Amanda Long: how our G20 campaign is improving financial consumer protection

This weekend marks a significant moment in Consumers International’s advocacy and campaigning on financial consumer protection. CI Director General, Amanda Long, explains.

The financial crash in 2008 highlighted the appalling way that consumers of financial services were being treated by the banks, not just in the major economies but around the world. 

Unfair contracts, hidden fees and charges, putting profit before basic consumer protections. For developing countries this was a serious concern as tens of millions of consumers were joining the market for financial services for the first time. CI members had been reporting this for years, but it was the financial crash that made it global headline news. 

However, when the crash came it was the stability of the banks that received the attention of world leaders. It was not until CI and our members launched our campaign in 2010 that consumer issues were addressed.

Jump forward to November 2014, and the report on the latest international developments in financial consumer protection that G20 Finance Ministers and leaders will receive this weekend. It marks a major change in international efforts to support a better deal for consumers. 

There are now a set of High Level Principles on Financial Consumer protection and a full set of ‘effective approaches’ to support their implementation. A first peer review of implementation is also in progress. FinCoNet (the international network for financial supervisors) is now a formal organization with staff, members and a work plan, and the Financial Stability Board has acknowledged the link between consumer protection and stability of the sector. 

We have travelled a long road to get here.

When CI launched our campaign in 2010 we made a global call for G20 leaders to take action  to strengthen financial consumer protection. Specifically we called for minimum standards relating to:

• Fair contract terms and charges for financial products and services.
• Information design and disclosure on financial products.
• The governance and functions of national financial consumer protection bodies.

In addition we called on the G20 to make recommendations for:

• The promotion of effective competition in markets for financial consumer services.
• The development of a permanent organisation for international standard-setting and coordination with regard to financial consumer protection. 

Four years later significant progress has been made, quite an achievement at the international level. 

The G20 and OECD have agreed the ten High Level Principles and a set of effective approaches to support their implementation. And we will shortly see how that work translates into action for consumers as the first voluntary peer review is underway, with the Central Bank of Ireland becoming the first financial conduct authority to be reviewed. The Netherlands Authority for the Financial Markets (AFM) is undertaking that assessment.

And in relation to another of CI’s demands, FinCoNet, the international network for financial consumer protection, is now a formal organisation with a strong membership and a good work plan including areas that CI has championed, including responsible lending and mobile payments. 

Inclusive engagement by FinCoNet means that CI is an official observer to the network we are have been able to push for greater consumer protections by demonstrating consumer detriment in irresponsible lending and sales incentives.

Of course CI still wants to see much more effective consumer protection nationally and providers changing their policies and practices so the market offers products and services that are safe, fair and appropriate for consumers needs. This is a big challenge but one that consumer organizations are committed to delivering.

Whilst there is still much more to be done (and we may never be able to say that this work is complete) it is important to recognise that none of the international architecture was in place when CI launched its campaign in 2010.

Argentina: A Nietzschean approach to financial services

CI consumer justice expert Antonino Serra Cambaceres explains more about his findings on financial services in Argentina which have been published in our Responsible Lending report.

Frederick Nietzsche, the great German philosopher, taught about something he called the “eternal return” or “eternal recurrence”, meaning that the universe has been recurring and it will continue to recur, showing that time is not linear but cyclical.

It means, in practical terms – and for the peasants – that what has happened will happen again. Humans are the only ones that trip over the same stone, not learning from our mistakes.

This theory fits perfectly with Argentina’s economy and financial matters.

Throughout its history, the country has tripped over the same economic problems - causing  tremendous impacts on consumers.

Twelve years ago, one of the worst economic crises hit Argentina and now, economic indicators and financial instability is crushing the economy again.

In the chapter on Argentina in CI’s publication ‘Responsible Lending: An international landscape’ we show how the ups and downs in the country’s financial history has damaged consumer confidence and consumers’ daily lives.

It recounts periods where there was an explosion of consumption fever pumped by the government, to more recent times where credit cards were being used to pay for basic items such as food or public services.

In this latest scenario, lenders are setting interest rates for credit higher and higher, and consumers are paying more for their – now more common – undue balances, putting families closer to over indebtedness and threatening their futures. In the meantime, bank revenues grew to new records.

So, it seems, the eternal recurrence that has characterised the Argentine economic and financial situations, is here to stay; as we say in the chapter, more Argentines are wondering if they ‘can pay their Visa bill with their Mastercard’.

More formalised FinCoNet to fight for consumers' interests

I have just returned from lovely Lisbon fresh from the International Financial Consumer Protection Organisation (FinCoNet) Annual meeting where consumer financial protection was the order of the day, says CI's financial services expert Nicola O'Reilly.

And in news hot off the press, we will see a more formalised FinCoNet.

