Archived—Project Summaries 2007-2008 - Option consommateurs
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2120 Sherbrooke Street East, Suite 604
1. Accuracy of Information and Different Types of Errors in Credit Reports
In June 2002, the French-language magazine Protégez-vous published the findings of a study on the accuracy of information contained in credit reports: two thirds of the 50 credit reports reviewed had errors. The errors contained in the credit reports are common. Many Canadian consumers complain about such errors every year. These errors can have a number of negative consequences for the consumer: the inability to obtain credit or open a bank account, or difficulty in finding employment, renting a dwelling and, increasingly, acquiring damage insurance products. Option consommateurs is of the opinion that a study needs to be conducted on this matter.
The purpose of the study is to enable Option consommateurs to develop greater expertise on the issue of credit reports. The point is not to make recommendations as such during this preliminary study, but rather to reach indicative conclusions that are likely to be looked at again and studied in greater detail during a subsequent study phase.
Essentially, these findings should serve to specify the subjects with a view to conducting a large-scale survey in order to obtain more comprehensive findings and recommendations based on much more exhaustive data.
In order to achieve the targeted objectives, Option consommateurs will use the methodology that follows:
- Complete a documentary search of Canadian and US literature on the accuracy of credit information and the different types of errors contained in credit reports.
- Prepare a questionnaire based on the one used in 2004 by the National Association of State PIRGs, "Mistakes do Happen: A Look at Errors in Consumer Credit Reports." Option consommateurs will ask 400 Canadian consumers to request credit reports from the two main credit bureaus — Equifax and TransUnion — and assess the accuracy of the content of the report. Option consommateurs will specifically focus on the different types of errors that consumers find in their reports. Option consommateurs will have the questionnaire validated by academics and experts in qualitative and quantitative studies and methodology.
- Analyse the questionnaire findings and draft a final report and preliminary findings for consumers, businesses and governments.
Many Canadian consumers receive monthly credit account statements, for credit cards as well as instalment purchases. Some consumers have contacted Option consommateurs in recent months to complain about the trouble they sometimes have understanding their statements. For example, trouble finding the date on which their payment is due or the amount that is due. These consumers are certainly not alone in having trouble understanding their statements. According to the findings of the 2003 International Adult Literacy and Skills Survey (IALSS), nine million Canadians between the ages of 16 and 65, or close to 42% of the population, are below the literacy threshold of a knowledge society.
It is in this context that Option consommateurs is looking at the characteristics that promote greater consumer understanding of statements of account, especially with respect to the readability and clarity of amounts and dates, and any explanations included. The study will be divided into four parts.
Option consommateurs will consult various consumer rights', consumer protection and literacy organizations to determine the problems that have been reported by their members and the statements that their members feel are the most difficult to understand.
Option consommateurs will do a documentary search to compile statements of account from the biggest financial institutions. These statements of account could come from either financial institutions that issue credit cards or instalment sales finance companies.
Option consommateurs will validate its findings by organizing, together with its literacy partners, three focus groups of 15 participants each. Option consommateurs will ask the participants to list the pros and cons of the statements of account that they will be shown. This will reveal consumers' level of understanding of statements of account and make it possible to check whether consumer dissatisfaction can be improved through the use of a revised model, namely the ideal statement of account.
The statements will be analysed by readability experts to determine their shortcomings and to compile best practices.
The purpose of this study will be to propose possible solutions, in the form of an ideal statement of account to be submitted to financial stakeholders at the same time as the final report.
Every year, many consumers do business with "lease-to-own" companies. After leasing a good for a long enough period, the consumer ends up owning the good. This financing method parallels traditional credit methods offered by financial institutions and is very costly to consumers. An investigation conducted by Option consommateurs revealed that consumers could pay two to three times more than the value of the purchased good.
Through this study, Option consommateurs will answer the following question: Why do consumers opt for a costly financing method like "lease-to-own"? It will also answer the following sub-questions:
- Do the clients of these companies have trouble accessing traditional financing methods? If so, why?
- Do these companies provide consumers with clear and comprehensive information? Does the information enable consumers to make informed decisions?
- Are the clients of these companies aware of the cost of contract financing?
- What are the other reasons, if any, that drive consumers to do business with these companies?
In order to answer these questions, Option consommateurs will first do a documentary search on "lease-to-own" companies to prepare an overview of the industry. By analyzing advertising practices and reviewing contracts, Option consommateurs will assess the scope of information that consumers have at the time they enter into contracts.
Option consommateurs will then do a comparative law search to determine whether Canadian rules governing "lease-to-own" contracts protect consumers sufficiently or whether additional measures should be taken to provide them with more information and protection.
Next, Option consommateurs will survey "lease-to-own" clients to prepare a profile of consumers doing business with this type of company.
By documenting the advertising practices of "lease-to-own" companies, Option consommateurs will list the arguments that the companies use to convince consumers to do business with them. The list will serve in preparation of interviews Option consommateurs will conduct with consumers clients of these companies. Option consommateurs will interview 40 clients that currently do, or in the past have done, business with "lease-to-own" companies. These interviews will allow Options consommateurs to obtain qualitative data that cannot be retrieved through the survey. Option consommateurs will focus mainly on what reasons drive consumers to do business with the company and their financial knowledge.
Option consommateurs will use the study to prepare a more accurate profile of the "lease-to-own" industry in Canada, its clientele and its clientele's financial capacity. Option consommateurs also intends to raise consumer awareness of the consequences of doing business with such companies.
Canadians have access to a new type of payment card: pre-paid or stored value cards. Consumers will be able to transfer funds onto a card by telephone or Internet and use it like a credit or debit card. Pre-paid cards are especially popular with individuals who do not have bank accounts or who have had solvency problems. The two main credit card issuers, Visa and MasterCard, recently launched a number of pre-paid cards with a potential market of $2.4 billion in Canada alone.
