FCA welcomes the release today of ASIC’s ground breaking report Disclosure: Why it shouldn’t be the default.
The report comprehensively explains why disclosure is such a weak form of consumer protection and in some cases, can even be harmful.
The idea that consumers would read and understand lengthy and complex product disclosure statements and then compare terms and conditions between them, dates back to the Wallis Inquiry in 1997.
This defies common sense about how real people behave. People are time poor, are dealing with complex and confusing terms and conditions, fees and charges (sometimes deliberately so) and are sometimes placed in situations where they are subjected to pressure sales tactics (think add on insurance or finance in the context of a car purchase). Disclosure is particularly ineffective for people with low levels of education or who are in desperate financial circumstances.
Disclosure has been used by industry to shift the blame onto consumers when things go wrong: “you should have read the terms and conditions”.
As Commissioner Hayne noted in the Financial Services Royal Commission, “there is always a striking asymmetry of power and information between bank and customer that favours the bank’’.
The ASIC report also canvasses the idea of “sludge audits”. Sludge describes the excessive frictions that businesses use to make life difficult for people. For example, it can be easy to sign up for a product, but take hours of time, paperwork and frustration to find out how to cancel it.
ASIC’s very welcome pivot away from disclosure is an opportunity to completely rethink how we regulate our major consumer markets: health and home insurance, financial services and energy.
Disclosure unfairly places the onus on consumers to do the heavy lifting. Instead, businesses need to be responsible for making sure that the products they sell to people are suitable. This means people get the right product and a fair deal.
Outcome or responsibility-based regulation would reduce red tape. At the moment the failure of disclosure has meant governments have had to intervene by introducing more and more prescriptive conduct-based regulation.
This report from ASIC, based on a compelling body of research, is a real milestone and we congratulate ASIC on its release.
Fiona Guthrie, 0402 426 835