Last year, my co-author, Nahal Heydari, and I posted on SSRN a draft of our article, Not-So-Smartphone Disclosures, forthcoming in the Arkansas Law Review. We recently posted a new draft of the piece. The earlier draft reported, among other things, that consumers understood credit card disclosures less well on smartphones than on laptops and desktops (“computers”). We have since drilled down further into the data and discovered, however, that consumers who saw the disclosures on a Samsung phone understood them about as well as consumers who saw them on a computer. The difference between smartphones and computers was largely driven by iPhones (Samsungs use the Android operating system, but we believe the difference is not attributable to the operating system for reasons explained in the article). Our data do not permit us to explain the different outcomes. One possible explanation for the difference is that those who choose Samsung phones are different from those who select other phones in ways that help them better understand disclosures, while another possibility is that there is something about Samsung phones that makes it easier to understand disclosures. In any event, we can infer from the fact that Samsung users perform as well as those who saw the disclosures on larger screens that the weaker performance on iPhones and, to some extent, other non-Samsung phones is not attributable to the small screens on mobile phones.
I say this, by the way, as someone who uses an iPhone. The revised abstract appears below.
Consumers increasingly engage in financial transactions on smartphones, including obtaining loans. Lawmakers depend on mandatory disclosures to alert consumers when loans are excessively priced. When those disclosures are provided on the tiny screen of a mobile phone, can consumers decipher them? To answer that question, we surveyed 659 consumers, showing half of them standard credit card disclosures on a computer or laptop and half of them disclosures on a mobile phone, and using many of the same questions about the disclosures posed in a 2008 survey with the forms on paper. We found that consumers understood the disclosures significantly less well on Apple phones than on Samsung phones, conventional computers or paper, suggesting that predatory lenders would have an easier time persuading consumers to take out high-priced loans by offering them on Apple mobile apps. Indeed, our respondents who saw the disclosures on iPhones failed to answer correctly nearly half the time.
Our study also indicates that many consumers cannot comprehend credit card disclosures whether they see them on a computer, a mobile phone, or, for that matter, on paper. More specifically, more than a third of the time, on average, consumers could not come up with the correct answer to questions about the forms. The problem is particularly acute for African-American and Latine respondents, thus opening the door to reverse-redlining. Finally, we found that consumers have an easier time grasping disclosures of penalty fees, such as late fees—as to which charges are limited by federal law—than of penalty interest rates (e.g., higher interest rates assessed because a consumer fails to make timely payments) or non-penalty fees (e.g., cash advance fees)—as to which charges are not limited. Indeed, consumers were 36% more likely to answer questions correctly when asked about matters on which credit card issuers are barred from charging unreasonable fees than when they were asked about items as to which their ability to understand the disclosure was their only protection. These findings suggest that credit card disclosures inadequately protect consumers and that lawmakers should consider imposing additional limits on credit card charges.