stage, in the Control treatment, the delinquents are reminded to repay the overdue loan by above-described standard procedure. In the Deduct treatment, in addition to the standard procedure as in the Control treatment, the subjects are further informed that a proportion of the overdue amount would be deducted if they repaid the deducted overdue amount in full within one month. In the Deduct&Report treatment, in addition to informing the subjects of the deduction as in the Deduct treatment, they are further informed that, if they could not repay the deducted overdue amount in full within one month, their delinquency, including individual identification information and the overdue loan amount, would be reported to the credit score system. All the treatments are implemented by operators based on standard procedures that are carefully designed and recorded and the frequency of contact is on a daily basis.

In the second stage, for subjects who have not repaid the deducted overdue amount in full in the Deduct&Report treatment, the platform actually reports their delinquency to the social credit rating system and informs these delinquents right after the report. Subjects are also informed that the platform would update their record as “having fully repaid the loan” in the social credit rating system once the platform received their deducted repayment in full. In the Control and the Deduct&Report treatments, the implemented treatment conditions are identical to those in the first stage.

Sampling

Given most of the delinquents are difficult to reach, we choose 4500 delinquents with the smallest number of days overdue, who, according to the platform’s experience, have relatively high probability to be contactable among all eligible loan delinquents. We stratify the sample by online and offline programs, and then randomly assign all the sampled delinquents with matched overdue loan amount into these three treatments.

Operators are randomly assigned a treatment, within which they are randomly assigned to manage several cases. To keep the manipulation comparable, all operators are instructed by the same supervisor. To avoid contamination, operators assigned to different treatments come from different working divisions, who normally do not know the operators in other divisions, and neither know that they are participating in a scientific study nor are informed about the existence of the other treatments.

The key data constructed from the experiment include:
1. Individual level data on who repays the overdue loan
2. Individual level data on how much each repayment of overdue loan is repaid
3. Individual level data on when each repayment of the overdue loan is repaid

Randomization Method
Randomization done in office by a computer. We stratefy the sample by online and offline programs, and then randomly assign all the sampled delinquents with matched overdue loan amount into various treatments.
Randomization Unit
The unit (clusters) of randomization in our experiment is at the individual loan delinquent level.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
4500 individual loan delinquents
Sample size: planned number of observations
4500 individual loan delinquents
Sample size (or number of clusters) by treatment arms
There are 1500 loan delinquents in each of the three treatments.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

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Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials