Credit Card Disclosures, Solicitations, and Privacy Notices: Survey Results of Consumer Knowledge and Behavior

By Durkin, Thomas A.; Jones, Christine N. | Federal Reserve Bulletin, August 7, 2006 | Go to article overview

Credit Card Disclosures, Solicitations, and Privacy Notices: Survey Results of Consumer Knowledge and Behavior


Durkin, Thomas A., Jones, Christine N., Federal Reserve Bulletin


The mandatory dissemination of certain information by financial institutions is a key aspect of consumer protection law. It offers two significant advantages for consumer protection in the financial area over the alternative of direct government intervention into product pricing and content. First, information disclosure is compatible with competition, a significant market force already at work to protect consumers by keeping price rises in check. Because of competition, institutions already have incentives to make their products known, to reveal favorable pricing and product features, and to treat consumers fairly by keeping them generally informed about what they want and need to know. When a financial institution employs these strategies, it generates a good business reputation that will produce referrals and repeat customers. Actions that firms use to accomplish these goals include advertising their prices and supplying clients and potential customers with useful information about product prices and features.

The requirements for disclosures assist in the dissemination of financial information by standardizing concepts and terminology, such as the finance charge and annual percentage rate under the Truth in Lending Act and the annual percentage yield under the Truth in Savings Act. Such standardization advances consumers' knowledge about pricing and features of the financial products and institutions and lowers consumers' transactions costs by making shopping easier. The standard format of required disclosures helps highlight the performance of the best institutions and exposes the inadequacies of the poorer ones. Well-informed shoppers help keep markets competitive, which benefits buyers of products and services by minimizing the spread between producers' production costs and market price. (1)

The second advantage of information disclosure over direct intervention through mandating specific product pricing or features is that the government need not know, or presume to know, the product feature preferences of all consumers. With effective disclosures, consumers can decide what their preferences are in the tradeoff between price and product features; the success of the disclosure approach to consumer protection does not depend on consumers' preferences being the same. Disclosure requirements may also be less costly for financial institutions to implement and for the government to enforce than consumer protection approaches that limit product features.

TRUTH IN LENDING ACT AND DISCLOSURES

The Congress in May 1968 passed the Truth in Lending Act, the first in a series of federal consumer protection laws that addressed primarily financial disclosures. (2) This act was designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the credit arrangement and all credit costs. The law was implemented in 1969 by the Federal Reserve Board through Regulation Z, which prescribes uniform methods for computing the cost of credit, for disclosing credit terms, and for resolving errors on certain types of credit accounts. In 1976, the Congress amended the act to cover consumer leasing, and the Federal Reserve implemented Regulation M, which covers the rules of all consumer leasing transactions and includes disclosure of leasing terms.

Credit cards are the most widely used method of generating consumer credit. The credit card industry estimates that more than 1 billion credit cards were in the hands of customers in the United States at the end of 2004. (3) When they use their cards, consumers receive monthly account statements that contain disclosures about credit use, costs, and obligations for payments. Elsewhere on the monthly statements, consumers receive disclosures concerning such items as grace periods, membership fees, minimum finance charges, and procedures for questioning and resolving billing errors. In addition, consumers frequently receive mailed solicitations for new accounts, and these mailings carry disclosures. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Credit Card Disclosures, Solicitations, and Privacy Notices: Survey Results of Consumer Knowledge and Behavior
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.