The impact of e‐commerce developments on consumer welfare ‐ Information disclosure regimes
| Pages | 329-348 |
| DOI | https://doi.org/10.1108/13581980310810615 |
| Date | 01 December 2003 |
| Published date | 01 December 2003 |
| Author | Jennifer Hamilton,Lorna E. Gillies |
| Subject Matter | Accounting & finance |
The impact of e-commerce developments
on consumer welfare — Information
disclosure regimes
Jennifer Hamilton* and Lorna E. Gillies
Received (in revised form): 12th August, 2003
*Senior Lecturer, University of Strathclyde, Law School, Stenhouse Building, 173 Cathedral St,
Glasgow G4 0RQ, Scotland; e-mail: j.a.hamilton@strath.ac.uk
Jenny Hamilton is a senior lecturer at the
University of Strathclyde Law School. Her
teaching and research interests are com-
mercial and consumer law, and financial
services regulation. Until recently she was
a Council member of the Scottish Consu-
mer Council and is currently a Council
member of a co-operative lending society.
Lorna Gillies is a lecturer in law at the
University of Leicester. Her research inter-
ests are in international private law, elec-
tronic commerce and consumer law. Her
most recent paper ‘Adapting International
Private Law Rules for Electronic Consumer
Contracts’ was published in Rickett and
Telfer (eds) ‘International Perspectives on
Consumers Access to Justice’, Cambridge
University Press (2003).
ABSTRACT
KEYWORDS: information disclosure, con-
sumers, decision making, e-commerce
Information disclosure requirements are a rela-
tively common feature of consumer protection
regimes generally. In the case of retail invest-
ment products such requirements have been in
place since the late 1980s. Now the European
Distance Marketing of Financial Services
Directive will impose a similar disclosure
regime wherever a contract is concluded at a dis-
tance. But, despite the popularity of disclosure
regimes with policy makers, the available evi-
dence suggests that such regimes may not be
particularly effective.
The purpose of this paper is to discuss first,
the extent to which disclosure regimes are
underpinned by a solid understanding of consu-
mer decision-making behaviour, and secondly,
the implications the development of the internet
as a delivery channel for retail investment pro-
ducts might have for their effectiveness.
The paper concludes that, despite the indeter-
minacy of consumer decision-making research
such that it fails to provide a ready model on
which to (re)design disclosure regimes, the
development of the internet as a delivery chan-
nel both compounds the challenges for the regu-
lator in devising an effective disclosure regime,
but also provides the regulator with an opportu-
nity to explore the potential to deliver interac-
tive capabilities which would enhance the
potential to better influence consumer decision
making.
As such, the paper should be of interest to
regulators, the industry (which has expressed
doubts about the cost-effectiveness of such
regimes) as well as academics interested in regu-
latory policy.
INTRODUCTION
Information disclosure regimes have
formed an important component of consu-
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Journal of Financial Regulation and Compliance Volume 11 Number 4
Journal of Financial Regulation
and Compliance, Vol. 11, No. 4,
2003, pp. 329–348
#Henry Stewart Publications,
1358–1988
mer protection regimes in a number of
markets since the 1970s. An information
disclosure regime for retail investment pro-
ducts has been in place in the UK since the
late 1980s. The primary rationale behind
this regime is the recognition that there are
additional risks for the consumer in enter-
ing the investment market — risks which
cannot be accommodated by traditional
contract or other common law remedies.
The purpose of the regime is therefore to
enable consumers to make better, more
informed investment decisions. The UK
regime applies to all channels of delivery,
including the internet. The European
Directive on the distance marketing of
financial services will impose a similar
information disclosure regime Europe-
wide, wherever a contract is negotiated
and concluded at a distance (eg over the
internet) — the purpose being to encou-
rage consumer confidence and to
strengthen the financial markets in Europe.
The reliance at UK and European level
on disclosure as a primary consumer pro-
tection measure however raises two parti-
cular concerns: the available evidence
about the UK regime suggests that it does
not work particularly effectively; and to
what extent should a regime developed
primarily in the context of traditional
delivery channels be transposed to new
channels such as the internet?
The purpose of this paper is twofold:
first, to look at the reasons for the limited
success of the UK regime and to assess the
extent to which it is underpinned by a
solid understanding of consumer decision-
making behaviour, and, secondly, to look
at the challenges posed by the development
of the internet as a delivery channel and to
assess what further implications this might
have for the effectiveness of the regime.
STRUCTURE OF THE PAPER
This paper focuses primarily on retail
financial investment products (packaged
products), not on the provision of consu-
mer credit nor on general banking and
insurance products. In addition, it does not
directly cover the separate information dis-
closure regime for the primary securities
market,
1
although reference will be made
to research into investor decision making
in relation to stocks and shares, where
appropriate.
The first section of the paper provides a
brief analysis of the reasons why informa-
tion disclosure regimes play a significant
part in the consumer protection regimes
introduced for consumers of retail invest-
ment products, at both UK and EU level.
The second section looks at the broad
structure and aims of the UK disclosure
regime and the new distance marketing of
consumer financial services regime and
their application to internet delivery.
The third section looks at the evidence
on the limited effectiveness of the current
UK regime and the extent to which that
regime is based on a solid understanding of
consumer decision-making behaviour. It
also discusses what is known about how
consumers interact with the internet and
what additional challenges this different
form of interaction has for the delivery of
an effective regime.
The final section draws the previous sec-
tions together, discussing the implications
for regulatory policy making. It concludes
that regulators’ faith in information disclo-
sure regimes to deliver better consumer
decision making may be misplaced. Regu-
lators face two challenges in devising an
effective regime — to ground the regime
in a solid understanding of consumer deci-
sion-making behaviour, and secondly, to
take cognisance of the different ways in
which online consumers interact with ‘new
technology’ such as the internet so as to
develop appropriate responses. The devel-
opment of the internet compounds the
challenges facing regulators in providing
an effective disclosure regime, but also
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The impact of e-commerce developments on consumer welfare
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