Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending
53 Pages Posted: 18 Feb 2022 Last revised: 9 Mar 2022
Date Written: February 11, 2022
We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures (TRID) rule simplifies the disclosures provided to consumers, reducing their information processing costs and increasing lenders' compliance-related frictions. We posit that TRID-affected mortgages become less attractive to lenders as an investment opportunity. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We document evidence consistent with both a decrease in consumers' information costs and an increase in compliance-related frictions faced by lenders, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending. Additional analyses suggest positive consequences for some consumers and negative consequences for others. Our study provides a better understanding of the broader economic consequences of transparency regulation for both the regulated firms and consumers, and provides a complementary perspective to the literature examining bank-level transparency in lending markets.
Keywords: information processing costs, consumer disclosures, mortgage lending, banks, transparency regulation
JEL Classification: D18, D83, G21, G28
Suggested Citation: Suggested Citation