Evaluating Informational Regulations in the Credit Market

Regulations on the financial information presented to borrowers are pervasive, mainly because of the unsatisfactory levels of understanding of some consumers. Despite their worldwide use, the effectiveness of informational... [ view full abstract ]

Regulations on the financial information presented to borrowers are pervasive, mainly because of the unsatisfactory levels of understanding of some consumers. Despite their worldwide use, the effectiveness of informational regulations have not been properly assessed. We use detailed individual-level data to evaluate the effects on actual credit outcomes of this type of regulation in Chile. Our findings suggest that consumers at the top 40 percent in the income distribution achieved four percent lower interest rates after the regulation is implemented. Instead, we find no statistically significant effects for the rest of the population. We explore whether our findings can be explained by educational background or search behavior. Our results suggest that financial literacy is the factor that allows consumers to obtain benefits from this type of regulation.