Do Financial Consumers Discipline Bad Lenders?

Do Financial Consumers Discipline Bad Lenders? | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Do Financial Consumers Discipline Bad Lenders? Mark Flannery, Philip Wang, Cathy Zhang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9464136/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract We examine whether market discipline complements regulatory efforts to protect financial consumers. We find that mortgage borrowers on average do not penalize unscrupulous lenders identified by the CFPB and state regulators’ enforcement actions following their public disclosure. Borrower inaction appears to stem from their lack of awareness regarding most enforcement actions: they do penalize lenders when the enforcements are widely covered in the press. The lenders penalized by borrowers subsequently improve their service quality. In contrast, the lenders who escape borrower discipline do not, and instead, adopt new company names. Overall, our findings suggest that financial consumers can effectively penalize lenders and change their behavior, but public disclosure alone is not enough to elicit their discipline. Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9464136","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":634936631,"identity":"15c94982-18f5-4235-b6fc-248ea4e4aff9","order_by":0,"name":"Mark Flannery","email":"","orcid":"","institution":"University of Florida","correspondingAuthor":false,"prefix":"","firstName":"Mark","middleName":"","lastName":"Flannery","suffix":""},{"id":634936632,"identity":"33956edd-a004-4d4a-b357-c0730bd41e34","order_by":1,"name":"Philip Wang","email":"data:image/png;base64,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","orcid":"","institution":"University of Florida","correspondingAuthor":true,"prefix":"","firstName":"Philip","middleName":"","lastName":"Wang","suffix":""},{"id":634936634,"identity":"228bc1ab-6049-4b1c-8396-8167d8d481e1","order_by":2,"name":"Cathy Zhang","email":"","orcid":"","institution":"University of Florida","correspondingAuthor":false,"prefix":"","firstName":"Cathy","middleName":"","lastName":"Zhang","suffix":""}],"badges":[],"createdAt":"2026-04-19 18:09:18","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9464136/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9464136/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":108806320,"identity":"52e11742-c151-4c8e-9575-59c6cf77a259","added_by":"auto","created_at":"2026-05-08 15:28:14","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":643031,"visible":true,"origin":"","legend":"","description":"","filename":"FWZwithouttitle.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9464136/v1_covered_026ccd09-5a9a-46e9-8aaa-9cb9ebeb0652.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Do Financial Consumers Discipline Bad Lenders?","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"","lastPublishedDoi":"10.21203/rs.3.rs-9464136/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9464136/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eWe examine whether market discipline complements regulatory efforts to protect financial consumers. 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