RegTech and the future of customer protection

Two recent Federal Court decisions effectively assume consumers can analyse contract fine print and assess their comparative contractual and statutory rights.

But in our digitised marketplaces, where service contracts can take up to nine hours to read, littered with technical language and obscure provisions in very fine print, it is becoming increasingly difficult for consumers to inform themselves of their rights.

This isn’t a problem for big corporations, who can employ armies of lawyers and compliance experts to vet contracts and ensure their business is complying with regulations.

But this kind of expertise is beyond the humble consumer. Or is it?

US banking giant JP Morgan is set to save a reported 360,000 hours of paid legal work a year by using an artificial intelligence program (AI) to vet its commercial loan agreements. Consumer-facing versions of artificial intelligence like this could, and should, radically level the playing field for consumers too.

The need for some consumer-facing AI has been highlighted by several recent cases, including the Australian Competition and Consumer Commission (ACCC) v LG Electronics Australia Pty Ltd, where the Federal Court rejected claims that retailer LG Electronics had mislead consumers about their possible rights through the structure of its webpage. The site had only referred to these rights at bottom of the page under the heading ‘other rights’ in small and closely spaced text.

This was followed by the case of the ACCC v Medibank, when the Federal Court held that Medibank has not misled consumers when it terminated or phased out certain gap payments previously covered by its insurance.

And it’s this information hidden in the fine print that is just one the ways consumers are disadvantaged.

Regulation technology – commonly referred to as RegTech – is the use of technology like AI and data analytics that allows firms, particularly in the finance sector, to meet regulatory and compliance requirements more efficiently. This technology is a potentially lucrative field for start-ups; like the Australian-based Redmarker’s AI system, Artemis, which has had success in the market aimed at assisting digital marketing compliance. And there are numerous other examples of RegTech systems using AI and data analytics to improve regulatory outcomes and monitor risk in financial organisations.

Online business Bet365 was recently reprimanded for misleading marketing – a rebuke that might have been avoided with the use of RegTech technology. While, online ticket reseller Viagogo is also facing similar claims from the ACCC .

This innovative technology is not merely allowing companies to meet their legal obligations through the path of least resistance – it might also place companies ahead of the law.

The internet’s own justice system Modria, which stands for Modular Online Dispute Resolution Implementation Assistant, evolved out of eBay and Paypal. It provides an online dispute resolution (ODR) system that keeps buyers and sellers out of court by mediating disputes with a largely automated system. And it’s the technological element that contributes most to its success.

By assisting parties to collect information, frame the dispute, formulate positions, and provide a timeline, ODR systems allow people to distance themselves from the outrage and find a solution.

Research has shown that buyers who had a problem with purchases on eBay but have then gone on to resolve these issues through the internal online dispute resolution system are likely to come back to shop at eBay. Even where they don’t get exactly what they expected from their purchase, the experience of going through a fair and fast dispute resolution process creates confidence and commitment that sustains loyalty and repeat purchases.

In China, Alibaba - the company behind online retail behemoths Taobao and Tmal - is partnering with Chinese provincial courts to provide a cyber court for consumer disputes. Currently the process involves a hearing before a claims manager, but a more integrated use of AI is on the horizon.

In this virtual court, customers can file a complaint, submit evidence, and get a ruling. The data encryption for the dispute resolution process occurs through Alibaba’s cloud network and a customer’s identity is verified through their Alipay account. This helps resolve another longstanding problem of trust ­– how do I know who I am dealing with? Enforcement can then be carried out through Alipay, Alibaba’s payment service, providing a seamless closing of the dispute resolution loop.

However, the ultimate aim of consumer law is to avoid disputes arising in the first place. And RegTech also has considerable potential to provide these kinds of solutions.

In a digital age, consumer contracts for the supply of services are increasingly the norm - whether it’s streaming music and videos, having flowers delivered or cloud storage bookkeeping. To get the full benefit from these kinds of service contracts, consumers need to remain aware and on top of their on-going obligations as well as their opportunities for changing suppliers or moving to better value bundles.

For example, when consumers enter a contract at a discount price, such as is often the case with energy or telecommunications services, at the end of the discount period customers will be automatically rolled into a more expensive contact unless they opt out. But in order to opt out they need to remember the crucial date for doing this without charge, and be aware of the alternative pricing and packages available to them.

The growth in the standards of digital design and AI systems should be able to help customers to navigate their contracts; identifying key terms and providing reminders of critical time periods are exactly the kind of tasks these new technologies are being used for at the top end of the corporate market. There is clearly scope for dynamic, creative and innovative ways for this technology to be applied in the consumer market as well.

And ultimately, it’s in the interests of companies to facilitate this. Businesses that take the information needs of their consumers seriously will be seen as building trust, and signalling a confidence in the quality of their own products.

It sounds a good pitch to me.

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