Sue Rutledge Regional Coordinator, Consumer Protection World Bank srutledge@worldbank

1. 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

2. Many countries have little access to finance and little experience with financial products Source: World Bank

3. Source: Unicredit Source: Unicredit In emerging markets, rapid income growth has provided consumers with more resources to invest

4. Rapid growth of household credit accompanied by greater difficulty to understand risks & obligations Source: Unicredit

5. Foreign ownership in the banking sector Globalization of financial markets has brought new challenges in financial consumer protection Source: Bankscope, WorldBank calculations Source: BIS, National Bank of Lithuania, Barclays Capital

6. Diagnostic Reviews in 9 Countries

7. 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

8. 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

9. Financial sector should provide consumers with: • Transparency: Clear and comparable information about prices, terms and conditions of financial products and services, all written in plain language • Choice: Non-coercive and reasonable practices in selling of products and collection of repayment • Redress: Inexpensive and speedy mechanisms to address complaints and resolve disputes • Privacy: Control over access to personal financial information

10. Good Practices cover 8 areas • Consumer protection institutions • Disclosure and sales practices • Customer account handling and maintenance • Privacy and data protection • Dispute resolution mechanisms • Guarantee and compensation schemes • Consumer empowerment and financial capability • Competition

11. 1. Consumer Protection Institutions • Clear consumer protection rules with necessary institutional arrangements • Balance between prudential supervision and consumer protection • Principles-based code of conduct for financial institutions • Licensing and supervision of legal entities that collect funds or lend funds to the public • Credible judicial system and active media and consumer associations

12. 2. Disclosure and Sales Practices • 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 pre-conditions 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

13. 3. Customer Account Handling and Maintenance • Financial institutions to prepare monthly statements regarding key details of financial transactions • Customers to be individually notified of changes in interest rates, fees, and charges as soon as possible. • Financial institutions to maintain up-to-date customer records and provide ready and free access to customers to their records • Clearing of customer transactions to be based on clear statutory and regulatory rules—or be subject to effective self-regulatory arrangements. • No financial institution—or third party—to employ abusive collection practices against customers

14. 4. Privacy and Data Protection • Rules of information-sharing within credit reporting system set by law • Basic consumer rights re information sharing, access, rectification, and blocking set by law • Financial firms to inform re use of customer information • Customers to have ready and free access to credit reports (minimum annually) • Financial firms to protect confidentiality and security of customer data • Credit bureaus to be subject to oversight with enforcement authority

15. 5. Dispute Resolution Mechanisms • Financial firms to have clear procedures for handling and maintaining records of complaints. • Consumer access to affordable and efficient mechanism for recourse. • Recourse mechanism to act impartially • Statistics of customer complaints to be published • Regulatory agencies to publish analyses of their activities on consumer protection—and propose measures to avoid sources of systemic complaints • Professional associations to analyze statistics and propose measures

16. 6. Guarantee Schemes and Insolvency • Regulator to have authority to take prompt corrective action in event of distress at a financial firm • Clear law on financial insurance or guarantee fund • If no insurance or guarantee fund, effective and timely payout mechanism if financial firm insolvent • Depositors to have higher priority than other unsecured creditors in liquidation of a financial firm • Expeditious, cost-effective and equitable provisions in law to ensure timely refund of deposits to depositors

17. 7. Consumer Empowerment – Financial Education • Teaching of basic financial concepts in schools • Regulators and associations to provide information to mass media to encourage analysis of financial products and services • Financial regulators to publish independent information on costs, risks and benefits of financial products and services • Non-governmental organizations encouraged to provide consumer awareness programs re personal finance • Surveys of financial capability (including consumer financial behavior) needed

18. 8. Competition • Financial regulators and competition authorities to consult with one another • Competition policy in financial services to consider impact of competition issues on consumer welfare, especially limits on choice • Competition authorities to publish periodic assessments of competition in retail financial institutions and make recommendations

19. 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)

20. For more information Published WB reports available at www.worldbank.org/eca/consumerprotection Comments on Good Practices can be sent to consumerprotection@worldbank.org

21. 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