Understanding the Fine Print: The Need for Effective Testing of Mandatory Mortgage Loan Disclosures

Prior research indicates that mandatory disclaimers increase consumer confusion and lead to inferior decisions. The authors examine the implications of these findings in the context of mandatory disclosures required by federal law for mortgage loan transactions. Research suggests that consumers can be confused when too much information is presented or disclosure information is too complex but falls short of concluding that all mandatory disclaimers increase consumer confusion and lead to inferior decisions. The literature lacks conclusive evidence of the effects of disclosures on decisions and outcomes, such as loan choice or performance, and research examining the role of disclosures in light of other social, contextual, or informational influences is scarce. Longitudinal, experimental evidence that controls for these factors is necessary to examine the effects of disclosures on decision quality. Better-designed research in this area could lead to significant improvements in public policy and consumer protection and result in a more efficient allocation of public resources.