Armenia: Diagnostic Review of Consumer Protection

1. ARMENIA Diagnostic Review of Consumer Protection andFinancial LiteracyKey Findings and RecommendationsThe World BankTomáš Prouza October 2012, Yerevan

2. Preparation of the diagnostic review www.worldbank.org/consumerprotection • The World Bank analytical team: • analyzes market conduct laws and regulations • considers supervisory capacity • discusses business practices, including disclosure and advertising, with the regulator, the financial industry, consumer representatives and the media • examines dispute resolution mechanisms • looks at financial education activities • compares its finding to the World Bank's Good Practices for Financial Consumer Protection

3. Key findings: institutions www.worldbank.org/consumerprotection • Key findings in the institutional area: • the Consumer Protection and Market Conduct Division of the CBA has done a commendable job in setting the market conduct rules and procedures for their supervision as well as developing financial education initiatives • further support for the consumer protection team should ensure adequate capacity and effective further development • the CBA should be given modern supervisory tools, such as mystery shopping

4. Key findings: institutions II www.worldbank.org/consumerprotection • Key findings in the institutional area (cont.): • the Financial System Mediator is an effective out-of-court dispute resolution mechanism and should be made available to other consumer groups • consumer organizations need to be strengthened and play a more active role in the development of market rules, they should also deliver financial education messages and assist CBA in market monitoring • financial industry associations should be more involved in ensuring fair business practices, primarily through developing effective and enforceable codes of conduct

5. Key findings: disclosure I www.worldbank.org/consumerprotection • Disclosure could be improved to give clients sufficient facts to make informed decisions: • standardized Key Fact Statements should be developed to provide clients with clear, understandable, timely and comparable information • effective price or cost of financial products, using standard calculation methods, should be disclosed in all advertising, marketing and sales materials • understandability of disclosure, sales materials and statements should be regularly tested

6. Key findings: disclosure II www.worldbank.org/consumerprotection • Attention should be given to understandability and comparability: • contracts and conditions should be made easier to understand by unifying terms and definitions as well as by developing standard contract clauses • competition could be supported by tariff surveys that regularly monitor prices of key financial products • all contracts for deposit products and investments should clearly state whether the deposit/investment is guaranteed, to which amount and under which conditions

7. Key findings: disclosure III www.worldbank.org/consumerprotection • Recommendations related to consumer credit and credit reporting: • consumer credit disclosure rules should be extended also to credit products for sole entrepreneurs, micro- and small-size businesses • disclosure of credit reporting should be improved, including clear information about the impact of negative information and subject's rights to review and dispute credit history information • credit history should be complete – pawnshops should be required to provide data to the credit registry and the credit bureau

8. Key findings: business practices www.worldbank.org/consumerprotection • Business practices are hard to supervise: • advertising: efficient monitoring of local media is important, supervisory decisions on advertising must be fast • sales practices: oral representations are hard to monitor, mystery shopping by the supervisor and consumer NGOs should provide important insights • sales representatives: proper training, testing and licensing should be established

9. Key findings: business practices II www.worldbank.org/consumerprotection • Suitability and affordability of offered products should be ensured: • financial institutions should be required to offer only products that are suitable to consumer's needs • the "Know Your Customer" policy should require financial institutions to collect enough data about customers, their financial goals, risk profiles and portfolio to match offered products with their needs • the information collected (of which the customer should always receive a copy) should also be used in any complaint resolution or lawsuit to prove whether the product was sold properly and in line with the consumer's interest

10. Key findings: business practices III www.worldbank.org/consumerprotection • Customers should be given an opportunity to reconsider: • where technically feasible, a cooling-off period should be introducedto allow customers to revoke their contract without any penalty • customers should be notified in writing about changes in interest rate or other charges (except for variable interest rate products) at least two months in advance • consumers should be given a right to withdraw from a contract free of charge if interest rate or other charges are changed (except for variable interest rate products)

11. Key findings: dispute resolution www.worldbank.org/consumerprotection • Complaints are an important source of information and the access to dispute resolution should be expanded: • financial institutions should analyze complaints received and provide the analysis to the CBA • the Financial System Mediator should be made available also to sole entrepreneurs, micro- and small-size businesses • the outreach activities of the Mediator should be extended, the Mediator should analyze how effective is the compulsory disclosure about the service by financial institutions and how well it reaches various segments of the population

12. Key findings: financial literacy www.worldbank.org/consumerprotection • Coordination and evaluation are very important: • the important step of establishing the Steering Committee for the National Strategy for Financial Education has been taken • ensure that the strategy targets all relevant groups from children to pensioners and uses effective channels • use all available data, including the results of the 2012 World Bank Financial Literacy survey, to inform the work of the Steering Group and set goals for the financial education programs • establish evaluation mechanisms both for existing and new financial education programs and conduct regular evaluations, publish results and case studies

13. Further work of the World Bank in Armenia www.worldbank.org/consumerprotection • Based on the diagnostic review, the World Bank will: • prepare an Action Plan to implement proposed changes • support the development and implementation of the National Strategy for Financial Education • propose ways of strengthening the involvement of NGOs • conduct consumer testing of disclosure documents • assess the capacity of the CBA to undertake the new tasks • develop new supervisory tools for the CBA

14. ARMENIA Diagnostic Review of Consumer Protection andFinancial LiteracyKey Findings and RecommendationsTomáš Prouza, tomas@prouza.czConsultant, Advisory Group of the World Bank Global Program on Consumer Protection and Financial Literacy