how we can do a better job of both protecting consumers and protecting the stability of the macroeconomy in the future. the current economic situation developed over a period of years as the confluence of several market developments created an environment of inexpensive and readily available credit. advances in information technology and financial innovations over recent decades encouraged new lending products and the extension of credit to a wider spectrum of borrowers, including many who would have previously had difficulty qualifying for credit. such developments as credit scoring lowered transaction costs and helped to evaluate risk more effectively and consistently. similarly, advances in financial engineering encouraged and broadened opportunities to draw on capital from around the world through the securitization of debt. this inflow of capital provided creditors with new sources of funds for the expansion of credit. the securitization process was made more versatile – but also more complicated – by the introduction of structured products, such as collateralized debt obligations, which were intended to match investors to various credit and prepayment risks. as the credit markets evolved, financial products also changed. consumers were increasingly offered more complex, but often less transparent, products. where once the vast majority of mortgages were 30 - year, fixed - rate products, by the height of the housing boom in 2007, adjustable - rate products proliferated – such products as the 2 / 28 ( a loan with a low introductory rate for the first two years ) or the option arm ( a loan on which the consumer could choose to pay a full payment, an interest - only payment, or even a payment that did not fully cover even the interest, with the difference being added to the loan's principal balance ). for large numbers of borrowers, piggy - back second mortgages substituted for down payments. these products relied primarily on rising property values and borrowers'ability to refinance for repayment. the high levels of risk posed by these products became apparent only when home prices began to fall and the rate of foreclosure increased dramatically. just as mortgage products were becoming more complex, credit card terms, rates, and fees also were becoming significantly more complicated and difficult for consumers to fully understand. new practices evolved, such as charging different interest rates for different transactions and double - cycle billing, whereby lenders calculated interest based not only on the current balance, but also on the prior month's balance. while such practices increased revenues for lenders, it is less clear how they benefited cardholders. also, paymentallocation

a variety of financial products, including credit cards. we are currently in the midst of a major overhaul of mortgage disclosures. to ensure that new disclosures are useful to consumers, the federal reserve has used consumer testing to explore how consumers process information and understand important features of financial products. this has been quite an informative exercise. we have used what we learned from consumer testing to improve the disclosures we require. for example, we recently revised the credit card disclosures required to be provided to consumers at account opening. the new rules require that certain key terms be included in a conspicuous table because our field testing indicated that consumers were unlikely to read dense language but were comfortable with interpreting information in a table format. our consumer testing efforts have also taught us that even the best disclosures cannot offer the protection consumers need in all cases. some aspects of increasingly complex products simply cannot be fully understood or evaluated by consumers, no matter how well educated the consumer or how clear the disclosure. in those cases, we have chosen to prohibit certain practices. for example, the federal reserve recently banned the practice of double - cycle billing when calculating interest rates on credit cards because we found in testing that there was no reasonable way to explain the practice. we have also banned practices related to mortgage lending that have potentially unfair and deceptive features. we found that the failure to require escrow accounts for homeowners'insurance and property taxes often caused borrowers to underestimate the cost of homeownership, so we made such escrows mandatory for high - cost loans. similarly, we have also placed restrictions on the use of prepayment penalties. the federal reserve has also become more proactive in its efforts to make consumers aware of its role in consumer education and outreach. while we have a long history of providing unbiased, research - based information to consumers on a variety of financial products, we have stepped up our efforts to get information to consumers quickly. and we have recently made use of some unconventional venues – unconventional at least for a central bank. for example, to make consumers aware of foreclosure - rescue scams, the board recently ran a 30 - second public service announcement ( psa ) in movie theatres in 18 markets across 10 states having high foreclosure rates. additionally, the coverage that the psa campaign received on television, radio, and in newspapers carried the message about the existence of mortgage - rescue scams to a far broader audience. as a complement to the