Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-22T00:17:03.632Z Has data issue: false hasContentIssue false
  • English
  • Français

Public Disclosure and Consumer Financial Protection

Published online by Cambridge University Press:  03 May 2023

Yiwei Dou Open the ORCID record for Yiwei Dou [Opens in a new window]  and
Yongoh Roh
Yiwei Dou*
Affiliation:
New York University Stern School of Business
Yongoh Roh
Affiliation:
McGill University Desautels Faculty of Management [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The U.S. Consumer Financial Protection Bureau has released a database of consumer complaints about banks’ financial products to the public since 2013. We find a greater reduction in mortgage applications to banks that receive more mortgage complaints in local markets after the disclosures. The effect is stronger in areas with more sophisticated consumers and higher credit competition, and for banks receiving more severe complaints. The number of monthly mortgage complaints per bank exhibits faster mean reversion after the publication of the database. These findings suggest that the public disclosure of mortgage complaints enhances product market discipline and consumer financial protection.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 5 , August 2024 , pp. 2164 - 2198
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank two anonymous reviewers, Mary Brooke Billings, Mark Bradshaw, Claire Brennecke (discussant), Dennis Campbell, Jennifer Conrad (the editor), Aiyesha Dey, Al Ghosh, Joao Granja (discussant), Ilan Guttman, Jonas Heese, Disen Huang, Mingyi Hung, April Klein, Christian Leuz, Geng Li, David Mauer, Minh Phan, Stephen Ryan, Philipp Schnabl, Crystal Shi, David Yermack, Xianming Zhou, Chenqi Zhu, and seminar participants at the Federal Reserve Board, New York University, Hong Kong University of Science and Technology, Harvard Business School, UNC Charlotte, Australian National University, London Business School Trans-Atlantic Doctoral Conference, the 2019 NYU Summer Camp, the 2019 CFEA conference, and the 2019 CFPB research conference for helpful comments.

References

Adams, P.; Hunt, S.; Palmer, C.; and Zaliauskas, R.. “Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts.” Journal of Financial Economics, 141 (2021), 122–147.Google Scholar
Agarwal, S.; Ben-David, I.; and Yao, V.. “Systematic Mistakes in the Mortgage Market and Lack of Financial Sophistication.” Journal of Financial Economics, 123 (2017), 42–58.Google Scholar
Agarwal, S.; Chomsisengphet, S.; Mahoney, N.; and Stroebel, J.. “Regulating Consumer Financial Products: Evidence from Credit Cards.” Quarterly Journal of Economics, 130 (2015), 111–164.Google Scholar
Agarwal, S.; Rosen, R.; and Yao, V.. “Why Do Borrowers Make Mortgage Refinancing Mistakes?” Management Science, 62 (2016), 3494–3509.Google Scholar
Aiello, D.; Garmaise, M.; and Natividad, G.. “Competing for Deal Flow in Local Mortgage Markets.” Review of Corporate Finance Studies, 12 (2023), 366–401.Google Scholar
Akins, B.; Dou, Y.; and Ng, J.. “Corruption in Bank Lending: The Role of Timely Loan Loss Recognition.” Journal of Accounting and Economics, 63 (2017), 454–478.Google Scholar
Alexandrov, A., and Koulayev, S.. “No Shopping in the U.S. Mortgage Market: Direct and Strategic Effects of Providing Information.” CFPB Office of Research Working Paper No. 2017-01 (2018).Google Scholar
