Financial Update (Fourth Quarter 2006)

Vol. 19, No. 4,
Fourth Quarter 2006


Point of Purchase
Fuels E-Check Growth

Atlanta Fed Publishes
Online Payments Guide

Fed Vice Chair: Payment
System Still Evolving

Agencies Propose Rules
to Prevent ID Theft

Bank Profitability Strong
in '05, Report Says

Comments Requested
on Basel II Rules

New Governor Joins
Federal Reserve Board

Study Explores Credit
Notice Attitudes

Payroll Cards to Receive
Added Protection

FHLBs' Risk Taking
Behaviors Examined

Nontraditional Mortgage
Guidance Issued

Atlanta Fed Welcomes
SBAL Council Members


Did You Know?

Data Bank

Circular Letters


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Study Takes a Snapshot of Consumers' Views of Credit Card Information

Credit Card Privacy Notices
For many consumers, the daily mail is full of credit card information, including new credit card solicitations, disclosures from their current bankcard providers, and privacy notices from financial institutions and private-label credit cards.

Several research studies in the past few years have explored how consumers respond to this barrage of information. Thomas A. Durkin, an economist with the Federal Reserve Board of Governors, analyzed the findings of the most significant surveys of 2004 and 2005 that were sponsored by the Federal Reserve.

Perhaps surprisingly, Durkin found consumers appreciate having information from credit card issuers although they tended not to examine privacy notices closely. Consumers' responses about credit card information varied widely among the surveys, but that variation might be expected given the highly diverse makeup of the consumer base.

A mandatory and standardized approach
Disclosure laws require standardized language in credit card notices so that information about finance charges and interest rates, for example, is more readily understood. Such standardization not only contributes to consumers' knowledge but also allows more effective comparison shopping for financial products.

Results of 2006 survey of consumer knowledge and behavior
Press release
Brochure on privacy choices

Although the Truth in Lending Act and the Truth in Savings Act require financial institutions to provide certain kinds of information, Durkin argues that financial institutions have a competitive incentive to tell consumers about pricing and products.

So how do consumers feel about this flurry of information?
Based on the consumer surveys in Durkin's analysis, consumers have significant knowledge of and familiarity with financial institutions' disclosures, solicitations, and privacy notices. Forty-six percent of those surveyed reviewed their annual percentage rate on credit cards every month, and nearly 31 percent reviewed the accompanying descriptive material whether on the back of the statement or in separate disclosures.

Consumers in another research study that Durkin evaluated were surveyed about their financial institutions' privacy policies and notices. Sixty-seven percent of the respondents who recalled receiving privacy notices said they found the information either somewhat or very helpful.

In 2005, the Federal Reserve Board sponsored a survey to assess how important disclosure information is for general-purpose credit cards. The study showed that the higher the balances and the more credit cards a consumer held, the higher the consumer's interest in descriptive disclosures.