Consumer Awareness of Credit Terms: Review and New Evidence

A fundamental assumption of both demand and investment theory is that the consumer or investor acts rationally, where rational means utility maximization for the consumer and wealth maximization for the investor. However, it is often alleged that it is difficult for most private individuals to act rationally in their purchase of credit services or credit investment in consumer durable goods because they do not know or understand the true costs of borrowing or of buying on credit.' To remedy this situation Congress passed the Consumer Credit Protection Act of 1968, whose bestknown section is its Title I, in Lending.2 Since passage of the Truth in Lending Act, a number of research studies have attempted to determine the effects of the act, the resulting levels of consumer awareness of credit terms, and the characteristics of borrowers most likely to have benefited from the law. The purpose of this article is to summarize briefly some of the findings of these studies and to report the results of new research on credit-term awareness among those previously thought to have benefited least from Truth in Lending: low-income minority-group members.