THE EFFECTS OF MANDATORY INFORMATION POLICIES ON CONSUMER BEHAVIOR IN CREDIT MARKETS
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Collins, John Michael
This dissertation examines the effects of public policies that mandate disclosures or education for consumers making decisions in credit and other financial markets. The first chapter reviews the literature, finding two roles for disclosures: facilitating searches among product alternatives and highlighting risks. Research suggests disclosures do impact consumer choices, and that consumer responses to disclosed information will vary by the format of disclosure, as well as the consumer's current mood and financial literacy level. There are many studies on financial literacy education, but because consumers with the strongest base of information are also the most likely to be educated, results are not conclusive. The second chapter evaluates state disclosure laws for high-cost mortgage refinance loans using 2005 Home Mortgage Disclosure Act data. Estimates obtained using a variety of econometric techniques, including a sequential response model, suggest that state laws requiring signed disclosures highlighting the risk of 'losing your home' result in loan applicants being 3 to 6 percent more likely to reject a loan offer from a lender. The third chapter reports three lab experiments on how mood or affect influences a consumer's use of disclosures. Unlike control group participants, as well as those in whom anxiety was induced, participants in whom a positive affect was induced were more likely to notice missing information in a credit card disclosure. These results suggest even simplified disclosure formats need to include all relevant information in order to be effective for consumers in nonpositive moods. The final chapter is a longitudinal field study in which mandatory financial education was randomly assigned to 127 low-income clients in a subsidized housing program. Estimates using difference-in-differences methods show $540 in additional savings, a 25 percent increase in self-reported financial knowledge, and a 21-point increase in credit scores for educated clients after one year. These findings suggest the importance of appropriately designed field studies and demonstrate that mandated financial education can influence consumer behavior. These chapters provide insights into how public policies can influence consumer decisions in credit markets. This work also provides a platform for new directions of inquiry into consumer decision making in financial markets.
dissertation or thesis