Consumer Credit: Too Much or Too Little (or Just Right)?

The intersection of research and policy on consumer credit often has a Goldilocks feel. Some researchers and policy makers posit that consumer credit markets produce too much credit. Other researchers and policy makers posit that markets produce too little credit. I review theories and evidence on inefficient consumer credit supply. For each of eight classes of theories I sketch some of the leading models and summarize any convincing empirical tests of those models. I also discuss more circumstantial evidence that does not map tightly onto a particular model but has the potential to shed light on, or obscure, answers to key questions. Overall there is a lack of convincing evidence on whether markets err and in which direction. We do not yet understand whether and under what conditions markets oversupply or undersupply credit, much less why.