Consumers International, joined by Joao Fernandes from our Portuguese Member Deco Proteste, participated in the meeting as an observer and welcomed interest on our work around responsible lending and mobile payments.

So, what was the main business discussed among the financial supervisors and international organisations?

Well, as you would expect some time was taken to discuss how the organisation would be established.

FinCoNet now has a Governing Council and a Chair,  Bernard Sheridan, the Director of Consumer Protection at the Central Bank of Ireland, and soon to be CI webinar star.

The organisation will also be building its communications tools and membership on an ongoing basis.

It was confirmed that FinCoNet’s work will be done by its members, although it is set to have a small secretariat based at the OECD in Paris – once the agreements are finalised and the paperwork is completed.

The road and the work ahead remains unchanged from the FinCoNet workplan set out at its tenth meeting in London, with working groups focused on Supervisory Institutional Arrangements and Responsible Lending.

A report on responsible lending is due by the end of March next year.

This work will form the basis of recommendations to the G20 summit in Australia in 2014.

CI will run an open webinar on 4 December for an update on what’s happening with FinCoNet and the G20/OECD taskforce at 3pm GMT – details will be on our website soon.

Other consumer protection issues discussed included bank bundling and tying clauses, distorting incentives (a matter CI will be pursuing in 2014), and regulation of electronic banking and payments (CI is already on the case with this one by inputting into the ISO standard on mobile payments and OECD guidelines.

So, a final thought… following an interesting couple of days work, I joined 63,999 others at the Stadium de Luz for Portugal versus Sweden (Portugal won 1-0),  which, at least on the night, represented progress for Portugal on the bumpy road to Brazil for the World Cup in June 2014.

The second leg is on 19 November so we will have to see what happens then.

But what of Consumer’s progress on the road to the G20 in Australia? Well, we will have to wait and see what the first and second working groups can do to make it a road worth travelling.

How has consumer credit lending changed since the 2008 financial crash?

The financial catastrophe in 2008 served as a rather rude awakening that there were some serious problems with the global financial system, blogs CI's Global Programme Manager for Financial Services Nicola O'Reilly.

Irresponsible lending was one of the key factors in the perfect storm that led to the financial collapse (remember the Fannie Mae and Freddie Mac high risk loans that went bad in the USA?).

So, logically and responsibly, in order to protect the financial system, and of course consumers, we (government, consumers, financial service providers and regulators) all changed what we were doing, strengthening our systems, policies and practices. We behaved more responsibly to make certain we don’t head down that road again.

This is what happened, right? So, no need to panic then...

Well, just to check, CI has asked its Members what is going on at the sharp end in consumer credit and debt.  It would seem that all is not quite as responsible a picture as might be expected – logically speaking.

Delve into our report for a revealing snapshot of what is really happening with credit and debt and current lending practices and policies around the world.

In this report, our Members paint a challenging and, in one or two instances, a more hopeful picture from the consumer perspective on what needs to change to ensure a consumer friendly, responsible and stable credit market. It seems we are not there yet.

The report illustrates common themes and raises a number of red flags with questionable practices by providers such as lack of transparency, ineffective regulation, enforcement failure and significant conflicts in public policy which leave both consumers and the sustainability of the market vulnerable.

The report includes practical recommendations for governments, regulators, providers and other players in the credit market on how to move to a more responsible, and therefore, a more stable and sustainable market by increasing consumer protection and minimising nasty surprises for everyone.

From over indebtedness and debt relief, to student loans, mortgages and payday lending, the report includes case studies on a wide range of credit issues.

The country case studies are Argentina, Australia, Belgium, Fiji, Greece, India, Italy, Malaysia, Russia, Slovenia, South Africa, Uganda, United Kingdom, and the US.

Who is fairing best? Where have we uncovered those flags? Have a look inside, you decide...

The report, Responsible Lending: An international landscape , can be viewed on the CI website.

What should the G20’s priorities be on financial services in 2013?

CI’s Justin Macmullan sets out three challenges for the G20 finance ministers ahead of their meeting on 14 February.

Five years ago, at the 2008 G20 meeting in Washington, the assembled leaders announced that, from then on, they would ensure that “all financial markets, products and participants would be regulated or subject to oversight, as appropriate to their circumstances.”

In the immediate aftermath of the financial crisis, it was a dramatic admission that financial markets are too important and too volatile to be left to their own devices.

However it was not until 2010 (and after a widely supported campaign by CI and our members) that the G20 turned their attention to the regulation and supervision of consumer financial services. In no small part this was due to recognition that these services also have an impact on financial stability.

Click here to see a bigger version of the graphic on the right. 

That recognition set in train two important pieces of work.

Firstly, a report from the Financial Stability Board (FSB) underlined the link between financial consumer protection and financial stability and made three proposals – the establishment of a new international body for financial supervisors, work on institutional arrangements for national supervisors and regulators, and strengthening of the tools available to supervisors.

