Do Information Processing Costs Matter to Regulators? Evidence from U.S. Mortgage Companies’ Supervision

ABSTRACT We examine the impact of reducing information processing costs on U.S. state regulators who supervise mortgage companies. State regulators traditionally disclosed enforcement actions only on their individual websites. A centralized repository, introduced in 2012, assembled enforcement records across states in one place, reducing a regulator’s cost to learn about enforcements in other states. Using a difference-in-differences design, we find that enforcement records posted on the centralized repository significantly increase the probability of subsequent enforcement actions against the same firm in other states. This suggests that reducing information processing costs helps state regulators identify companies engaging in misconduct. This effect is stronger for records from state websites where information is harder to process and for state regulators with more limited resources. Last, we observe that sanctioned lenders reduce the credit supply in other states after their enforcement records in one state are posted on the centralized repository. JEL Classifications: G21; G18; K2; M4.