This project, conducted by Joana Farrajota, intends to evaluate the effectiveness of the Knowledge and Competence requirements imposed by the Mortgage Credit Directive on banking staff. In a world where the general population’s finance literacy – meaning, the knowledge of economics, finance and numeracy (and the ability to use it) – is still incredibly low, as concluded by the OECD/INFE 2020 International Survey of Adult Financial Literacy (where 74% of the adults questioned were unable to understand basic concepts such as “interest”), the banking staff, who directly interact with consumers, can be influential in their financial decision-making – being looked upon for informed advice.
However, such advice was not very well regulated before this Directive, as seen during the 2008 financial crisis. Therefore, the Mortgage Credit Directive aimed to compensate for such low finance literacy, by making sure banking staff are well informed on the topic of negotiating a mortgage credit agreement (“MCA”). It has tended to do so by setting a certain level of knowledge and competence, which staff must achieve, in order to provide their consumer advice in a responsible and impartial way.
The objective of this project is to understand how different ways of implementing this directive and its knowledge and competence criteria directly affect the staff’s financial literacy; and, consequently, to determine how compliance with such requirements can be even more effective in banks – in particular, in the context of negotiating a mortgage credit agreement. In practice, it aims to do so by researching the implementation of these requirements by selected banks in specific member states, questioning the knowledge of their staff on MCAs; and, after, comparing these results with the model of implementation settled by the respective member state.
In order to achieve such goal, a preliminary research was carried out by members of the research team, regarding possible gaps in Portuguese legislation and real cases of disputes between consumers and banking institutions. Also, online meetings were organized with specialists in statistical sciences and data evaluation, to determine the best research approach to be used; and with representatives from the PortugueseBanking Training Institute, to better understand the ongoing training process for staff at Portuguese banking institutions.
The conclusions this project will reach could be very important, not only in assessing if this Directive is actually effective in its objective of protecting consumers and bridging the gap between them and the economic world, but also, in assessing what more can be done, in the future, regarding other areas of financing.
Effectiveness of K&C Requirements for Staff Imposed by the Mortgage Credit Directive