Allen, J.; Clark, R.; and Houde, J.. “The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry.” American Economic Review, 104 (2013), 3365–3396.Google Scholar
Angrist, J., and Pischke, J.. Mostly Harmless Econometrics: An Empiricist’s Companion. Princeton, NJ: Princeton University Press (2009).Google Scholar
Aobdia, D.; Dou, Y.; and Kim, J.. “Public Audit Oversight and the Originate-to-Distribute Model.” Journal of Accounting and Economics, 72 (2021), 1014–1020.Google Scholar
Atske, S., and Perrin, A.. Home Broadband Adoption, Computer Ownership Vary by Race, Ethnicity in the U.S. Washington, DC: Pew Research Center (2021).Google Scholar
Begley, T., and Purnanandam, A.. “Color and Credit: Race, Regulation, and the Quality of Financial Services.” Journal of Financial Economics, 141 (2021), 48–65.Google Scholar
Ben-Shahar, O., and Schneider, C.. More than You Wanted to Know: The Failure of Mandated Disclosure. Princeton, NJ: Princeton University Press (2014).Google Scholar
Bowman, D., and Narayandas, D.. “Managing Customer-Initiated Contacts with Manufacturers: The Impact on Share of Category Requirements and Word-of-Mouth Behavior.” Journal of Marketing Research, 38 (2001), 281–297.Google Scholar
Buchak, G.; Matvos, G.; Piskorski, T.; and Seru, A.. “Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks.” Journal of Financial Economics, 130 (2018), 453–483.Google Scholar
California Reinvestment Committee. “Five Steps to Community Reinvestment Success: A How-to Manual for Community Reinvestment Campaigns.” Available at http://www.calreinvest.org/system/resources/W1siZiIsIjIwMTIvMDYvMTgvMTNfNDVfNDBfMjM0XzE4NC5wZGYiXV0/184.pdf (2001).Google Scholar
California Reinvestment Committee. “Comment Letter on CFPB Request for information Regarding Bureau Public Reporting Practices of Consumer Complaint information.” Docket Number CFPB-2018-0006 (2018).Google Scholar
Campbell, J. “Household Finance.” Journal of Finance, 61 (2006), 1553–1604.Google Scholar
Campbell, J. “Restoring Rational Choice: The Challenge of Consumer Financial Regulation.” American Economic Review, 106 (2016), 1–30.Google Scholar
Campbell, J.; Jackson, H.; Madrian, B.; and Tufano, P.. “Consumer Financial Protection.” Journal of Economic Perspectives, 25 (2011), 91–114.Google Scholar
Center for Capital Markets Competitiveness. “Comment Letter on Disclosure of Consumer Complaint Data.” Docket Number CFPB-2012-0023 (2012).Google Scholar
CFPB. “Disclosure of Consumer Complaint Data.” Docket No. CFPB-2012-0023. Notice of Proposed Policy Statement. Federal Register, 77 (2012), 37616–37617.Google Scholar
CFPB. “Disclosure of Consumer Complaint Data.” Docket No. CFPB-2012-0023. Final Policy Statement. Federal Register, 78 (2013), 21218–21226.Google Scholar
CFPB. “Disclosure of Consumer Complaint Narrative Data.” Docket No. CFPB-2014-0016. Final Policy Statement. Federal Register, 80 (2015), 15572–15583.Google Scholar
Chevalier, J., and Mayzlin, D.. “The Effect of Word of Mouth on Sales: Online Book Reviews.” Journal of Marketing Research, 43 (2006), 345–354.Google Scholar
Conlon, D., and Murray, N.. “Customer Perceptions of Corporate Responses to Product Complaints: The Role of Explanations.” Academy of Management Journal, 39 (1996), 1040–1056.Google Scholar
Consumer Mortgage Coalition. “Comment Letter on Disclosure of Consumer Complaint Data.” Docket Number CFPB-2012-0023 (2012).Google Scholar
