Do Financial Consumers Discipline Bad Lenders? The Role of Disclosure Awareness
Our study provides the first look at market discipline in the financial consumer markets and highlights the importance of disclosure awareness in enhancing market discipline. Specifically, we examine whether U.S. mortgage borrowers penalize lenders that engage in predatory lending practices. We identify predatory lenders using enforcement actions issued by the Consumer Financial Protection Bureau and state regulators. Despite a low cost of acquiring lenders’ enforcement action disclosures, borrowers neither reduce loan applications to sanctioned lenders nor receive lower interest rates from these lenders after the disclosure of enforcement actions. However, we find a significant drop in loan applications and a significant reduction in interest rates following enforcement actions that receive high media coverage, suggesting that borrowers do penalize lenders when they are aware of enforcement actions. Moreover, we find that the sanctioned lenders penalized by borrowers subsequently improve their service quality, as reflected in fewer consumer complaints, while the sanctioned lenders that escape borrower discipline do not. Last, we find that the state-licensed lenders (mostly nonbanks) adopt more alternative company names (other than its legal name) following their enforcement actions
Year of publication: |
2023
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Authors: | Flannery, Mark J. ; Wang, K. Philip ; Zhang, Cathy |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (49 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 22, 2023 erstellt |
Other identifiers: | 10.2139/ssrn.4366393 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014265261
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