Effects of debt collection fees on consumer behavior: Evidence from electricity bills

Abstract

This thesis examines whether higher statutory debt collection fees affect consumer behavior in third-party debt collection in Finland. The analysis focuses on the payment demand stage, where collection fees increase discontinuously when the principal amount of a receivable cross-es thresholds of 100€ and 1000€. Using administrative microdata from a large international debt collection agency, the study investigates whether higher fees influence different debtor behavior indicators. The empirical strategy applies a regression discontinuity design. Due to imperfect compliance, both sharp and fuzzy specifications are employed. Sharp RD estimates capture intention-to-treatment effects, while fuzzy RD estimates identify the local effect of changes in realized fees. The main outcomes include repayment timing, payment plan usage and escalation to legal en-forcement. In the full sample, the estimates suggest faster repayment and some reductions in escalation at both thresholds. However, validity checks reveal substantial density discontinuities and bunch-ing around the cutoffs, raising concerns about comparability and weakening the causal interpre-tation of these results. By contrast, an electricity subsample provides a more credible setting. In this subsample, although the fee discontinuity remains strong, the estimated effects on behavior are small and statistically insignificant. Overall, the findings suggest that modest increases in payment-demand fees do not materially affect debtor behavior in the context of electricity bills.