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Consumers and Credit Disclosures: Credit Cards and Credit Insurance

The Congress well understood the difficulty of predicting specific outcomes when it passed Truth in Lending. Rather than suggesting that the purpose of the act was to change markets or consumer behavior in some precise manner, the Congress instead stated less specifically that the act's intent was to improve information conditions generally so that consumers could avoid being "uninformed." Section 102 of the act states, "It is the purpose of this title to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid. | Consumers and Credit Disclosures Credit Cards and Credit Insurance Thomas A. Durkin of the Board s Division of Research and Statistics prepared this article. Over the past three decades much of the federal consumer-protection legislation for credit has required that certain items of information be disclosed to consumers in mandatory formats at specified times. The most prominent legislation in this area is the Truth in Lending Act. Provisions of the original Truth in Lending Act enacted as Title I of the Consumer Credit Protection Act in 1968 were extensive and detailed. Since then the act has been amended and expanded many times as markets and needs have changed. Under the original act the Federal Reserve has the responsibility for writing the implementing rules which it has carried out with its Regulation z. Because this law is so critical for federal consumerprotection policy in the credit area and because it imposes significant compliance costs on creditors questions have been raised about its effects on consumers understanding and behavior. Assessing the direct effects of disclosure legislation in these areas is difficult. For example an apparent increase in consumers understanding of credit matters might be explained by improved disclosure laws but it might also be explained by advances in education more widespread and frequent use of credit or by more-effective solicitations for credit advertisements and publications that are not specifically tied to disclosure requirements. Regarding consumer behavior some consumers may use less credit after the introduction of expanded disclosures if the required information persuades them that credit is expensive. Others may not change their use of credit at all or might even increase their credit use if the required disclosures either confirm their previous view that credit is affordable or increase their confidence that using credit is a desirable option. In terms of competition knowing what conditions might otherwise .