A majority of consumers are completely clueless about the fine print when they are signing the contract for home loans or car loans, a new study says.
The study, conducted by University of Queensland (UQ) TC Beirne School of Law, is described as one of the most intensive and comprehensive experimental projects into consumer credit disclosure carried out in any country.
UQ lecturer and project chief investigator 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," 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," O'Shea said.
"They wanted documents which were easier to understand and summarised concisely the information they needed to make informed choices about consumer credit products."
O'Shea said the project was larger in scale and more detailed than any similar experimental type research into consumer credit disclosure in the Britain or Europe and was comparable to the most advanced work on this subject carried out in the US, said an UQ release.
"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."