I examine contract enforcement in consumer credit markets by studying third-party debt collection. I construct a state-level index of the tightness of debt collection laws and find that stricter regulations of third-party debt collection lead to fewer openings of revolving lines of credit. This effect appears to be the result of lower recovery rates due to fewer debt collectors per capita when debt collection laws are tightened. Less stringent debt collection laws are associated with a larger

more »

... d riskier pool of borrowers, consistent with the view that effective debt collection enables creditors to expand lending to new and risky borrowers.