A new research undertaken by People’s Choice Credit Union reveals that a majority of Australians find bank advertisements confusing, and even actively misleading.
In the survey of 1520 people, conducted by the Ehrenberg-Bass Marketing Institute, 70.4 percent of respondents thought bank advertisements were ‘confusing’, and 64.7 percent found them to be ‘misleading’.
A third of the people (33.1 percent) surveyed thought bank ads were ‘honest’, with just 26.4 percent saying they were ‘clear’. The results were similar regardless of whether respondents spoke English as a first language or not.
“The financial regulators have laid down the rules which say we have to advertise this way, but it’s not delivering, it’s not giving people what they need, so we have to think again,” said People’s Choice Managing Director, Peter Evers.
“Regulation is meant to protect consumers, but right now it’s letting them down. Change is needed to ensure advertising is clear for two vital reasons: so consumers can understand what’s the best deal, and so lenders will be under more pressure to provide it.”
‘Nominal’ and ‘comparison’ interest rates confuse
The survey participants’ confusion was confirmed when they were asked to compare home loan advertisements and select which offered the best deal. They were presented with three pairs of ads, each showing a ‘nominal’ interest rate and a ‘comparison’ interest rate.
Only 12.6 percent of respondents correctly selected the best deal in each of the three scenarios.
Financial System Inquiry the opportunity for reform
The survey results come as the Federal Government’s Financial System Inquiry (FSI) considers changes to better position and broadly improve Australia’s financial system.
“When barely one in ten ordinary Australians can correctly understand the core information that’s contained in every home loan advert, then something is clearly wrong,” said Evers.
“If you don’t get the best mortgage deal, it’s going to cost you thousands and thousands of dollars. How can people get the best deal? How can competition between financial institutions be effective if people don’t understand what’s on offer?
“We need a banking system where consumers are informed and confident and don’t have to wade through the fine print to determine the best deal.”
While the FSI has been tasked to consider the structure and efficiency of Australia’s entire financial system, People’s Choice believes that everyday consumers must not be overlooked – in fact, improvements should be made at every level.
“The FSI’s terms of reference include meeting the needs of users and driving competition. One step in the right direction will be to mandate advertisements that people can understand,” said Evers.
One case study offered by People’s Choice is Lauren and her husband Alex, both 26. The duo are living with Alex’s parents while they save the deposit they need to buy their own home. They keep an eye out for which financial institutions are making special offers.
“Do I know what a comparison rate is? No, not really,” Lauren said. “So which offer is best? I don’t know.”
Alex communicated a similar sentiment: “When I see an ad, I jot down which bank or credit union it is, and then I do some of my own research on the web but a lot of it still goes over my head.”
For Alex, it means he and his wife are dependent on other people – like brokers – to point out the best deals.
“You’re blind, really. When you buy a house, you know what you are getting and you can compare it to what else is out there. But it’s hard to do that with a mortgage. You have to take it on trust.”