Santiago Truffa

Ph.D Business Administration

Keeping it Constant: The Effects of Standardization on Consumer Loan Outcomes

Abstract – Consumers face a choice when evaluating financial contracts: study the fine print and incur
a cognitive cost or ignore it and risk costly surprises in future. We use a pair of policy changes
in Chile to contrast two measures to protect consumers from fine print: the first improves
disclosure and the second standardizes and regulates contract features. With administrative
data from the banking regulator on consumer loans, we use a regression discontinuity design to

estimate the causal effects of these regimes. Consumers offered standardized contracts experi-
enced 40% (14.4 percentage points) less delinquency. Using a difference-in-differences design,

we find that sophisticated borrowers are helped most by increased disclosure, while unsophis-
ticated borrowers benefit more from product standardization. Additionally, we show that only

sophisticated borrowers—who benefit from the informational disclosure treatment—leave less

“money on the table.” We contextualize these results in a stylized model that predicts that fi-
nancially sophisticated will benefit from disclosure while unsophisticated borrowers will benefit

from standardization based on differentials in the cost of studying.

with Sheisha Kulkarni and Gonzalo Iberti

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