Regulatory Compliance
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Consumer Testing

For some reason, I have an interest in consumer testing. When reading a proposed rule, I like to see the number of consumers that were involved in the testing. For example, consumer testing for the proposed changes to the model forms for Reg CC consisted of 20 consumers, while the testing for the proposed escrow rule model forms consisted of 8 consumers. Now, I don’t necessarily consider that adequate consumer testing (unless it was conducted at the Iowa State Fair where you can get a broad range of consumers). On the other hand, consider the consumer testing for the CFPB’s “Know Before You Owe” project—it is literally a consumer testing road show.

An interesting report was recently released by the Federal Reserve discussing the lessons learned from consumer testing in designing disclosures. It is an interesting report that details the Fed’s history of consumer testing, which began in 1996 with consumer focus groups, as well as the process for testing. Keep in mind that the results of consumer testing translate into disclosure requirements, such as the requirement to use the term “penalty APR” in credit card disclosures rather than “default rate,”  or the requirement to include specific information in a box rather than all the information being disclosed. (In doing consumer testing for the Reg Z open-end changes, the Fed found that consumers fail to read information if it is not contained in a box, which is part of the reason for all the tabular disclosures.)

Here’s a summary of the lessons learned from the Fed:

  • Disclosure language should be plain but meaningful. When reading disclosure documents, consumers are best served by terms that are straightforward. Small wording changes can significantly improve consumer understanding, but for some content, communicating the intended meaning may be difficult even with the use of plain language.
  • Thoughtful design can make disclosures more usable. Carefully designed visual elements in disclosures, such as titles, headings, tables, charts, and typography can increase consumers’ willingness to read disclosures and can aid their ability to navigate and understand them.
  • Contextual information can improve comprehension and usability. Context, or a “frame,” for information on a disclosure can help readers understand both specific content in the disclosure as well as its overall message. It can also help consumers better comprehend how to use the information.
  • Achieving a neutral tone can be challenging. Although disclosures often strive for a neutral tone to avoid “steering” consumers in one direction over another, achieving neutrality is difficult.
  • Creating disclosures may involve creating a choice structure. In some cases where choice options are not specified in the law, establishing the structure may be part of creating the disclosure.
  • Standardizing disclosures can be challenging. Standardization can be beneficial, but finding terms that are truly standard across all contexts can be difficult, and consumers may need to be alerted when a “standard term” has a different meaning than the one they may be familiar with.
  • What works in print may not work online. Disclosure design needs to take into account the possibilities and limitations of alternative delivery channels.
  • “Less is more” often remains true. Too much information can overwhelm consumers or distract their attention from key content.

It will be interesting to see which of these lessons the CFPB utilizes in designing new disclosures.

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