When it comes to consumers seeking loans or credit facilities, we rely a lot on consumers to make use of opportunities to improve financial literacy, to shop around and read disclosure documents, all of which are considered as being essential requirements for consumer protection. However, in my view, these have limited real-life impact on a consumer behaviour and financial decision-making. Financial decision-making by consumers is often not based on rational behaviour, perhaps best explained by Behavioural Economic theories where decision making is influenced by other factors such as personal bias, economic conditions, perceived needs, pressured sales, status, etc.
As well, it is common to hear that consumers state that they do not have the time to become well informed and to shop around. Instead, there is reliance on sales staff of their financial institutions to guide them; or they reach out to social media for advice; or are influenced by marketing, all of which are effective in swaying consumers behaviour and decision-making.
I would suggest that it is rare for consumers to form their opinions based on facts and by actually reading and understand all the disclosure information and the proposed terms and conditions related to a product or service before signing a contract.
To be an informed consumer before making a financial commitment, what is the likelihood that a consumer would do a self-evaluation of one’s financial health and affordability before entering into debt obligations including buy now pay later schemes.
The consumer protection regulations tend to assume consumers act responsibly and will use the tools they have access to such as disclosure; but in reality, does this truly protect consumers. One can argue that it is the consumers’ problem if they do not access the tools and apply them diligently; and they can suffer the consequences.
I would suggest that we go beyond simply placing onus on consumers by pretending consumers will read confusing disclosure documents and self-educate. We need to ensure there are also standards of market conduct that are rooted in common principles of integrity and honesty regarding the activities and behaviour of credit providers.
The credit market place is too important for it to simply rest on the theory that if the consumer is too dumb to ask the right questions or to understand the product or service, then that’s their problem. This simply resorts back to a basis for caveat emptor.
