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Democracy & Justice Research Flagship - Projects

The effectiveness of mandatory comparison rates: information, capacity and choice

Project Code:

Financial deregulation and significant innovation within financial markets have seen a rapid increase in the type and number of consumer credit products available. What is not known is how consumers, and particularly low-income and vulnerable consumers, have adjusted to this changed environment. Twenty years ago, consumers had little choice in products and suppliers, whereas they now have an enormous range of choices available to them. While in the past they had only to deal with relatively straightforward calculations based around a loan repayment schedule, consumers now also have to contend with a variety of different charges on top of the loan repayments. For many, credit is a lot easier to secure than it once was. For others it is even more difficult.

Arguments for more flexible and responsive consumer markets rest on notions of consumer sovereignty. Consumer sovereignty in turn requires informed consumers with the capacity to act in their own best interests and choose between products on offer. It also requires credit providers to be relatively powerless, and unable to shape the conditions and terms on which credit is available. A key public policy issue for our time is how to ensure consumers are well-informed and have the capacity to make effective evaluations of products on offer. Equally important is how best to protect the interests of consumers trying to make informed choices in markets involving complex and technical information, which might be beyond the capacity of most people to understand.

This research focuses on the effectiveness of recently introduced government regulations regarding mandatory comparison rates for consumer credit. The research will provide an evidence base for strategic analysis by Consumer Affairs Victoria and other interested parties including the Ministerial Council for Uniform Credit Laws. The central question addressed is: have mandatory comparison rates proven to be an effective regulatory option to ensure that consumers are able to make informed choices between different credit options?

Research Team

Investigators: Mr Scott Ewing, Ms. Bev Kliger and Dr Andrea Sharam