Most people don't like reading the fine print. That's a problem when there is important information and money on the line.
That is precisely why the financial services industry must change the way that product disclosures are designed. We must first overcome a number of major hurdles from the fact that financial institutions clearly aren't convinced about the need for marketing reform to attracting talent to this overlooked design niche.
While the CARD Act of 2009 took credit card disclosures a few steps in the right direction, there is still more work to do as is evident by the various underhanded tactics that banks still refuse to eliminate from their arsenal.
For example, roughly half of the major retailers that offer financing plans aren't transparent about their use of deferred interest, a feature that allows customers to avoid paying interest if they pay off their balance by a given deadline. But if customers miss a payment by even a day or leave $1 unpaid at the end of their low-interest introductory term, they may be retroactively assessed interest on their entire original purchase amount. The Consumer Financial Protection Bureau recently put credit card issuers on notice for such tactics.
Other studies have found that a number of banks don't display a fee schedule on online application pages for checking accounts, despite the fact that checking accounts can have up to 30 different kinds of fees. Another study found that online credit card applications from a number of major issuers lack information about important account terms, such as the cost of transferring a balance and how rewards can be redeemed.
Explanations of mortgage fees, charges and requirements have also come under regulatory scrutiny, given the toxic home loans that many people found themselves stuck with prior to the housing market collapse.
"I think a lot of consumers are still quite confused when shopping for a mortgage," says Maria-Ana Vitorino, assistant professor of marketing at the University of Minnesota.
The manner in which financial products are marketed to consumers obviously doesn't engender much excitement among designers. And since banks clearly aren't making marketing reform a priority, there isn't much incentive financial or otherwise for top talent in the field to seek employment in the industry.
Unfortunately, this leaves us stuck with too many unqualified cooks in the kitchen. As things currently stand, regulators and consumer advocacy groups are all coming out with their own ideal disclosure formats, which only adds to a counter-productive lack of uniformity.
The CFPB has both the power and the resources to change this problem. The organization simply needs to understand its weaknesses as far as evaluating design simplicity and embrace the power of crowd-sourcing. More specifically, the CFPB should present the design community with a call to arms by sponsoring open design challenges and using consumers to choose the winners.
The primary objective of these contests should be to figure out how to convey all of the most important information about a given financial product in a manner compatible with both the law and the short attention span of the modern consumer. After all, the basic premise of financial marketing reform is that consumers who are aware of a product's most important characteristics prior to submitting an application will make better choices and encounter fewer unintended consequences.
"We know that when messages are too complicated, consumers tend to disengage and walk away from the product," Dr. Breagin K. Riley, associate professor of marketing at Syracuse University, told CardHub in a recent interview. According to Riley, a disclosure that is "simple and perhaps overly so is likely to be more effective than a more accurate and detailed statement."
If constructed properly, a public-private initiative built on old-fashioned American ingenuity could prove to be exactly what we need to solve this pressing problem. A uniform, well-designed disclosure format would help make financial responsibility possible for everyone.