When Disclosure Works Too Well: The Hidden Costs of Salient Terms

Disclosure has long been the backbone of consumer protection. From credit cards to online contracts, regulators and courts have relied on disclosure to improve decision-making while preserving choice. Our recent study, The Distributional Costs of Effective Consumer Regulation,  suggests that this tool has more complex effects than typically understood: even when disclosure works, it can have uneven, and at times troubling, distributional consequences. 

We study how mandated disclosure designs affect consumer choices across the income distribution, drawing on insights from the literature on financial scarcity. Not all disclosures are created equal. Short, simple, and salient disclosures, such as those found in Schumer boxes or warning labels, are typically understood to be the most effective. We ask a generally underexplored question: when disclosures are made more effective, do they benefit all consumers equally?

To answer this, we conducted a series of quasi-field experiments involving over 3,500 participants making incentivized choices among credit card gift cards. These choices were not hypothetical. Participants were asked to choose among three $100 cards with varying terms related to fees and the timing of fund availability, embedding the decision directly into their compensation. This design captures real stakes while retaining experimental control, allowing us to observe behavior that closely mirrors consumer transactions.

Across different conditions, we vary the way contract terms are disclosed across three formats commonly used in practice: expandable disclosures (requiring a click to view terms), full disclosures (presented as a block of text), and salient disclosures (key terms highlighted prominently). Across all experiments, salient disclosures perform as regulators would hope. They draw attention to core terms, reduce mistakes, and improve subjects’ ability to identify unambiguous best choices.

But this is only part of the story.

When the choice environment involves a clear dominant option, salient disclosures reduce errors across the board and even narrow gaps between higher- and lower-income participants. In this sense, better disclosure appears both effective and equalizing. However, when consumers face a meaningful tradeoff, most importantly between immediate access to funds and cost, the effects diverge sharply. Financially stressed participants are more likely to select high-fee options that provide immediate access to funds than less stressed participants.

In these settings, whereas salient disclosures increase the likelihood that less financially stressed and higher-income participants select low-fee options that provide delayed access, they do not affect financially stressed and low-income participants in the same way. In fact, salient disclosures increase the likelihood that financially stressed and lower-income participants select high-fee options that provide immediate access to funds compared to less financially stressed and higher-income participants. These choices are costly. In some cases, they imply annualized rates exceeding 200 percent, and in follow-up experiments, participants continue to choose immediacy even when fees reach 40 percent of the card’s value. This pattern is difficult to reconcile with a purely rational choice account of intertemporal choice.

Our results suggest the workings of a scarcity-based mechanism. A large literature shows that financial stress can activate a ‘scarcity mindset’, narrowing attention and increasing focus on immediate needs. We find evidence consistent with this mechanism in our setting. When exposed to salient disclosures highlighting tradeoffs between cost and timing, lower-income participants report higher levels of financial stress. Among the most financially stressed participants, salient disclosures are also associated with worse performance on a subsequent cognitive task, consistent with the idea that attention is taxed by immediate financial demands. We hypothesize that salient disclosures act as scarcity-mindset-activating instruments.

Taken together, the findings suggest a tension in disclosure policy (at least in the setting that we study). Salient disclosures appear to improve attention and reduce errors, but may also amplify financial concerns for vulnerable consumers, shifting preferences toward immediacy in ways that could undermine long-term welfare. the same features that make disclosure effective can, in certain contexts, make it costly.

This may affect how we think about consumer protection.

First, the findings challenge the view of disclosure as a neutral informational tool. Disclosure may not simply transmit information but shape how consumers process tradeoffs and make decisions. The behavioral effects of disclosure depend not only on the content of the information, but also on the context in which it is received and the circumstances of the consumer.

Second, they highlight the importance of distributional analysis in regulatory design. Even when disclosure improves outcomes on average, its effects may differ across consumers.

Third, the findings suggest that formally neutral disclosure rules may have uneven effects. Standardized disclosures present the same information to all consumers, but their effects may differ depending on financial constraints and exposure to stress. Our results suggest that disclosure design can interact with these conditions to influence consumer choices, with potential distributional consequences.

These findings point to a tension in disclosure design. Making contractual tradeoffs more salient can improve attention and reduce mistakes, but, in some settings, may also heighten financial concerns for constrained consumers and shift choices toward immediacy. In this sense, improvements in disclosure can have uneven effects across consumers, with potential distributional consequences.

The authors’ paper is available here. 

Tamar Kricheli-Katz is a Professor at Tel-Aviv University's Faculty of Law.

Florencia Marotta-Wurgler is the Boxer Family Professor of Law at NYU Law School, Faculty Director of NYU Law in Buenos Aires, Director of the Jacobson Leadership Program in Law and Business, and Co-Director of the Center for Law, Economics, and Organization.