Do Disclosures Make a Difference?
by Henry Meier
Our well-meaning but ultimately misguided friends at the CFPB pride themselves on their cutting-edge approach to rulemaking. On the one hand, they pay homage to the power of free markets to produce positive outcomes, on the other they convince themselves that with greater clarity and disclosures come “better” results.
As three of its top officials explained in a 2012 article in the Cornell Law Review, some consumer markets have been far from transparent. “A core goal of the Bureau will be to improve consumers’ ability to understand the cost and risk of products and to compare those products before making choices.” It is a viewpoint articulated most forcefully and clearly by Massachusetts’ newest Senator, Elizabeth Warren, and popularized in the bestseller Nudge. Exhibit 1A is the mortgage meltdown. With better disclosures the argument goes, you would not have had so many people taking mortgages they couldn’t afford. Consequently, the Bureau was charged by Congress with integrating and simplifying mortgage disclosures and making sure that servicers better explain when mortgages payments are going to change.
Which brings me to the CFPB’s recent proposal to let individual financial institutions apply for waivers from disclosure requirements so that these institutions can try out their own suggested warnings to consumers and the CFPB can evaluate the effectiveness of disclosures in real world situations. It’s a good idea.