Secondly, the development by a G20/OECD taskforce of a set of high level principles for financial consumer protection which are now being further developed through ‘effective approaches’ for their implementation.

Consumers International played an important part in these developments, campaigning for the work to begin and contributing to the work of the FSB and G20 / OECD taskforce through the development of our own CI recommendations to the G20, detailed responses to written drafts and consultations with members.

So, five years on from the G20’s commitment that “all financial markets, products and participants would be regulated or subject to oversight, as appropriate to their circumstances”, what remains to be done at the international level to ensure consumers of financial services are properly protected?

CI would suggest three broad priorities for this year.

Firstly, the G20 must ensure that the work they have started is completed with haste. Banking scandals continue to undermine consumers trust in financial service providers and in the midst of reforms in several countries it is important that governments and regulators have clear guidance from internationally agreed standards.

However there has been a worrying loss of momentum over the last few months, particularly in comparison to the progress made during 2011.

Therefore it’s important that all G20 countries now contribute the necessary time and resources to ensure that the international commitments they have made are met quickly and according to a clear timetable.

Secondly, alongside accountability for the commitments the G20 have made, there should also be transparency.

An open and modern process should be a given, but if you look for information about the work that is being done by the G20 on financial consumer protection - it is hard, if not impossible, to find.

Greater transparency will not only lead to better results but will also help to push the process forward as more national agencies and organisations are aware of what is being done.

Finally, this is important work and should not end when the papers are written and the reports sent out to national capitals.

The G20 have committed to implement the financial consumer protection principles in their jurisdictions and this should be monitored through a peer review process that will demonstrate impact and enable all countries to continue to learn lessons from what has been done.

Of course this is by no means all that needs to be done. Real challenges remain in the design and implementation of policies at the national level, but if these international processes move along at pace and deliver strong results, they can provide the support that is needed for this urgent national work.

Consumer protection must be at the center of rebuilding our economies

Ira Rheingold, Executive Director of the National Association of Consumer Advocates (NACA), outlines how to create fair and just consumer-centric financial regulation.

For the past five years, the European Union and the United States have faced their greatest collective economic crisis since the Great Depression.

Failing banks, mountainous debt, minimal consumer savings and disastrous unemployment rates threaten all of our countries’ immediate and long-term financial well-being.

How we respond to this crisis and how we apply the lessons we should have learned from our own culpability in allowing this to happen, will go a long way in determining whether the EU and the US can regain their moral and financial standing in the world.

As we tackle this difficult challenge, I believe that it's essential that the needs and voices of ordinary consumers be put at the forefront of our decision making. This clearly has not been the case recently and we're paying the price for it right now.

As someone who has worked as a consumer advocate for the past two decades, our current crisis came as no surprise to me or my colleagues. It has been clear to us, since the late 1990s, that many of our nation’s big institutions had lost their way.

We watched our economies grow dependent on consumer debt, while simultaneously encouraging the reduction of those very same consumers' real income and savings. We watched as big banks recklessly disregarded the needs of consumers and investors, as well as their own long-term safety and soundness, for immediate and irresponsible profits.

And as we watched this happening, consumer advocates warned our governments, in their race to "deregulate" and "harmonize", that their failure to rein in this thoughtless and dangerous behaviour and to properly protect their nation's consumers would lead to our collective financial ruin.

But consumer voices were ignored and that's exactly what we watched happen.

What should be clear to everyone by now is that the central blame for the breakdown of our economies ultimately lies with the dishonest and unfair banking practices of the worlds’ largest financial institutions.

The lending these multi-national companies created and funded, with ridiculously complex and opaque financial instruments, were negligibly underwritten, unsuitable and unsustainable for borrowers, arranged by persons not bound to act in the best interest of the borrower, and were filled with terms so complex that many individual consumers (and investors) had little opportunity to fully understand the nature or magnitude of the risks they were taking.

If our governments had put the needs of ordinary consumers first and foremost and provided effective protections that had truly punished institutions engaged in these practices, much of our current economic disaster could have been averted.

Unfortunately they did not and unfair and deceptive practices prospered. Simply, when financial institutions do a cost-benefit analysis of regulation and determine that unfair and deceptive practices will not only go unpunished, but will be rewarded, than those practices will ultimately become standard industry behavior.

So how do we create a fair and just consumer-centric regulatory scheme?

First, it is essential that we allow all levels of government to participate in the development of consumer protection regulation. On the international level, because much of the financial services industry operates cross-border, these companies must be monitored trans-nationally, as their behaviour carries risks into every market in which they do business.

Additionally, while it is important that we create international standards of financial service industry behaviour, these standards (and the desire for international harmonisation) must not stymie early action or stronger standards by individual nations.

