May 29, 2018 marked 50 years since the passage of the Truth in Lending Act. The law is considered one of the most important federal consumer protection laws, applies to the vast majority of consumer credit transactions, and is the subject of frequent amendment and regulatory interpretation. For the occasion, the American Bar Association convened a panel at its 2018 spring meeting—composed of academia, industry, consumer advocates, and former regulators—to evaluate whether the Act has achieved its purpose to “safeguard the consumer” by “requiring full disclosure of the terms and conditions of finance charges.” The discussion provided a valuable glimpse into how our regulatory expectations and consumption of consumer financial products have changed in the last half century.
At the core of the panel’s discussion was the metric by which the Act could be judged. A prominent narrative offered by industry was that the Act could not be considered a success on account of its evolution—or “mission creep”—from a strict disclosure regime. One panelist noted, however, that the Act has changed in tandem with regulatory philosophies, including an era of deregulation and, currently, one of federal preemption. The prevailing theory of federalism at the Act’s passage also dictated that states substantively regulate extensions of credit.
The panel also questioned the Act’s success given its impotence with respect to the disclosure of the salient terms of modern financial products. A consensus emerged that current credit card advertising—characterized by sloganeering, star power, and “peacocking” of rewards programs—remains beyond the reach of the Act’s “trigger terms” disclosure framework. For consumers who do not revolve a balance, the Act does not require information regarding reward redemption or expiry, and, for consumers who do revolve a balance, the advertising may fail to provide or de-emphasize critical terms, such as the credit card’s base or penalty rate.
When considering what disclosures may resolve outstanding consumer protection concerns, the panel expressed little sentiment that more disclosure was the answer. No panelist appeared able to provide empirical evidence of whether consumer disclosures resulted in effective shopping for terms of credit and, by extension, whether any amount or quality of disclosure would achieve this result. One panelist argued that the failure of consumers to use disclosures suggests a flaw in the Act’s underlying neoclassical economic theory, which presupposes a strictly rational consumer and ignores contracting imbalances between the creditor and the consumer.
While recognizing the possibility of marginal consumer benefits, no panelist appeared willing to conclude that the Act’s attempts at “full disclosure of the terms and conditions of finance charges” had entirely safeguarded the consumer. Prescription, or prognostication, was also in short supply. No panel member took up the mantle of increased regulatory policing or suggested that increased financial literacy would provide effective consumer protection.
It was at this concluding juncture that an audience member acknowledged the development of the Restatement of Consumer Contracts by the American Law Institute. The project synthesizes common and statutory law (including consumer protection laws) and generally provides for increased judicial policing of consumer contracts for unconscionability and deception. Whether or not the Truth in Lending Act fulfilled its promise, the existence of the Restatement of Consumer Contracts points to what eluded the panel’s discussion—the inherent limitations of a disclosure regime to safeguard consumers.
Brian Slagle (LAW ’14) is a member of the Consumer Financial Services Group at Ballard Spahr. His practice focuses on state and federal consumer finance laws.