Paper
Removing the Fine Print: Standardization, Disclosure, and Consumer Loan Outcomes
Link al draft
https://www.dropbox.com/s/wi05kbksflyxatp/Removing_the_Fine_Print.pdf?dl=0
Autores
Sheisha Kulkarni (Virginia); Santiago Truffa (UAndes); Gonzalo Iberti (UAI)
Abstract
Consumers face a choice when evaluating financial contracts: study the fine print and incur a cognitive cost or ignore it and risk costly surprises in the future. We use a pair of policy changes in Chile meant to reduce the need to study fine print in consumer decisions: the first improves disclosure and the second standardizes and regulates contract features. With detailed administrative data on the universe of consumer loans from the banking regulator, we use a regression discontinuity design to estimate the causal effects of these regimes. Borrowers offered increased disclosure experienced a 40% (14.4 percentage points) reduction in delinquency rates. Standardization had no significant effect for borrowers around the discontinuity cutoff, who take out large loans, but has an effect for borrowers further away from the cutoff. We next test a mechanistic explanation of the heterogeneous effects of disclosure and standardization, which appeals to differences in financial sophistication. Using a difference-in-differences design, we find that sophisticated borrowers benefit most from increased disclosure, while unsophisticated borrowers benefit most from product standardization. Additionally, we show that only sophisticated borrowers leave less «money on the table» in response to both policies, but experience the most benefits under the disclosure regime. These results suggest that different regulations may be appropriate for consumers with different costs of studying.