Cortes, K., and Strahan, P.. “Tracing out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters.” Journal of Financial Economics, 125 (2017), 182–199.Google Scholar
Cortez, N. “Agency Publicity in the Internet Era.” SMU Dedman School of Law Legal Studies Research Paper No. 337 (2015).Google Scholar
De Langhe, B.; Fernbach, P.; and Lichtenstein, D.. “Navigating by the Stars: Investigating the Actual and Perceived Validity of Online User Ratings.” Journal of Consumer Research, 42 (2016), 817–833.Google Scholar
Defusco, A.; Johnson, S.; and Mondragon, J.. “Regulating Household Leverage.” Review of Economics Studies, 87 (2020), 914–958.Google Scholar
Dellavigna, S. “Psychology and Economics: Evidence from the Field.” Journal of Economic Literature, 47 (2009), 315–372.Google Scholar
Dou, Y. “The Spillover Effect of Consolidating Securitization Entities on Small Business Lending.” Accounting Review, 96 (2021), 207–229.Google Scholar
Dou, Y.; Jagtiani, J.; Ronen, J.; and Maingi, R.. “The Credit Card Act and Consumer Debt Structure.” Journal of Law, Finance, and Accounting 7 (2022), 91–126.Google Scholar
Dou, Y., and Zou, Y.. “The Real Effect of Geographic Lending Disclosure on Banks.” Working Paper, New York University and George Washington University (2019).Google Scholar
Duguay, R.; Rauter, T.; and Samuels, D.. “The Impact of Open Data on Public Procurement.” Working Paper, University of Chicago (2022).Google Scholar
Egan, M.; Matvos, G.; and Seru, A.. “The Market for Financial Adviser Misconduct.” Journal of Political Economy, 127 (2019), 233–295.Google Scholar
Fleming, M. “Making the Most of 2013.” Market Pulse, 2 (2013), 1–12. Available at https://www.corelogic.com/downloadable-docs/marketpulse_2013-february.pdf.Google Scholar
Fornell, C.; Morgeson, F.; and Hult, G.. “Stock Returns on Customer Satisfaction on Beat the Market: Gauging the Effect of a Marketing Intangible.” Journal of Marketing, 80 (2016), 92–107.Google Scholar
Fornell, C., and Wernerfelt, B.. “Defensive Marketing Strategy by Customer Complaint Management: A Theoretical Analysis.” Journal of Marketing Research, 24 (1987), 337–346.Google Scholar
Fung, A.; Weil, D.; Graham, M.; and Fagotto, E.. “The Political Economy of Transparency: What Makes Disclosure Policies Effective?” Working Paper, Harvard University (2004).Google Scholar
Fuster, A.; Plosser, M.; and Vickery, J.. “Does CFPB Oversight Crimp Credit?” Federal Reserve Bank of New York Staff Reports No. 857 (2021).Google Scholar
Gao, J.; Kleiner, K.; and Pacelli, J.. “Credit and Punishment: Are Corporate Bankers Disciplined for Risk-Taking?” Review of Financial Studies, 33 (2020), 5706–5749.Google Scholar
Gilje, E.; Loutskina, E.; and Strahan, P.. “Exporting Liquidity: Branch Banking and Financial Integration.” Journal of Finance, 71 (2016), 1159–1184.Google Scholar
Griffin, J.; Kruger, S.; and Maturana, G.. “Do Labor Markets Discipline? Evidence from RMBS Bankers.” Journal of Financial Economics, 133 (2019), 726–750.Google Scholar
Gruber, J. “The Incidence of Mandated Maternity Benefits.” American Economic Review, 84 (1994), 622–642.Google Scholar
Guiso, L.; Pozzi, A.; Tsoy, A.; Gambacorta, L.; and Mistrulli, . “The Cost of Steering in Financial Markets: Evidence from the Mortgage Market.” Journal of Financial Economics 143 (2022), 1209–1226.Google Scholar
Gurun, U.; Matvos, G.; and Seru, A.. “Advertising Expensive Mortgages.” Journal of Finance, 71 (2016), 2371–2416.Google Scholar
