Preventing Consumers to Spin: Are Upgraded Macroprudential Measures Needed?

Abstract

In this provocative, exploratory article, we enrich the emerging concept of consumer financial spinning by first analyzing the US market at the time of the Global Financial Crisis, when it was filled with avid, sometimes naïve mortgage buyers, to outline the phenomenon of consumers becoming desensitized to risk, but remaining responsive to marketing “sweetheart deals” (sweeteners) aimed at luring them into buying houses repeatedly. They thus enter into a vicious circle of debt. In line with the data percolation methodology, which recommends looking at a new phenomenon from contrasting analytical angles, we then conduct a virtual reality test to see if we can artificially induce such behavior. Based on our bi-angle results, we highlight the role of questionable marketing and legal practices that entice consumer spinning, thus calling for macroprudential measures, given that past and current regulations have missed the opportunity to fully protect consumers in this regard.