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Key issues for financial services industry in today's context - ECOFI Conference

Публикувано от Веселина Николова на 11 септември, 2008, четвъртък

Meglena Kuneva, European Consumer Commissioner - Key issues for financial services industry in today's context - ECOFI Conference, Nice, 11 September 2008

ECOFI Conference

Nice, 11 September 2008

Ladies and Gentlemen

It is a pleasure to be here in Nice to attend this conference. I very much welcome the opportunity to discuss the consumer reality of retail financial services today.

The question of how to participate effectively in this market is one that preoccupies a significant proportion of the 500 million consumers across the EU.

Consumers should feel as competent and confident in their financial dealings as they do in traditional goods trade. They should reap the benefits of an internal market in terms of more choice and lower prices.

But today, one can regretfully conclude that the consumer is not adequately served in his needs for financial services.

One reason is that consumers face big obstacles in obtaining and understanding the relevant information provided by the financial services industry.

One could argue that consumers are already overwhelmed with information. But the information they are getting rarely informs them: it is complex, incomplete and sometimes misleading.

The key words of my consumer strategy are facts and consumer empowerment.

A. Facts

The Consumer Markets Scoreboard initiative launched at the beginning of this year stressed the need of evidence based policy. I promised then that I would gather additional evidence on the consumer reality in the retail financial sector.

We are now monitoring the market on a continuous basis, in particular through surveys and focus groups, covering all 27 Member States.

What have we learnt? Our data shows that 34% and 40% of consumers find it difficult to compare financial offers such as offers for current accounts, mortgages or investment services. The situation is worse among older or less educated consumers.

Incomprehensible information and insufficient information are also among the most important perceived obstacles to cross-border shopping for retail financial services.

But it is not enough to know the reality that many consumers of financial services are confused or discouraged. We must act.

B. Empowerment

Let me remind you that the act of consumer choice is what drives markets towards delivering the most useful and valued services. This is what we call efficiency. An empowered consumer is one that is able to choose using complete and clear information he understands.

How do we achieve empowerment? We must improve financial education, improve pre-contractual information, and address a general lack of transparency within the financial services industry so that to allow informed choice.

1. Financial Education

The consumer's general lack of understanding of financial services is a real problem, which will worsen as more people become increasingly reliant on financial services. We have already launched three targeted financial education schemes.

Firstly, we have published a section on financial services in the Europa School Diary. This diary contains articles on consumer issues and is distributed in schools around Europe. This year we issued three million copies.

In addition, our DOLCETA consumer online education project already contains a financial services module for self education of adults.

We have just included a web-based financial literacy programme to be used by teachers in primary and secondary education.

All this is part of the financial education initiative with my colleague, Commissioner McCreevy.

2. Pre-contractual information

My second focus is to improve pre-contractual information and by this I mean the manner in which information is presented to the consumer before any transaction.

A predictable result of our focus groups was that people wanted clear and complete information, without jargon. Additionally, consumers overwhelmingly prefer standardised information sheets that ease comparison.

Such a standard form, European Standard Information Sheet (ESIS) will be available for consumers when they inquire about consumer credits once the Consumer Credit Directive is implemented in May 2010.

Our focus groups have already tested a slightly revised version of this form for mortgages and we are also collecting results in the investment area.

The largest disparity of results affected investment products. We found some investors who felt confident in getting and processing information and others who clearly felt out of their depth. More conservative investors found the analysis of information "difficult, tedious and risky". I will not blame them for being prudent.

In fact, savings and investment are the most difficult areas to compare offers. It was for me personally very satisfying, that the Commission has decided to insert a requirement for standardised information presentation in the Key Investor Information document, as part of the revision of the UCITS Directive.

I have described steps already taken towards better presentation of pre-contractual information in the areas of consumer credit, mortgages and investments. The European Commission has done a good job but we must get better. In particular we must integrate in our work the results of new research that is improving our understanding of consumer choice.

Behavioural economics tells us that certain circumstances make consumers deviate from the behaviour that is traditionally predicted by standard economic analysis. These deviations can be costly to the consumer.

Concretely, studies show that when consumers are faced with large amounts of complex or unappealing information, they will take mental shortcuts to avoid having to process all this information. Often, they will fixate on just a part of the contract and ignore the rest. Or, their choice might be fully determined by inconsequential factors.

I am not exaggerating. One particular field study found that including images of a smiling woman in leaflets offering consumer credit had an effect on take-up equivalent to decreasing the monthly interest rate by half a percentage point.

Inadequate mental shortcuts and the reliance on any number of biases may sometimes make people's live easier on the spot but they do not work in their long term economic interest, nor do they work in the interest of healthy markets.

IIn order to deepen our understanding of consumer behaviour and its policy implications, my services are organising a Conference on Behavioural Economics in Brussels on 28 November.

3. Transparency and Choice

I have talked about presenting information in ways consumers can process. But to make information simple, information cannot be excessively complicated to start with. And what we witness is an increased complexity in the structure of costs and benefits.

Comparing costs of bank accounts is like navigating a multi-dimensional labyrinth. Consumers are finding it difficult to determine the best offer from banks because there are just too many contingencies and fees to look at and no one to tell them what their relevant fees are.

In the UK, a recent OFT study found that 81% of the fees on which the industry relies are potentially invisible to the consumer. When asked how much they were paying in bank charges for having insufficient funds, a significant number of consumers did not know, even after the charges were actually imposed. Neither did the majority know the credit interest rate of their current account.

How can we claim efficient market with this kind of consumer awareness level? Will we maintain with a straight face that consumers are competently shopping around for a better deal? Who are we relying on to produce competitive fees in the market?

Of course, we understand the specificities of the UK bank system; it is advanced in the degree of openness. But the problem of opaque charges is replicated throughout the banking sector and across the Union. Ironically, we expect this problem to get worse as markets become seemingly more 'competitive'.

When we issued the first Consumer Market Scoreboard this year, I promised to analyse the retail financial sector in greater depth, beginning with an examination of bank fees. Next year, I will produce a report on retail banking services.

Let me share with you preliminary findings. Our expert contractors were told to determine the actual cost to the consumer of a series of retail banking services. These experienced professionals have had great difficulty in untangling the information displayed on the banks' websites. A staggering 69 percent of websites required further clarifying contacts with the banks to be understood.

I have one question: What exactly are we expecting consumers to do in such a market?

Respondents to our survey have specifically indicated they want an overview of the information on costs and conditions presented on a dedicated website. This is clearly an area to which we are going to pay particular attention in the future.

Conclusion

To conclude, we cannot build a pan-European retail financial market with consumers deterred in their actions by lack of information, lack of trust and absence of even the possibility of informed choice. Our necessary work on consumer empowerment is forging ahead on a number of fronts: financial education, pre-contractual information and cost transparency.

It is my aim to ultimately provide consumers with the tools and environment they need to interact on equal footing with providers of financial services. The integrated retail financial market must happen. But if we want it to be competitive, efficient and safe it will have to be a market that ultimately works for consumers.

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