Research by The University of Queensland has found that more than 90 percent of consumers do not understand important features of their contracts for home loans, credit cards, store cards and car loans.
The study, conducted by UQ's TC Beirne School of Law, is the most intensive and comprehensive experimental research project into consumer credit disclosure ever carried out in Australia.
School of Law lecturer and project chief investigator Mr Paul O'Shea said consumer comprehension tests indicated that, after reading contract documents for credit transactions, important questions such as the cost of credit remained difficult for consumers to understand.
"When consumers enter into a loan contract, they receive a bundle of documents," Mr O'Shea said.
"The current Consumer Credit Code requires that certain information about the transaction is disclosed in a financial table at the beginning of the contract document.
"In our focus groups, consumers expressed high levels of dissatisfaction with current pre-contractual disclosure and wanted documents which were easier to understand and summarised concisely the information they needed to make informed choices about consumer credit products."
Mr O'Shea said the project was larger in scale and more detailed than any similar experimental type research into consumer credit disclosure in the United Kingdom or Europe and was comparable to the most advanced work on this subject carried out in the United States.
"We used a three dimensional methodology to examine the effectiveness of the pre-contractual/disclosure requirements of the Consumer Credit Code which involved more than 220 comprehension tests, 55-people in focus groups and 70 intensive cognitive interviews.
"The results were used to redesign the requirements for consumer credit pre-contractual disclosure and help make contracts easier for consumers to understand."
The research was commissioned by the Standing Committee of Officials of Consumer Affairs on behalf of all state and territory governments in order to better inform policy development in national consumer credit regulation. From July 1, 2010 regulation of consumer credit will move from the states to the Commonwealth.
The report is available online at http://www.consumer.gov.au/html/latest_news.htm
