"We know that some firms are busy addressing these issues. But others are taking the view that no one reads the terms & conditions so there’s no need to act."
- James Daley, Managing Director at Fairer Finance
Fairer Finance highlighted Consumer Duty states that firms should communicate with customers in a way that is ‘clear, fair & not misleading’ and equip them with the information needed to make effective and informed decisions.
However, according to its latest analysis (using the Automated Readability Index) of the readability of financial terms & conditions and policy documents, reading ages, use of jargon, and word length have barely improved across several key financial products over the last twelve months.
The National Literacy Trust reports that 16.4% of adults in England have ‘very poor literacy skills’ classifying them as ‘functionally illiterate’ yet reading ages for financial products range from 15-18 years old. The Financial Conduct Authority (FCA) classifies these individuals as vulnerable.
Fairer Finance found that investment and Car Insurance terms & conditions require the highest reading age, averaging 17.5 years old. Saving accounts and Pet Insurance have the lowest average reading age at 15.5. However, there are inconsistencies within sectors – for example, credit card providers’ reading age ranges from 11 to 20+ years.
Furthermore, Fairer Finance has developed a jargon score to analyse the legal, industry & everyday jargon in financial documents. Akin to reading ages, the simplification of jargon has seen little movement in the last year, although Pet Insurance, bank accounts, and saving terms appear to be moving in the right direction. Investment terms & conditions remain the most difficult to understand.
Notably, investments and Travel Insurance were identified as products with the highest word counts – with an average of 24k words - in their terms & conditions, closely followed by Home Insurance. That’s the equivalent of Shakespeare’s Romeo & Juliet or Oscar Wilde’s The Importance of Being Earnest.
“It’s disappointing that more than a year after the Consumer Duty came into force, we’ve barely seen any improvement in the clarity of financial terms & conditions. The new FCA rules are very clear that firms must be able to prove that their customers can understand the information they are given,” explained James Daley, Managing Director at Fairer Finance.
He said: “However, the reading ages, length, and complexity of most terms & conditions are well above the level that most people will find easy to engage with. We know that some firms are busy addressing these issues. But others are taking the view that no one reads the terms & conditions so there’s no need to act.
“We expect that these firms will be having some tough conversations with the regulator over the months ahead. Terms & conditions are used by customers as manuals – which is why it’s crucial they are organised and made easy for people to find the information they’re looking for. When they get there, they shouldn’t need a legal degree to be able to understand it,” James concluded.
