TOUGHER FINANCIAL REGULATION is needed to protect consumers when they deal with banks and other financial institutions, according to new research from the ESRI.
In a study of more than 80 cases of how people make financial decisions, the think-tank found that systematic biases in financial reasoning can result in consumers paying too much for financial products and taking on too much debt.
The think-tank found that most consumers lack the knowledge needed to choose the best deals from among the many mortgages, credit cards and other financial products on offer.
Even consumers with better financial understanding are prone to taking on too much debt or paying too much in bank fees, the study found.
Financial institutions can exploit people’s difficulties in understanding financial products, and information campaigns only make modest improvements in how consumers make their decisions.
The research suggests tougher inspection, bigger punishments, and publicising violations in order to force financial institutions to act in consumers’ interest.
Dr Pete Lunn, the author of the report said:
In the wake of the financial crisis many countries have recognised the need to strengthen protection for consumers of financial services and have begun to introduce new rules. The evidence shows that we need tougher regulation of the financial sector – to have rules that force companies to act more in consumers’ interest.