According to Option consommateurs, the pre-paid card is a new method of payment that raises a number of questions. The purpose of the study is to understand the motives of pre-paid card users in Canada, identify potential problems with using the card and propose solutions.
The specific objectives of the study are as follows:
- Draw up a list of the main complaints concerning pre-paid cards in Canada.
- Assess the commercial practices associated with these methods of payment.
- Assess the contracts governing consumers' use of these cards.
- Assess legislation relating to these new products.
- Assess public expectations and perceptions regarding these new methods of payment.
- Assess the ease with which these new methods of payment are used.
- Make recommendations to improve market operations with respect to the use of these methods of payment.
To meet these objectives, Option consommateurs will:
- Review the contracts of all pre-paid cards available in Canada.
- Consult the various financial institutions, either through their websites or customer service departments.
- Complete a documentary search to help determine what rules of law apply to such a method of payment in Canadian provinces, the United States and the European Union.
- Contact the various Canadian consumer protection organizations to compile a list of complaints that have been filed with them since the method of payment was launched.
Option consommateurs will also conduct focus groups and targeted interviews of individuals who both use or have used and those who have not used pre-paid cards. This approach will make it possible to ask consumers why they adopt this method of payment, identify the most common problems experienced by consumers and determine whether the information given to consumers complies with the rules in effect and actually helps consumers understand this method of payment.
In 2004, North American advertising agencies spent more than $14 billion to directly target the children's market. This is double the amount spent a decade ago! For a few years now, the federal government has been lobbied to amend the Competition Act to make commercial advertising and promotion targeting children under the age of 13 subject to review. For the time being, only Quebec has passed legislation prohibiting commercial advertising targeting children under 13 years of age. The Canadian Code of Advertising Standards sets out the rules governing advertising that targets children. The code is voluntary and relies on the responsible self-regulation of the advertising industry. However, the code is widely unknown, especially as concerning rules relating to advertising that targets children.
Many companies do not want governments (provincial and federal) to pass legislation on this matter. These companies view children as three markets in one: 1) children are a market in themselves because they know what they want to buy; 2) children influence their parents to buy certain products and services; and 3) children represent the future market because they develop their tastes at a very young age and it is highly likely that they will remain loyal to their consumer choices. Therefore, children's purchasing power is increasingly important and must not be taken lightly.
This study is intended to determine the following:
- In what capacity does the voluntary code applied in Canada protect children from advertising that targets them directly?
- Would legislation governing advertising that targets children be more appropriate?
A comparative study on protection systems (legislative and voluntary) will enable Option consommateurs to assess the merits and shortcomings of such systems. Option consommateurs' analyses will also enable it to make pertinent and concrete recommendations so as to serve all of the parties concerned as appropriately as possible.
Documentary search: The documentary search will serve to gather data on existing regulations pertaining to this industry in Canada, the United States, Europe and Australia, and the scholarly articles that have been published on the subject in recent years.
Qualitative analysis: Option consommateurs will analyse certain advertisements that directly target the children's market in Canada and abroad.
Meetings with key stakeholders: Option consommateurs will meet with representatives of the advertising industry (announcers, advertisers), government and businesses that create advertising targeting children in order to determine their position.
Data analysis and drafting of the report: Option consommateurs will analyse the data gathered and prepare a report outlining the situation and setting out the different approaches adopted for the project. The report will also include recommendations to ensure the greater protection of consumers and their children, if needed.
Option consommateurs believes that the traditional debt collection method of intimidating and threatening consumers into paying their overdue accounts does not always work. It often forces the consumer into bankruptcy and leads to various personal and social problems for the consumer, without the debt being repaid. Some companies, such as Hydro-Québec and Gaz Métropolitain, have developed other debt collection strategies that are based on consumers' ability to repay their debts over a given period of time. Hydro-Québec has shown that this method is more effective for collecting debts than the traditional method.
Option consommateurs will compile a list of debt collection methods and determine their impacts on consumers and the rates of debt repayment. The study will also serve to identify methods that have achieved the best results for all individuals with unpaid debts.
The methodology used for this study is threefold. First, a pertinent documentary search will be done. Then, interviews with industry players and sector stakeholders will be conducted. Lastly, Option consommateurs will hold individual meetings with consumers.
In a first phase, Option consommateurs will try to better understand and evaluate the entire debt collection industry. Based on a documentary search of Canadian and US literature, Option consommateurs will summarize the methods used by the industry for debt collection purposes. It.will then summarize alternative collection methods. This phase will enable Option consommateurs to prepare the interviews it will later conduct with industry players. Two sets of meetings are planned:
- Meetings will be held with companies that have developed new methods e.g., Hydro-Québec and Gaz Métropolitain) in order to determine the effectiveness of their methods and the reasons justifying their use.
- Option consommateurs will then interview other stakeholders, such as the Office de la protection des consommateurs, the Quebec Revenue Agency or the Canada Revenue Agency, financial institutions and Bell Canada. These interviews will enable Option consommateurs to assess the collection methods used or analysed by these organizations to validate their theoretical framework relating to client satisfaction and processing differences.
Interviews with consumers will be the culmination of the study and will enable the assessment of the effects of the two types of methods on their lives in general. Considering the large number of consumers who consult Option consommateurs every year, Option consommateurs has opted for one-on-one interviews. Approximately 30 individual budget consultation sessions will be held to learn about consumers' experiences with debt collection. The individuals will be selected at random from among the consumers who contact Option consommateurs and are dealing with debt collection. Lastly, Option consommateurs will summarize the data collected. A report will be prepared containing a certain number of recommendations intended to improve debt collection practices.
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