Reading the Fine Print: Credit Demand and Information Disclosure in Brazil

Last registered on September 22, 2017
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Pre-Trial

Trial Information

General Information

Title
Reading the Fine Print: Credit Demand and Information Disclosure in Brazil
RCT ID
AEARCTR-0001964
Initial registration date
April 09, 2017

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
April 10, 2017, 10:32 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
September 22, 2017, 10:15 PM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country
Brazil
Region

Primary Investigator

Name
Bruno Ferman
Affiliation
Sao Paulo School of Economics - FGV
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
Completed
Start date
2010-07-01
End date
2010-10-31
Keywords
Finance & Microfinance
Additional Keywords
consumer credit, demand elasticity, information disclosure, default options
JEL code(s)
D14; D18; G21
Secondary IDs
Abstract
Consumer credit regulations usually require that lenders disclose interest rates. However, in the absence of specific prominence requirements, lenders can conceal the interest rate in the fine print while still complying with the law. I examine the effect of such strategy using a field experiment in Brazil in which a credit card company offered their clients payment plans to pay off their balances. Using randomized contract interest rates and the degree of rate disclosure, I show that most clients are rate-sensitive, whether or not rates are prominently disclosed. The elasticity of payment plan enrollment with respect to the interest rate ranges from -0.711 to -0.880. High-risk clients are an exception; these clients are rate-sensitive only when disclosure is prominent. I also show that clients are influenced by nudges that favor longer-term contracts. Conditional on enrollment, the proportion of clients who choose a longer-term contract is 40 percentage points higher when a longer-term contract is featured in the advertisement layout. This effect, however, is weaker when stakes are higher.
External Link(s)
J-PAL summary page

Registration Citation

Citation
Ferman, Bruno. 2017. "Reading the Fine Print: Credit Demand and Information Disclosure in Brazil." AEA RCT Registry. September 22. https://doi.org/10.1257/rct.1964-2.0
Former Citation
Ferman, Bruno. 2017. "Reading the Fine Print: Credit Demand and Information Disclosure in Brazil." AEA RCT Registry. September 22. https://www.socialscienceregistry.org/trials/1964/history/21708
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
In conjunction with a large Brazilian credit card company, we conducted a randomized evaluation to test the impact of advertising that conceals interest rates and feature specific payment plans on borrowing behavior.

The results indicate that clients responded to interest rate changes even when the interest rate was concealed in small print. For instance, approximately 2% of clients offered plans with an 11.89% interest rate accepted the offer, while take-up doubled to 4% when the offered rate was 3.99%. We strongly reject that take-up rates are equal for all interest rate values. We find that when the interest rate information is more prominent, clients are slightly more interest rate elastic but not at a statistically significant level. High-risk clients are an exception; these clients are rate sensitive only when disclosure is prominent.

Additionally, clients appeared to prefer short-term contracts; 53% chose the 6-month plan versus 13% who selected the 12-month maturity. However, the featured plan did act as a nudge; enrollment in the longer-term contract increased from 16% when the 6-month plan was featured to 56% when a longer-term plan was featured.
Intervention Start Date
2010-07-01
Intervention End Date
2010-09-01

Primary Outcomes

Primary Outcomes (end points)
take-up rates
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Offering clients plans in either July or September 2010, the credit card company randomly varied three features to a sample of 19,690 clients: 1) monthly interest rate (3.99%, 7.49% or 11.89%), 2) degree of disclosure (either in a footnote on a one-page advertisement for a "special interest rate" or prominently displayed out of a table with the four payment plan options) and 3) length of the prominently featured payment plan (6, 8, 10 and 12 months). For the length of the featured payment plan, although clients could select any of the four plan lengths the featured plan could act as a nudge for the clients if it were viewed as the "default option."

Note that the likelihood of any of these variations (of interest rate, disclosure and payment plans) was equal throughout.

Additionally, we looked at another larger scale field experiment conducted by the same credit card company with another 103,116 clients in July 2010 who were offered a menu of payment plans. The first group had 34,743 clients at 6.39% with the second group of 49,573 clients at 9.59% and control group of 18,800 clients without an offer. The purpose of this additional experiment was to garner more information on information disclosure and probability of default by measuring impact of enrolling in a payment plan on future repayment.
Experimental Design Details
Randomization Method
randomization was made by credit card company
Randomization Unit
client/individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
n/a
Sample size: planned number of observations
Featured experiment: 19,690 clients/individuals Larger scale field experiment: 103,116 clients/individuals
Sample size (or number of clusters) by treatment arms
Main experiment: total sample size of 19,690 credit card clients with 6486 clients at 3.99%, 6541 clients at 7.49%, 6663 at 11.89%.

In the larger scale field experiment, total sample size was 103,116 clients with 34,743 clients at 6.39% (group 1), 49,573 clients at 9.59% (group 2), and 18,800 clients without an offer (control group).
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
MIT Committee On the Use of Humans as Experimental Subjects
IRB Approval Date
2010-06-30
IRB Approval Number
0906003331
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
October 31, 2010, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
October 31, 2010, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
n/a
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
Featured experiment: 19,690 clients
Larger scale field experiment: 103,116 clients
Final Sample Size (or Number of Clusters) by Treatment Arms
Featured experiment: total sample size of 19,690 credit card clients with 6486 clients at 3.99%, 6541 clients at 7.49%, 6663 at 11.89%. In the larger scale field experiment, total sample size was 103,116 clients with 34,743 clients at 6.39% (group 1), 49,573 clients at 9.59% (group 2), and 18,800 clients without an offer (control group).
Data Publication

Data Publication

Is public data available?
Yes
Public Data URL
http://pubsonline.informs.org/doi/suppl/10.1287/mnsc.2015.2281

Program Files

Program Files
Yes
Program Files URL
http://pubsonline.informs.org/doi/suppl/10.1287/mnsc.2015.2281
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
Consumer credit regulations usually require that lenders disclose interest rates. However, in the absence of specific prominence requirements, lenders can conceal the interest rate in the fine print while still complying with the law. I examine the effect of such a strategy using a field experiment in Brazil in which a credit card company offered their clients payment plans to pay off their balances. Using randomized contract interest rates and the degree of rate disclosure, I show that most clients are rate sensitive, whether or not rates are prominently disclosed. The elasticity of payment plan enrollment with respect to the interest rate ranges from −0.711 to −0.880. High-risk clients are an exception; these clients are rate sensitive only when disclosure is prominent. I also show that clients are influenced by nudges that favor longer-term contracts. Conditional on enrollment, the proportion of clients who choose a longer-term contract is 40 percentage points higher when a longer-term contract is featured in the advertisement layout. This effect, however, is weaker when stakes are higher.
Citation
Ferman, Bruno "Reading the Fine Print: Information Disclosure in the Brazilian Credit Card Market", Management Science 201662:12, 3534-3548
URL
http://dx.doi.org/10.1287/mnsc.2015.2281

Reports & Other Materials