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Fuzzy Math, Disclosure Regulation, and Market Outcomes: Evidence from Truth-in-Lending Reform


  • Victor Stango
  • Jonathan Zinman


We posit that consumer lenders shroud interest rates and market "low monthly payments" to price discriminate on "fuzzy math" or "payment/interest bias": consumers' pervasive tendency to underestimate borrowing costs when an interest rate is not disclosed. We test whether mandated disclosure changes lenders' ability to price discriminate using within-household interactions between payment/interest bias and policy-induced variation in the strength of Truth-in-Lending Act (TILA) enforcement across lenders and time. Weak TILA enforcement substantially widens the gap between rates paid by more-biased and less-biased borrowers. TILA compliance costs appear to increase interest rates overall, making the net effect on interest rates ambiguous. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail:, Oxford University Press.

Suggested Citation

  • Victor Stango & Jonathan Zinman, 2011. "Fuzzy Math, Disclosure Regulation, and Market Outcomes: Evidence from Truth-in-Lending Reform," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 506-534.
  • Handle: RePEc:oup:rfinst:v:24:y::i:2:p:506-534

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    Cited by:

    1. Bai, Yiyi & Lu, Liping, 2020. "Households rejecting loan offers from banks," Journal of Banking & Finance, Elsevier, vol. 119(C).
    2. Brett Theodos & Christina Plerhoples Stacy & Devlin Hanson & Julian Jamison & Rebecca Daniels, 2020. "Do not swipe the small stuff: A randomized evaluation of rules of thumb‐based financial education," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(2), pages 701-722, June.
    3. Richard Disney & John Gathergood, 2011. "Financial Literacy ad Indebtedness: New Evidence for UK Consumers," Discussion Papers 11/05, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    4. Gaganis, Chrysovalantis & Galariotis, Emilios & Pasiouras, Fotios & Staikouras, Christos, 2020. "Bank profit efficiency and financial consumer protection policies," Journal of Business Research, Elsevier, vol. 118(C), pages 98-116.
    5. Gu, Yiquan & Wenzel, Tobias, 2012. "Strategic obfuscation and consumer protection policy in financial markets: Theory and experimental evidence," DICE Discussion Papers 76, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. J. Collins, 2011. "Mortgage Mistakes? Demographic Factors Associated with Problematic Loan Application Behaviors," Journal of Family and Economic Issues, Springer, vol. 32(4), pages 586-599, December.
    7. Rajat Deb & Prasenjit Deb & Sujit Majumder & Sourav Chakraborty & Kiran Sankar Chakraborty, 2019. "Answering Savings Puzzle About Small Saving Schemes and Mutual Funds: Evidence from Tripura," Metamorphosis: A Journal of Management Research, , vol. 18(1), pages 7-19, June.
    8. Peter Debbaut & Andra C. Ghent & Marianna Kudlyak, 2013. "Are young borrowers bad borrowers? Evidence from the Credit CARD Act of 2009," Working Paper 13-09, Federal Reserve Bank of Richmond.
    9. Chaudhuri, Malika & Calantone, Roger J. & Voorhees, Clay M. & Cockrell, Seth, 2018. "Disentangling the effects of promotion mix on new product sales: An examination of disaggregated drivers and the moderating effect of product class," Journal of Business Research, Elsevier, vol. 90(C), pages 286-294.
    10. Matthew Levy & Joshua Tasoff, 2016. "Exponential-Growth Bias and Lifecycle Consumption," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 545-583.
    11. Perez-Truglia, Ricardo & Troiano, Ugo, 2018. "Shaming tax delinquents," Journal of Public Economics, Elsevier, vol. 167(C), pages 120-137.
    12. Akey, Pat & Heimer, Rawley Z. & Lewellen, Stefan, 2021. "Politicizing consumer credit," Journal of Financial Economics, Elsevier, vol. 139(2), pages 627-655.
    13. Disney, Richard & Gathergood, John, 2013. "Financial literacy and consumer credit portfolios," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2246-2254.
    14. Thomas S. Conkling, 2020. "Compliance and competition with heterogeneous service providers: the federal Lifeline program," Journal of Regulatory Economics, Springer, vol. 57(1), pages 74-104, February.
    15. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 590-602.
    16. Zinman, Jonathan, 2010. "Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 546-556, March.
    17. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    18. Bruno Ferman, 2016. "Reading the Fine Print: Information Disclosure in the Brazilian Credit Card Market," Management Science, INFORMS, vol. 62(12), pages 3534-3548, December.
    19. Garcia Gonzalez, Javier, 2018. "Effects of Consumer Financial Protection Introduced after the Financial Crisis of 2007-2008," MPRA Paper 89226, University Library of Munich, Germany.

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