Consumer lending and deposit abuses

Because efficiency and low-cost production are hallmarks of a competitive market, any consumer market failing to exhibit these attributes is subject to government scrutiny and possible regulation. Most existing consumer protection offered by regulations of financial institutions emphasizes financial disclosure: requiring all relevant information about the true cost of banking services to be available to customers to aid them in choosing the most appropriate financial service provider. Financial disclosures encourage consumer shopping and should lead to a more efficient, competitive market. The authors investigate three consumer abuses that mar be curtailed with increased financial disclosure and regulation: (1) double interest on home equity loans, (2) excessive automated teller machine fees, and (3) potential delays in posting refunded debit card transactions. The findings of the continued existence of these abuses suggest that it is likely that prohibition of certain fees and charges is needed and that current financial disclosures are inadequate to protect consumers.