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Debt-Relief Programs and Money Left on the Table: Evidence from Canada's Response to COVID-19

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During the COVID-19 pandemic, Canadian financial institutions offered several debt-relief programs. Using a rich dataset on individual credit accounts, this paper looks at the take-up rate for these programs and Canadians’ ability to restructure their debt to reduce their interest expenses.

Debt-relief programs were widely available and offered important savings to Canadians who chose to opt in. Despite this, our findings show that enrollment was low: 24 percent for mortgages and 7 percent for credit cards. For the credit-card program alone, over $1 billion was left on the table. We also show that this outcome was due to (1) limited information about the programs and (2) fixed non-monetary costs associated with enrolling in them.

Our findings suggest that to put more money into people’s pockets during a crisis, debt-relief programs must be visible and easy to use. Providing more information and assistance has increased participation rates in other areas of financial planning and is likely to work for debt-relief programs as well. To increase take-up rates, financial institutions should make it easier for individuals to access these programs. One example would be facilitating online applications and aid with classic nudges—for example, auto-selecting “yes” on an opt-in box within a debt-relief application form.