This post is the third in a series. To read the first post, click here. To read the second post, click here.
This post is the third in a series summarizing recent BPI research that uses a new module of the Consumer Financial Protection Bureau’s (CFPB) Making Ends Meet Survey (MEMS) to study fraud and scams from the consumer perspective.[1] The previous post discussed the relationship between fraud outcomes and consumers’ demographic and personal traits. This post focuses on the part of the research that ties fraud to consumers’ financial distress, their demand for credit and their trust in financial institutions.
Fraud and scams impose direct costs on victims by taking both money and time. However, these losses may only be part of the broader harm. Fraud and scams can create wider financial distress, including difficulty paying essential bills or repaying high-interest debt. They can curtail access to credit, reducing victims’ ability to absorb other financial shocks. They may also weaken consumers’ trust in the financial system.
The research first links fraud, and subsequent financial exposure, to greater financial distress. Individuals who experience fraud or scams are about 15 percentage points more likely to expect difficulty paying bills over the next year. Among fraud victims, substantial exposure or loss is also associated with significantly higher perceived risk of future financial distress. In addition, individuals who experience fraud are nearly 7 percentage points more likely to expect to repay less of their credit card balances over the next year.
Second, the research relates fraud to consumers’ demand for credit. Individuals who experience fraud are significantly more likely to have ultimately changed their mind after considering applying. Significant financial exposure or loss further amplifies this relationship. Moreover, consumers are more likely to have changed their mind because they distrusted the lenders they found. This erosion of trust in the financial system highlights broader implications for the relationship between fraud and consumers’ ability to smooth consumption, manage financial shocks and build better financial futures.
Fraud, Financial Distress and Debt Repayment
The research summarized in this post uses Wave 6 of the MEMS to tie consumers’ experiences of fraud to their financial distress, demand for credit and trust in financial institutions.[2] The analysis uses a multivariate regression framework that examines whether experiencing fraud, and the resulting financial exposure or loss, contains additional explanatory power for financial distress beyond, or conditional on, demographic characteristics like income, age and education.
Figure 1 illustrates the relationship between consumers’ difficulty paying bills – i.e., financial distress – and fraud outcomes, conditional on demographic characteristics. The bars in the figure show the estimated (relative) relationship.[3] The black whiskers report the 95 percent confidence interval of that estimate.[4]
The top panel shows that experiencing fraud or a scam is associated with over 15 percentage points higher likelihood of having had difficulty paying essential bills in the previous year.[5] It further shows that, among those who experienced fraud, substantial financial exposure or loss is also associated with a significantly higher chance of having had difficulty paying essential bills.[6]
The middle panel of Figure 1 links consumers’ expectations to fraud experience and exposure or loss. The middle panel shows that fraud is associated with a greater expectation of difficulty paying bills.[7] It also shows that victims who suffer substantial financial exposure or loss are significantly more likely to expect difficulty paying essential bills in the coming year.
The bottom panel shows that fraud is also associated with lower expected credit card repayment. After controlling for income, age and education, individuals who experience fraud are 7 percentage points more likely to expect to repay less of their credit card balances over the coming year.
These results indicate a strong association between fraud experiences, exposure and financial distress, both past and future. Notably, they also tie fraud to a potentially higher debt burden among U.S. consumers.
Figure 1: Fraud, Financial Distress and Debt Repayment
Fraud, Demand for Credit and Trust in Financial Institutions
Figure 2 shows the relationship between fraud and the demand for credit. It also highlights distrust in “any of the lenders I found” as a reason why victims of fraud may more often consider applying for credit and ultimately change their minds.[8] Like above, the figure is based on a multivariate regression analysis. It plots the additional explanatory power of fraud, after controlling for demographic characteristics.
It is not uncommon for household surveys to ask consumers if they recently considered applying for credit but ultimately changed their mind. This question can be used to identify and assess credit-constrained individuals.[9] It can also be linked to expectations of being denied credit and tied to previous experiences. The left panel of Figure 2 plots the association between past experiences with fraud and whether an individual considered applying for credit but ultimately changed their mind.
Figure 2: Fraud, Demand and Trust
Those who have experienced fraud are about 13 percentage points more likely to consider applying for credit and then change their minds. Substantial exposure or loss, among those experiencing fraud, is associated with about 12 percentage points higher likelihood of considering, but ultimately not, applying for credit.
The MEMS also asks respondents why they ultimately changed their mind about applying to credit. Notably, they are asked if they changed their minds because “I did not trust any of the lenders I found.” As shown in the right panel of Figure 2, individuals who experience fraud are about 10 percentage points more likely to ultimately change their minds because they distrust lenders. In other words, substantial exposure or loss among victims is also significantly linked to a greater erosion of trust in lenders, and, potentially, less demand for credit.
In all, these results tie fraud to consumers more often considering whether to obtain credit and changing their mind. They further highlight an erosion of trust in financial institutions as an underlying reason. This highlights a significant association between fraud experiences and an erosion of trust in the financial system. Importantly, since these findings require knowledge of consumers’ state of mind, they cannot be learned from administrative data alone.
Conclusion
This post highlights the relationship between fraud, financial distress and the demand for credit. Two important lessons emerge. The first is that fraud and scams can carry substantial indirect costs. Consumers who experience fraud are more likely to have difficulty paying essential bills, both in the past and going forward. They are also more likely to expect difficulty repaying potentially high-interest credit card balances.
The second is that fraud and scam experiences are associated with potentially less demand for credit. Those experiencing fraud are more likely to self-censor when considering asking for credit. One reason for this is distrust of lenders. Erosion of trust in the financial system can have enormous implications for consumers’ ability to smooth consumption, manage financial shocks and, ultimately, prosper financially.
[1] This research, titled Frauds and Scams: A Post-Pandemic Consumer Perspective, can be found here: Frauds and Scams: A Post-Pandemic Consumer Perspective by Daniel Grodzicki :: SSRN.
[2] The MEMS is a nationally representative survey of adults with a credit record. It was administered in the first quarter of 2025.
[3] Each likelihood is estimated relative to a base group, which is reported in the figure. For example, the likelihood of experiencing fraud by income is estimated relative to a base group comprised of consumers earning less than $100k per year.
[4] Confidence intervals are based on robust standard errors. See research paper for additional information.
[5] The question in the survey is as follows: “At any time in the past 12 months have you or your household had difficulty paying for a bill or expense?”
[6] Substantial exposure or loss is defined as those whose loss, prior to recoveries, is above the median and who did not recover the full amount lost.
[7] The question in the survey is as follows: “Do you expect to have difficulty paying for a bill or expense in the next 12 months?”
[8] The questions in the survey are as follows. In the past year, did you think of applying for credit or a loan but changed your mind because you thought you might be turned down? and “In the past year, did you think of applying for credit or a loan but changed your mind for any of the following reasons? I did not trust any of the lenders I found.”
[9] See, for example, https://academic.oup.com/qje/article-abstract/105/1/219/1928465. This article provides an example of how this question has been used to study and assess credit-constrained households.
