Whispering sweet nothings: a review of verbal behaviors that undermine the effectiveness of government-mandated home-loan disclosures

Home loans are the largest financial transaction consumers typically enter and the consequences from entering overpriced or unaffordable home loans can devastate individuals and entire communities. This article reviews how insights from research in experimental psychology can be utilized to protect consumers. Current policy relies too much on disclosures, which—among other limitations—can be undermined by verbal behaviors on the part of salespeople. In particular, salespeople such as mortgage brokers and lenders can exploit the fact that consumers do not know where to look for information on disclosure forms by violating conversational norms, introducing confirmation biases, and using dual tasks such as talking to consumers while they are reviewing forms. They can also exploit the fact that even consumers who know where to look can forget by part-set cuing consumers. They can even cause consumers who discover problematic terms to ignore them by providing the consumers with explanations. Policymakers need to be aware of these findings to design effective consumer-protection policies. The authors suggest alternatives for policymakers to consider.