Decisions about overdraft coverage: Disclosure design and personal finances.

Abstract

Policymakers often require disclosures to help consumers make informed decisions, despite considerable debate over disclosures' effectiveness. Traditional accounts argue that consumers with stable preferences use disclosures to become informed. In contrast, behavioral research suggests that consumers may be inattentive or construct preferences in the moment. We contrast these accounts in the context of overdraft, where consumers can "opt in" to coverage and fees. In Study 1, we use conjoint analysis to assess perceptions of whether consumers in varying circumstances should opt in. Both overdraft program characteristics (including fees) and consumers' personal financial characteristics (e.g., having a financial buffer) matter. In Study 2, we compare three overdraft disclosures, finding variation in the proportion of consumers who make an active choice (15%-65%) and limited effects on comprehension and opt-in rates. In Study 3, we augment overdraft disclosures with text about personal financial characteristics. These disclosures increase active choice without detrimental effects on comprehension. Together, our studies support a constructed preferences account and highlight specific benefits of reminding consumers about the match between financial products and their personal situations. We discuss implications for financial disclosures and overdraft policy. (PsycInfo Database Record (c) 2023 APA, all rights reserved).