Financial Update (Fourth Quarter 2006)
Study Explores Credit
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.
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.