Gurun, U.; Stoffman, N.; and Yonker, S.. “Trust Busting: The Effect of Fraud on Investor Behavior.” Review of Financial Studies, 31 (2018), 1341–1376.Google Scholar
Hayes, R.; Jiang, F.; and Pan, Y.. “Voice of the Customers: Local Trust Culture and Consumer Complaints to the CFPB.” Journal of Accounting Research, 59 (2021), 1077–1121.Google Scholar
Homburg, C., and Furst, A.. “How Organizational Complaint Handling Drives Customer Loyalty: An Analysis of the Mechanistic and the Organic Approach.” Journal of Marketing, 69 (2005), 95–114.Google Scholar
Huang, J. “The Customer Knows Best: The Investment Value of Consumer Opinions.” Journal of Financial Economics, 128 (2018), 164–182.Google Scholar
Imbens, G., and Wooldridge, J.. “What’s New in Econometrics?” NBER Lecture Notes (2007). Available at http://www.nber.org/wne/lect_10_diffindiffs.pdf.Google Scholar
Inderst, R., and Ottaviani, M.. “How (Not) to Pay for Advice: A Framework for Consumer Financial Protection.” Journal of Financial Economics, 105 (2012), 393–411.Google Scholar
Jin, G., and Leslie, P.. “The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards.” Quarterly Journal of Economics, 118 (2003), 409–451.Google Scholar
Keys, B.; Pope, D.; and Pope, J.. “Failure to Refinance.” Journal of Financial Economics, 122 (2016), 482–499.Google Scholar
Knox, G., and Van Oest, R.. “Customer Complaints and Recovery Effectiveness: A Customer Base Approach.” Journal of Marketing, 78 (2014), 42–57.Google Scholar
Lacko, J., and Pappalardo, J.. “Improving Consumer Mortgage Disclosures: An Empirical Assessment of Current and Prototype Disclosure Forms.” Staff Report, Federal Trade Commission Bureau of Economics (2007).Google Scholar
Lacko, J., and Pappalardo, J.. “The Failure and Promise of Mandated Consumer Mortgage Disclosures: Evidence from Qualitative Interviews and a Controlled Experiment with Mortgage Borrowers.” American Economic Review: Papers & Proceedings, 100 (2010), 516–521.Google Scholar
Lee, Y.; Hosanagar, K.; and Tan, Y.. “Do I Follow My Friends or the Crowd? Information Cascades in Online Movie Ratings.” Management Science, 61 (2015), 2242–2258.Google Scholar
Liu, X.; Lee, D.; and Srinivasan, K.. “Large-Scale Cross-Category Analysis of Consumer Review Content on Sales Conversion Leveraging Deep Learning.” Journal of Marketing Research, 56 (2019), 918–943.Google Scholar
Luo, X. “Consumer Negative Voice and Firm-Idiosyncratic Stock Returns.” Journal of Marketing, 71 (2007), 75–88.Google Scholar
Luo, X. “Quantifying the Long-Term Impact of Negative Word of Mouth on Cash Flows and Stock Prices.” Marketing Science, 28 (2009), 148–165.Google Scholar
Lusardi, A., and Tufano, P.. “Debt Literacy, Financial Experiences, and Overindebtedness.” Journal of Pension Economics & Finance, 14 (2015), 332–368.Google Scholar
Ma, L.; Sun, B.; and Kekre, S.. “The Squeaky Wheel Gets the Grease—An Empirical Analysis of Customer Voice and Firm Intervention on Twitter.” Marketing Science, 34 (2015), 627–645.Google Scholar
Martin, M. “Computer and Internet Use in the United States: 2018. American Community Survey Reports.” U.S. Census Bureau (2021).Google Scholar
Mian, A., and Sufi, A.. “Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005.” Review of Financial Studies, 30 (2017), 1832–1864.Google Scholar
Mukamel, D., and Mushlin, A.. “The Impact of Quality Report Cards on Choice of Physicians, Hospitals, and HMOs.” Joint Commission Journal on Quality Improvement, 27 (2001), 20–27.Google Scholar
