The crisis of 2008 that originated in the US mortgage markets is a painful reminder that these efforts may not have been successful in improving the financial outcomes of the population (see for example Lowenstein, Sunstein and Golman, forthcoming). Indeed, the reason why consumers may remain misinformed and prone to making mistakes is because financial institutions shroud prices, even in competitive environments with strict disclosure and pricing transparency rules in order to maximize profits (Ausubel, 1999; Gabaix and Laibson, 2006; Heidhues, Koszegi and Murooka, 2013). Firms will therefore adjust their behavior to undermine transparency initiatives (Duarte and Hastings, 2011) and may not put much effort in marketing mandated products.

This discussion brings to the fore two interrelated questions that are the focus of this paper. First, what is the _quality of information_ provided by financial institutions to low-income customers when choosing among credit and savings products? Second, do financial institutions _offer the product that best meets the customer needs_ , in particular as it relates to cost and intended usage?

To answer these questions, we implemented an audit study in peri-urban areas near Mexico City. Auditors visited the branches of financial institutions seeking to acquire a loan or a savings product. Since the goal was to capture all the information given to the auditor until the product was contracted (or the auditor was rejected in the case of credit), several follow-up visits were required. Indeed, follow-up visits at the house of credit auditors were common and for this reason we recruited and trained local residents to serve as credit auditors instead of relying on professional auditors.

The scripts used by auditors were designed in collaboration with Mexico’s National Commission for the Defense and Protection of Financial Service Users (CONDUSEF) and differed along four dimensions. First, we introduced variation specific to the product sought. Savings auditors expressed a preference for either a checking account to manage their day-to-day financial needs or an investment account where funds would be deposited for a minimum duration of one year. Credit auditors requested a loan amount of either 20 percent or 70 percent of their household’s annual income, thus creating exogenous variation in the level of household indebtedness. Second, we varied the financial sophistication of the auditor made salient by the language used and the level of engagement during the visits. Third, we varied the level of competition among sophisticated auditors by stating that a competing institution had offered them better terms. Finally, we created variation in the dress code used during the visit. Each auditor was given a randomized list of branches to visit and was randomly assigned to a script.

In order to make sense of the results, the model of Gabaix and Laibson (2006) provides a useful framework. In the presence of enough uninformed customers, the model predicts that firms in equilibrium will fail to advertise certain fees and commissions that uninformed customers will end up paying and minimum balance requirement. For the remaining 13 institutions, this minimum was set above 5,000 Pesos in which case the account is no longer accessible.

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