In a study ordered by the Finnish Consumer Agency last summer, the market research company Taloustutkimus found that lenders and borrowers aren't always speaking the same language. One third of respondents were not familiar with the important concept of annual percentage rate of charge, for instance. Even those who knew of it could not necessarily explain how it is meant to be used. A low level of consumer financial knowledge revealed by a Danske Bank survey in the Nordic countries has also caused some consternation, and more consumer education and accountability has been called for.
In order to navigate the world of financial services, a consumer needs information that does not simply come about through practice. Indeed, trial and error is too destructive an approach in the financial services sector, where the effect of choices made will be reflected throughout a consumer's life and in his or her ability to function in society.
Along with consumer education and instruction, it should be kept in mind that businesses have the responsibility to market their services in a clear and transparent manner. Based on marketing, a consumer must be able to make a sensible decision, even without any specialized knowledge. Perhaps consumers aren't stupid, and financial services are in fact exceptionally difficult to understand. In that case, there should be special consideration of how social responsibility, the customer's point of view, and good practices can be integrated in business communications. The more complex the product, the greater the need for a straightforward approach.
Financial advising and consumer education and instruction have their own important roles. Innovative tools are needed and financial services should not be mystified. While we wait for consumer education efforts to bear fruit, however, the problem cannot be ignored. The annual percentage rate and the standardization of information both provide good examples of ways to enhance not only consumer protection, but also smooth competition. Who will be at the forefront of making sure that contractual terms are clear and advertising is straightforward?
Anja Peltonen
Editor-in-Chief, Director of the Consumer Law Division
“Corporate executives are not authorized by anyone – least of all by their consumers or investors – to balance profit against the public good. Nor do they have any expertise in making such moral calculations. That's why we live in a democracy, in which government is supposed to represent the public in drawing such lines.”
Supercapitalism, the Transformation of Business, Democracy and Everyday Life, 2007
Robert B. Reich