Conversely, it is equally essential that international regulators not allow these institutions to avoid one country’s stricter regulation by “exporting” their home countries more lax regulation thus leading to a competitive race to the bottom among countries seeking to attract corporate headquarters.

Second, on the national level, where much of the rgulatory failure occurred, consumer protection law must be seen as an essential part of creating a robust and sustainable marketplace and economy. Simply, for our economies to function properly, the financial services market must be built and structured from the consumers' perspective.

Transparency, substantive restrictions, effective and robust enforcement and sufficient consumer consultation rights must be built into a well-managed and well-regulated financial services structure.

Finally, in developing these viable and effective consumer protection schemes, national governments must allow for a strong concurrent and complementary role for provincial or state government regulators. These more local governments can provide needed early enforcement of existing standards and also develop new standards to address emerging practices before they cause widespread consumer harm or systemic risk.

State and provincial legislatures are often in a unique position to spot and stop bad practices before they become universal. To ensure rapid and appropriate responses to abuses in the financial credit markets, consumer protection and regulation of financial institutions must be allowed at all levels of government.

Our current financial crisis need not have happened and it need not ever happen again. We must always remember that in our ever-more complex and inter-related world, the motivation and interests of financial institutions often conflict with the general well-being of ordinary consumers and the long-term economic soundness of our nations.

Only with a carefully constructed and multi-governmental regulatory scheme that places consumers and consumer protection at its center, will we have a fair and honest local and global marketplace that is safe and stable and not subject to another bad-behaving, corporate-driven financial meltdown.

Ira Rheingold is also co-chair of the Trans Atlantic Consumer Dialogue (TACD) Financial Services group, a CI-facilitated network of EU and North America consumer organisations.

4 problems with (and 5 answers to) financial consumer protection in Kenya

Michael Okumu from CI member organisation YEN, Kenya, advises consumers to educate themselves about a bank’s products and services before they sign up.

Ignorance is truly a fatal disease that increases consumers’ vulnerability. Uneducated consumers buy products and services that do not meet their expectations and then quietly, or never, complain.

On 15 March, the world celebrated World Consumer Rights Day, a day dedicated to highlighting the importance of consumers exercising their rights and responsibilities.

In Kenya, consumer protection is still non-existent with very few mechanisms of redress and a pervasive lack of knowledge of one’s rights as a consumer. This can be compounded by gaps in service delivery by dishonest service providers.

And banks are no exception. Often, consumers don’t get the best deal from a bank and do not respond effectively when this happens.

Here are some of the biggest problems for financial consumers in Africa:

1. Accessibility

Accessibility is a real problem in Africa as consumers often have to travel long distances from rural areas to get a specific service. The introduction of deposit-taking shops has eased the problem slightly but they do not address all the issues relating to accessibility.

2. Lack of ATMs

ATMs are not available everywhere, denying people access to their money and causing consumers to have to pay additional fees for drawing money from ATMs other than those their bank provides. Banks need to be more innovative to provide affordable services for all, everywhere.

3. Hidden fees

Hidden fees are another problem. Taking out loans or enjoying certain services requires close scrutiny by consumers because, in the long run, the high interest rates add up and many consumers are unaware of this at the onset.

4. Low interest

Low interest on savings is another problem still. Some consumers will question whether it is worth saving in a bank if the interest rates are so minimal. Mobile phone services provide an alternative to saving money in a bank as there are no ledger fees, account opening fees, balance statement fees, etc, but there is also no interest.

Consumers need to empower themselves by seeking information and education on their rights and responsibilities. Consumers International is helping consumer groups in East Africa educate consumers about financial services and products with its financial education counselling handbook.

Here are some tips on how to protect yourself:

1. Court your bank

When choosing a bank, consumers need to have a ‘courtship’ period. Gathering background information about a bank is very important because it gives you an idea about the bank’s character in terms of stability, reputation, social responsibility and potential. All of these are key for consumers not only to make good choices but to protect themselves from any eventualities.

2. Evaluate offers closely

Consumers need to keenly evaluate exciting offers and take them up only if they suit them. Consulting with friends or financial advisors would be an added advantage in ensuring that you pick the best financial product or service.

3. Avoid banks you aren’t sure about

It is also prudent to avoid adversely-named banks that could have evaded taxes or banks with a high turnover of staff as this could signal board wrangles, theft or mistreated staff.

4. Avoid downsizing banks

Also avoid banks that could be reducing their networks. They often do not warn their customers that they are doing this.

5. Ask about the complaints desk

A good bank should have a receptive complaints desk with an elaborate mechanism of redress that is accessible and responsive.

Consumers in Kenya should exercise their rights, keeping in mind that the new constitution provides protection as we wait for the Consumer Protection Bill to be passed which will further harness consumer rights and responsibilities.

And remember—if your bank only looks good in the advertising, then look for an alternative rather than ending up in a relationship that doesn’t work.