Navarro-Martinez, D.; Salisbury, L.; Lemon, K.; Stewart, N.; Mathews, W.; and Harris, A.. “Minimum Required Payment and Supplemental Information Disclosure Effects on Consumer Debt Repayment Decisions.” Journal of Marketing Research, 48 (2011), S60–S70.Google Scholar
Newman, K., and Wyly, E.. “Geographies of Mortgage Market Segmentation: The Case of Essex County, New Jersey.” Housing Studies, 19 (2004), 53–83.Google Scholar
Nickell, S. “Biases in Dynamic Models with Fixed Effects.” Econometrica, 49 (1981), 1417–1426.Google Scholar
Pence, K. “Foreclosing on Opportunity: State Laws and Mortgage Credit.” Review of Economics and Statistics, 88 (2006), 177–182.Google Scholar
Pischke, J. “Empirical Methods in Applied Economics Lecture Notes” (2005). Available at http://econ.lse.ac.uk/staff/spischke/ec524/evaluation3.pdf.Google Scholar
Rauter, T. “The Effect of Mandatory Extraction Payment Disclosures on Corporate Payment and Investment Policies Abroad.” Journal of Accounting Research, 58 (2020), 1075–1116.Google Scholar
Raval, D. “Which Communities Complain to Policymakers? Evidence from Consumer Sentinel.” Economic Inquiry, 58 (2020), 1628–1642.Google Scholar
Richins, M. “Negative Word-of-Mouth by Dissatisfied Consumers: A Pilot Study.” Journal of Marketing, 47 (1983), 68–78.Google Scholar
Rubin, D. B. “Estimating Causal Effects of Treatments in Randomized and Nonrandomized Studies.” Journal of Educational Psychology, 66 (1974), 688–701.Google Scholar
Schipper, K., and Thompson, R.. “The Impact of Merger-Related Regulations on the Shareholders of Acquiring Firms.” Journal of Accounting Research, 21 (1983), 184–221.Google Scholar
Sefcik, S., and Thompson, R.. “An Approach to Statistical-Inference in Cross-Sectional Model with Security Abnormal Returns as Dependent Variable.” Journal of Accounting Research, 24 (1986), 316–334.Google Scholar
Seira, E.; Elizondo, A.; and Laguna-Muggenburg, E.. “Are Information Disclosures Effective? Evidence from the Credit Card Market.” American Economic Journal: Economic Policy, 9 (2017), 277–307.Google Scholar
Squires, G.. “The Rough Road to Reinvestment.” In Organizing Access to Capital: Advocacy and the Democratization of Financial Institutions. Philadelphia: Temple University Press (2003).Google Scholar
Stango, V., and Zinman, J.. “Fuzzy Math, Disclosure Regulation, and Market Outcomes: Evidence from Truth-in-Ending Reform.” Review of Financial Studies, 24 (2011), 506–534.Google Scholar
Stango, V., and Zinman, J.. “Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees.” Review of Financial Studies, 27 (2014), 990–1030.Google Scholar
Stanton, R.; Walden, J.; and Wallace, N.. “The Industrial Organization of the U.S. Residential Mortgage Market.” Annual Review of Financial Economics, 6 (2014), 259–288.Google Scholar
Tang, V. W. “Wisdom of Crowds: Cross-Sectional Variation in the Informativeness of Third-Party-Generated Product Information on Twitter.” Journal of Accounting Research, 56 (2018), 989–1034.Google Scholar
Woodward, S., and Hall, R.. “Diagnosing Consumer Confusion and Sub-Optimal Shopping Effort: Theory and Mortgage-Market Evidence.” American Economic Review, 102 (2012), 3249–3276.Google Scholar
Zelizer, V. The Social Meaning of Money. Princeton, NJ: Princeton University Press (1997).Google Scholar
Supplementary material: PDF

Dou and Roh supplementary material

Dou and Roh supplementary material

Download Dou and Roh supplementary material(PDF)
PDF 157.1 KB