22 April 2014
Spare us the small print
This week, Fairer Finance is officially launching its Spare Us The Small Print campaign – the beginning of a crusade to save consumers from the barrage of legalese and incomprehensible paperwork that they get bombarded with every time they take out a financial product. You can sign up to support our campaign here.
When the first credit card was issued in 1959, it had a contract that ran to half a page. Today, terms and conditions for credit cards typically run to over 10 pages and several thousand words. When it comes to bank accounts and insurance, the scale of the documents is worse still
Staysure’s travel insurance policy, for example, comes in at a smidge under 38,000 words - about the same length as Joseph Conrad's Heart of Darkness. For a product that may cost you less than the price of a meal out – a document of this size is out of all proportion.
Spot the odd one out in the following list of great literary works of the last 150 years:
- Turn of the Screw, Henry James, 42,211 words
- Heart of Darkness, Joseph Conrad, 38,098 words
- HSBC's bank account terms and conditions, 34,162 words
- Animal Farm, George Orwell, 29,966 words
- Of Mice and Men, John Steinbeck, 29,160 words
And no one reads them…
Perhaps the most compelling argument in favour of the need to rethink policy documents and terms and conditions, is simply that most people don’t read them.
In a recent Fairer Finance survey to a panel of over 2,000 UK consumers, only 27% said that they read policy documents and Ts & Cs in full. I suspect the real figure is even less.
Worse still, of those who are brave enough to tackle the small print, just 17% claim to have understood it all.
So just to be clear – most people aren’t reading these documents, and most of those who are reading them don’t understand them.
A look at the opening lines of HSBC's banking terms and conditions leaves you in no doubt as to why many people don't even make a start with these documents:
"Your agreement with us consists of these General Terms and Conditions (“General Terms”) and any Additional Conditions (the General Terms and the Additional Conditions are together the (“Terms”)) that apply to any product/service that you have and which are described in the Terms."
Time to be brave
Most banks and insurers know that this is a problem. But many blame the regulator – claiming that this is simply what’s required to be compliant.
This is a complete cop out. I have no doubt that chief compliance officers and lawyers advise companies that they need to include the kitchen sink in their terms and conditions. If a company gets called out for a compliance failure - guess who's going to get fired? So of course compliance officers and lawyers err on the side of caution.
But senior decision makers in banks and insurers need to be braver – and not simply take the compliance team’s word as gospel. Some companies are already demonstrating that there is another way.
LV’s car insurance policy, for example, comes in at less than 7,000 words – a fifth of the length of Endsleigh’s.
If you’re focused on good customer outcomes – by making documents easier to understand – it’s unlikely that you’re going to find the FCA knocking down your door.
In fact, if you’re brave enough to break the mould and try to provide a clearer picture for customers, you’re likely to be championed for doing so.
An incentive to try harder
Over the coming weeks, Fairer Finance will celebrate the companies who are doing a good job on their terms and conditions. While companies like LV have shown that they can be concise, there are others who are clearly making efforts to lay out their documents in an accessible way, or who have worked hard to eliminate legalese and jargon. We'll be championing those businesses on our website - and we'll also be meeting with companies who aren't doing so well, to try and persuade them to do things differently.
What’s the solution?
What we need to aim for is a world where customers get all the information they need – but no more – in a format which they can understand. As a start, the regulator needs to listen to companies’ concerns and review the requirements it puts on them. But companies also need to do their own work. Even if you don't have the courage to stand up to your compliance team, there's no excuse for using jargon and legalese in your Ts & Cs.
Deciding what information needs to be presented to customers at what time is not easy. It may be that more thought needs to be given to the experience and knowledge of customers. If you’re 20, and you’re buying your first travel insurance policy, for example, it’s not necessarily reasonable to expect you to understand all the exclusions that are common to travel insurance policies. So more work needs to be done in helping to educate customers when they make purchases for the first time. The same principle also needs to be applied to products which are bought infrequently, such as bank accounts.
But by the time a customer is buying travel insurance for the 20th time, the onus may be on pointing out how one insurer’s policy differs from others in the market.
Sadly, we’re never going to be able to dispense with terms and conditions entirely. Financial products are complicated – and it’s important that customers are given all the information about what they’re buying, and what is and isn't covered in their insurance policy.
But consumers should at least be able to expect that the documents they receive are free of legal jargon and are written in language that a 12 year old could understand. They should be no longer than they have to be – and they should be front loaded with all the most important elements – so that customers know where to turn to find the most important clauses.
I was encouraged to see that the FCA included Ts & Cs in its risk outlook this year – signaling that it understands there is a problem here. I hope that means that we may see some action on this later in the year.
In the meantime, if companies want help getting their policy documents and Ts & Cs in order, give us a call. We’d love to help.