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  • 13th Aug 2019

Bringing consumers to the centre of consumer protection

Helping the good guys win: regulatory reflections from the other side of the world

Regulators are definitely getting smarter in their use of behavioural science and empirical methods, and lessons are being shared across the world. But are regulators still two steps behind commercial players, particularly when it comes to ‘market predators’?

In the last leg of my recent pacific trip, I took part in the New Zealand Commerce Commission Conference. The event had powerful examples of consumers being taken advantage of by ingenious, and sometimes duplicitous, practice – and also how regulators, and social entrepreneurs, were seeking to respond.

On one panel, Ronji Tanielu told the story of how some of NZ’s most disadvantaged communities were being preyed on by traders. Vans would turn up offering electrical and other products immediately available but with punitive payment rates on the loans they were tied with. It was mobile temptation, brought to the doors of the most vulnerable, and with devastating consequences. Yet Ronji, a gentle mountain of a guy, was no regulator. Rather, he is a life-time activist in the Salvation Army. His response was to buy a van and for the Salvation Army to compete directly with the rogue traders, offering debt advice and access to better loans and product prices.

ASIC, the Australian corporate regulator, similarly talked about the emergence of rivals to bad value payday and HP lenders, alongside ongoing efforts to cap interest charges and limiting the percentage of a person’s income that a loan repayment can be. Meanwhile, there was lots of discussion about whether New Zealanders’ love of catching a bargain was being helped or hindered by its traders (unusually) widespread use of complicated loyalty schemes and tokens.

A pivotal question that hangs across all markets is whether the ‘good guys’ – the good value companies and offers – win. Sadly, it’s clear that too often they don’t. Work led by Ravi Dutta-Powell and others in BIT-APAC with the Commission highlights how companies can use confusion to stop consumers getting good deals. Worryingly, some of the examples we identified included comparisons on switching sites, such as where short-term teaser rates are designed to bring the offer up on top, even though alternative offers are clearly better value (with the help of a calculator). Given the pivotal role that price comparison sites can play to help consumers, and make sure that the best deals win through, regulators and consumer organisations need to be all over this. Indeed our house view is that regulators should be much more assertive in this space, regularly releasing updated information on the best (and worse) performing price comparison sites. If we can keep this clean, they in turn will help keep the markets they operate in clean too.

One fundamental question is whether or not consumers understand the information they are given. Fortunately, this is an empirical and testable question. Intuitions are often wrong, which is why it is so important that regulators, not just companies, do experiments. It is also important to go beyond testing the traditional focus of market research, such as recognition or ‘confidence’, and check actual comprehension and behaviour. 

A pivotal question that hangs across all markets is whether the ‘good guys’ – the good value companies and offers – win.

At the NZ event, I showed a couple of different versions of an energy fact sheet, and asked the several hundred regulators and experts in the room which they thought would help consumers choose the best deal. A sizable majority put their hands up to suggest the version that had a detailed pricing table on the top of an energy fact sheet. In our work with an Australian energy regulator, we did indeed find that this version most increased consumers’ confidence in finding the right deal. However, we found that this version performed worse, relative to having the table at the bottom of the page, in terms of consumers likelihood of identifying the factually correct answer.  

Direct testing of proposed regulatory interventions also allows regulators to confront some industry complaints. For example, when industry players argued that adding a phrase on an energy bill highlighting how much money people could save if they switched plans would confuse them, we were able to show convincingly that this was not the case

This argument for hard empiricism applies more widely, including among those who have to apply the rules and regulations that governments (and societies) produce.  An example from NZ that other governments might want to watch is their Evidence Based Policing Centre (EBPC), championed by NZ cop Mark Evans. One of the neat features of the EBPC is that it has a network of officers stationed across the country. Their role is to disseminate evidence based practice, but more importantly their frontline experience enables them to support front line officers to make behaviourally informed decisions. The EBPC can then support these officers to work out how they can make these decisions more effectively by marrying rigorous evaluation with the “number 8 wire” New Zealand spirit. (They also have the significant advantage of having a single national police force, and excellent integrated data!)

There is so much to be learnt from each other, and particularly from ‘natural’ variations in approach from across countries and jurisdictions. The UK has often looked to our cousins in NZ to borrow ideas and inspiration, from cutting and pasting their Constitutional Handbook to current cross-national interest in their national metrics and joined-up approach to youth policy. Our Singapore, Sydney and Wellington teams get to do this everyday, including in new and exciting areas. And it was great to meet our new Head of BIT-NZ, Sarah Hayward. Welcome! 

In sum, regulators and front line services are learning how to experiment and be more empirical. But they also need to twin this with more strategic applications of behavioural science. They need to make sure that markets, in their basic design are places where the ‘good guys’ and good deals win. We need markets in which Ronji’s van doesn’t just help the people it immediately reaches, but changes the equilibrium. That’s the real test of whether a regulator has done their job right.