Encouraging Consumers to Claim Redress: Evidence from a Field Trial

Abstract

Redress to consumers following the mis-selling of financial products is an important regulatory tool to secure an appropriate degree of protection for consumers, one of the three operational objectives of the Financial Conduct Authority (FCA). In 2011/12, excluding compensation for payment protection insurance (PPI), the FSA helped obtain over £150 million worth of redress for consumers. The FCA’s focus on the consumer will continue to ensure that consumers receive appropriate redress.While large redress exercises such as PPI receive considerable publicity, many instances where consumers are due redress understandably do not. In these cases, the firm alerts customers to a potential issue, often in the form of a letter that gives customers information, which they need to answer. We believe that some customers do not respond, even when they have been mis-sold and when it would be in their interest to act. One reason may be that the relevant information is obscured or more complex than necessary, or that consumers suffer from inertia. Firms alone may not have sufficient incentives to correct these issues. This research focuses on how to encourage consumers who may be due redress to respond to letters. We worked on a real case, with a firm that was voluntarily writing to almost 200,000 customers about a failing it’s sales process. Influenced by new and exciting advances in behavioural economics, we tested different potential improvements to the firm’s letter using an RCT. And we used rigorous quantitative techniques to analyse the responses.The results are clear, surprising in magnitude and direction, and challenge current accepted practice.

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