The Influence of Credit Card Disclosure Regulations on Consumer Decision-Making

Have you ever thought about what external factors may affect your choices when it comes to financial products? For instance, “first late payment fee waived” on the credit card information page in a bold and larger font will almost certainly keep your attention. And clearly stated interest rates and fees interest many of us much more than the rest of fine print text.

Since not every person possesses a high level of financial literacy, many jurisdictions require presenting related information in a particular way. In addition, financial regulators have developed specific rules regarding how the loan product features must be shared to potential borrowers. Thus, the conditions that are believed to affect the choice significantly are presented in a clear, standardized way.

In their study, Matthew Hilchey, Matthew Osborne, and Dilip Soman from Rotman School of Management look at the importance of visual salience of credit card features and explore how different variations of that can affect final choice.

Methodology of the Study on the Effect of Visual Salience on Attention

A random sample of 1615 adults from the USA and Canada was recruited from Amazon’s Mechanism Turk platform. They were asked to choose one of the two presented credit cards. Their features were presented side by side in tables. The goal was to pick one with the least financial charges.

For this test, researchers have randomly varied the visual salience of the annual fee and annual interest rate, where ‘salient’ would mean larger or bolder font, which is visible clearer than the rest of the text. The experiment started with some tests to clarify the study result and exclude those who did not pay attention. Then, if the test answers were correct, the hypothetical scenarios appeared, where participants were asked to choose a credit card. The exclusion led to the removal of 464 participants.

The Result and Implications of Visual Salient Features on Consumer Behavior

The results have shown that visual salience does affect choice. Most interest-savvy people were leaning towards a lower rate or smaller fee if either of them was visually salient.

The researchers also studied the effect of financial literacy on credit card choice by providing Big Three questions at the start of the experiment. The primary effect was that participants with higher scores were likely to decide against the card with a lower yearly fee. Although, they noted that financial literacy was a much weaker predictor than the visual salience of credit card highlights.

Next, the effect of visual salience on response time was examined. Supposedly, the time might be reduced because it is either easier to notice salient features quickly (perceptual factor) or because attention swiftly magnifies the evidentiary advantage of relevant salient information toward decision inception.

The results were highly variable, and outliers were excluded from analyzing the remaining response times. The main effect of annual fee salience was non-significant, while vice versa for the salient interest rate feature. The response time was longer when neither value was salient and much shorter with the annual interest rate being salient. It allows suggesting that non-interest-related features are processed hastily when the interest rate alone is salient.

Conclusions were such that choice usually shifts towards the card whose salient features outperform other ones. The researchers also suggest that consumers might not be prompted to seek data outside the salient one or because notable information generally holds attention longer and makes a more significant contribution towards the final decision.

The study makes implications for the effectiveness of existing disclosures rules. Most of the time, complete information boxes appear in isolation away from competitors’ information prior to making a final decision. However, prior research has shown that providing reference points allows customers to evaluate the offers better.

This research suggests that information disclosure might have to be customized according to individual needs and preferences. It also cautions policymakers from believing that salient features will always influence the choice. Previous work suggests that disclosures can significantly influence choice if shown before or during the comparison process but not after it. Thus, it is essential to regulate how the information is displayed and when, and whether there are reference points.

Your Consumer Behavior Insights:

Consumers weigh relevant visually salient information more heavily than relevant non-salient information when comparing two products directly
Response time in choosing between two products is affected by whether salient features are present or not and which features exactly are made salient
It is crucial to do further research in the field of financial disclosure to make sure that customers are given honest and equal opportunities to evaluate all products

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References

Hilchey, M., Osborne, M., & Soman, D. (2021). Does the visual salience of credit card features affect choice? Behavioural Public Policy, 1-18. doi:10.1017/bpp.2021.14