September 23, 2009 — Article

Originally appearing in the Yale Journal on Regulation (Summer 2008), Elizabeth Renuart and Diane E. Thompson discuss the lack of transparency in credit pricing and a decline in the value of the APR disclosure.

This Article documents the history of this decline for the first time and describes the consequences of an APR disclosure that has become incrementally weaker as an indicator of the true cost of the credit. This Article also draws upon financial literacy, cognitive psychology, and behavioral economics literature to justify the need for a more effective APR.

The authors posit a simple litmus test for the finance charge that creates a more effective APR. They discuss why this test is superior to other proposed definitions of the finance charge and respond to arguments that a fee-inclusive APR is unhelpful to consumers and harms the industry.

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