ECRI Seminar
Good Practices of Consumer
Protection in Financial Services
Brussels, 16 October 2008
Sue Rutledge
Regional Coordinator, Consumer Protection
World Bank
srutledge@worldbank.org
WORLD BANK
Many countries have little access to finance and
little experience with financial products
Source: World Bank
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2
In emerging markets, rapid income growth has
provided consumers with more resources to invest
Source: Unicredit
Source: Unicredit
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3
Rapid growth of household credit accompanied by
greater difficulty to understand risks & obligations
Source: Unicredit
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4
Globalization of financial markets has brought
new challenges in financial consumer protection
Share of Swedish and Austrian banks in loan portfolios (2005)
Foreign ownership in the banking sector
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
85%
69%
48%
51%
36%
31% 31%
23%
10%
0%
ia
ot n
s
E
0%
ia
tv
a
L
0%
0%
0%
0%
0%
0%
7%
0%
.
a
a
ia
a
ry
ria
ki
n
ni
ni
ep
a
a
a
a
a
e
g
R
g
v
u
v
ul
lo
om
un
th
lo
ch
B
S
R
H
S
e
Li
z
C
Share of Sw edish banks (2005)
5%3%
0%
nd
tia
lo a
or a
P
C
Share of Austrian banks (2005)
Source: Bankscope, WorldBank calculations
Source: BIS, National Bank of Lithuania, Barclays Capital
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Diagnostic Reviews in 9 Countries
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Good Practices: Diagnostic Tool


Good Practices released
as Consultative Draft
Prepared for 4 segments:





banking
securities
insurance
non-bank credit
institutions
Other areas:



private pensions
credit reporting systems
financial capability
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Good Practices were developed using
international benchmarks









European Union Directives
Bank for International Settlements, Basel Committee
International Organization of Securities Commissions
International Association of Insurance Supervisors
Organisation for Economic Co-operation and Development
United Nations
Laws and regulations of EU Member States (ex, France, Ireland, UK)
Laws and regulations of Australia, Canada, Malaysia, Mexico, Peru,
South Africa, United States (FTC, SEC, state laws)
Codes of conduct of associations of banking, insurance, other
segments
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Financial sector should provide
consumers with:
1)
Transparency: Clear and comparable information
about prices, terms and conditions of financial
products and services, all written in plain language
2)
Choice: Non-coercive and reasonable practices in
selling of products and collection of repayment
3)
Redress: Inexpensive and speedy mechanisms to
address complaints and resolve disputes
4)
Privacy: Control over access to personal financial
information
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Good Practices cover 8 areas
1)
Consumer protection institutions
2)
Disclosure and sales practices
3)
Customer account handling and maintenance
4)
Privacy and data protection
5)
Dispute resolution mechanisms
6)
Guarantee and compensation schemes
7)
Consumer empowerment and financial capability
8)
Competition
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1. Consumer Protection Institutions
a)
Clear consumer protection rules with necessary
institutional arrangements
b)
Balance between prudential supervision and consumer
protection
c)
Principles-based code of conduct for financial institutions
d)
Licensing and supervision of legal entities that collect funds
or lend funds to the public
e)
Credible judicial system and active media and consumer
associations
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2. Disclosure and Sales Practices
a)
b)
c)
d)
e)
f)
g)
h)
Written copy of general and product-specific terms and conditions
Key Facts Statement in plain language of key terms and conditions
Financial firms to gather information to ensure product or service is
appropriate
Cooling-off periods for products with savings components—or
subject to high-pressure sales practices
Borrower can choose the provider for products that are preconditions for other products
In advertising, financial institutions to disclose that they are
regulated and by which regulatory agency
Staff of financial institutions to receive training suitable for
complexity of products or services
Professional associations to prepare standard simple format for
financial firms to disclose annual financial results
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3. Customer Account Handling and
Maintenance
a)
Financial institutions to prepare monthly statements regarding
key details of financial transactions
b)
Customers to be individually notified of changes in interest
rates, fees, and charges as soon as possible.
c)
Financial institutions to maintain up-to-date customer records
and provide ready and free access to customers to their
records
d)
Clearing of customer transactions to be based on clear
statutory and regulatory rules—or be subject to effective selfregulatory arrangements.
e)
No financial institution—or third party—to employ abusive
collection practices against customers
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4. Privacy and Data Protection
a)
Rules of information-sharing within credit reporting
system set by law
b)
Basic consumer rights re information sharing, access,
rectification, and blocking set by law
c)
Financial firms to inform re use of customer information
d)
Customers to have ready and free access to credit
reports (minimum annually)
e)
Financial firms to protect confidentiality and security of
customer data
f)
Credit bureaus to be subject to oversight with
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enforcement authority
14
5. Dispute Resolution Mechanisms
a)
Financial firms to have clear procedures for handling
and maintaining records of complaints.
b)
Consumer access to affordable and efficient mechanism
for recourse.
c)
Recourse mechanism to act impartially
d)
Statistics of customer complaints to be published
e)
Regulatory agencies to publish analyses of their
activities on consumer protection—and propose
measures to avoid sources of systemic complaints
f)
Professional associations to analyze statistics and
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propose measures
15
6. Guarantee Schemes and Insolvency
a)
Regulator to have authority to take prompt corrective
action in event of distress at a financial firm
b)
Clear law on financial insurance or guarantee fund
c)
If no insurance or guarantee fund, effective and timely
payout mechanism if financial firm insolvent
d)
Depositors to have higher priority than other unsecured
creditors in liquidation of a financial firm
e)
Expeditious, cost-effective and equitable provisions in
law to ensure timely refund of deposits to depositors
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7. Consumer Empowerment –
Financial Education
a)
Teaching of basic financial concepts in schools
b)
Regulators and associations to provide information to
mass media to encourage analysis of financial products
and services
c)
Financial regulators to publish independent information
on costs, risks and benefits of financial products and
services
d)
Non-governmental organizations encouraged to provide
consumer awareness programs re personal finance
e)
Surveys of financial capability (including consumer
financial behavior) needed
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8. Competition
a)
Financial regulators and competition authorities to
consult with one another
b)
Competition policy in financial services to consider
impact of competition issues on consumer welfare,
especially limits on choice
c)
Competition authorities to publish periodic assessments
of competition in retail financial institutions and make
recommendations
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Future Work

Feedback and comment sought from regulators and other
stakeholders

Diagnostic reviews in other countries and other regions

Development of tools to prioritize recommendations

Cross-country surveys on:

Legal and regulatory frameworks for financial
consumer protection

Levels of financial literacy and common patterns of
financial consumer behavior (financial capability)
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For more information
Published WB reports available at
www.worldbank.org/eca/consumerprotection
Comments on Good Practices can be sent to
consumerprotection@worldbank.org
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ECRI Seminar
Good Practices of Consumer
Protection in Financial Services
Brussels, 16 October 2008
Sue Rutledge
Regional Coordinator, Consumer Protection
World Bank
srutledge@worldbank.org
WORLD BANK