The Impact of a Man-made Disaster on Consumer Credit Outcomes: Evidence from the 2018 Merrimack Valley Natural Gas Explosions 
This paper studies how consumer credit outcomes were affected by the 2018 Merrimack Valley natural gas pipeline explosions, which are estimated to have affected about 8,600 households and nearly 700 businesses across three Massachusetts towns. The author looks at five categories of credit outcomes: debt balances, credit limits, number of credit accounts, debt delinquencies, and Equifax Risk Scores. While there is an emerging literature on the impact of natural disasters on consumer credit outcomes, this paper is, to the best of the author’s knowledge, the first to study the impact of a man-made disaster. Because the two types of disasters can differ in several ways—including the scale, length, and type of impact—the results and policy recommendations derived from studying natural disasters may not apply to man-made disasters.
Key Findings
- The debt balance and credit limit of individuals living in the area affected by the explosions (the treatment group), on average, decreased 3 to 4 percent more than those of individuals living in the affected towns but outside the affected area (the control group) from their pre-disaster levels in the two quarters after the explosions.
- Evidence suggests that the decreases in debt balance and credit limit were more likely driven by a decline in credit demand than by a decline in credit supply; individuals affected by the disaster might have reduced, delayed, or canceled new debt-financed major purchases in the aftermath of the explosions.
- Relative to those of the control group, the treatment group’s number of accounts past due and likelihood of being 60-plus days delinquent on loans, on average, increased temporarily, but not until two quarters after the explosions. This finding suggests that the affected individuals received short-term forbearance or used other options first rather than defaulting on their debt to cope with the negative shock.
- The gas explosions did not have a significant impact on credit scores.
Implications
Overall, the impact of the gas explosions on credit outcomes, if any, was short-lived, lasting only one to two quarters. The lack of a large, long-lasting impact is likely due to the important role that the external assistance played. Residents and businesses in the area affected by the pipeline explosions received a significant amount of financial and nonfinancial assistance from the gas company, the state, local governments, nonprofits, and community organizations. Thus, the results highlight the importance of providing a broad range of assistance to communities affected by disasters as quickly and robustly as possible.
Despite varying demographic compositions, the three Merrimack Valley towns combined have measures of income and educational attainment similar to those of Massachusetts as a whole and the United States. In this way, the affected area is close to being representative of a typical American community while allowing for a wide range of socioeconomic and demographic characteristics within the overall area. These observations suggest that the findings of this paper could apply to many other communities and man-made disasters.
Abstract
This paper is the first to empirically examine the impact of a man-made disaster on consumer credit outcomes. It uses the 2018 Merrimack Valley natural gas explosions as a quasi-random natural experiment and shows that the explosions had a temporary negative effect on debt balances, credit limits, and the number of delinquencies, and did not affect credit scores. The decreases in debt balances and credit limits were likely driven by a decline in credit demand when the affected individuals faced severe life disruption, great uncertainty, and negative financial shocks associated with the disaster. It took some time for the explosions to have an impact on delinquencies, suggesting that the affected individuals may have received short-term forbearance or used default as a last resort. The lack of large, long-lasting effects of the explosions likely reflects the critical role that external assistance to the affected communities played in mitigating the disaster’s impact.