Consumers pay relatively little attention to enhanced disclosure, even when the disclosure prompts them to take action that would produce “non-trivial” financial gains, new research from the United Kingdom finds.
The U.K. Financial Conduct Authority (FCA) on Monday published a paper that sets out the results of a series of field trials that aim to explore whether disclosure-driven regulatory interventions could encourage consumers to take action to improve their financial position, namely switching to higher-paying savings accounts.
The trials examined three different approaches to alerting consumers to products that would pay them higher returns: providing consumers with information about comparable higher-rate-paying products; delivering a pre-filled return form that made switching easier; and providing a reminder about an imminent rate decrease.
The research finds that each of the interventions increased switching to higher-paying accounts within the consumer’s existing firm, but did not encourage switching to higher-paying products available from other firms, and even the increased switching activity within firms was not overwhelming.
Specifically, the research finds that providing consumers with front-page information about higher rates led to an increase in switching from a baseline of 3% to 6% of consumers. Non-front-page disclosures had no effect.
Providing consumers with a pre-filled return form increased switching from a similar baseline of 3% to 12%, while reminders about a forthcoming rate decrease, especially those sent close to a rate decrease date, also prompted an 8%-9% increase in switching, the FCA reports.
Yet, overall, the effect of enhanced disclosure was relatively limited, the FCA paper concludes. “Despite switching within providers in the trials taking 15 minutes on average … and switching gains being non-trivial, £127 ($217 )in the first year on average, we find that attention to disclosure is limited,” the FCA paper says.
The FCA carried out the research to inform possible future policy, amid concerns that while significant rate differences exist on similar types of accounts, “the majority of consumers rarely switch and so miss out on interest earnings,” the paper says.
“Our findings reveal that while in some segments of the market there is a notable level of switching when interest rates decrease, limited consumer attention, coupled with the inconvenience of switching, prevents widespread account switching,” the paper adds.
Additionally, ifirms can meet their disclosure obligations, while also presenting the information in ways that discourage consumer action, such as burying the information in the “fine print,” the paper observes. As well, even disclosure designed to prompt action has relatively limited effects.
As a result, the paper concludes that other sorts of interventions are necessary to improve consumer outcomes. “… beyond testing and optimizing disclosure the regulators need to consider a wider set of interventions that are better targeted at achieving more substantial improvements …,” the FCA paper says.