Consumer Protection Developing Standards and Next Steps Lillian C. Diaz

1. Consumer Protection Developing Standards and Next Steps Lillian C. Diaz Lead Consultant, Network Strengthening Program The SEEP Network Tunis – May 2008

2. New World Bank Effort on Consumer Protection • In 2006, the World Bank started a pilot program to conduct • diagnostic reviews of consumer protection including financial • literacy. • To date, reviews have been conducted in Slovakia, Czech • Republic, Romania, Croatia and Azerbaijan. • Based on these review, Good Practices were developed.

3. Five areas of Good Practice

4. Legislative and Institutional Arrangements In Slovakia there is a single body responsible for consumer protection (Slovak Trade Inspection). In Azerbaijan there are at least three agencies responsible. • The law should provide for clear rules on consumer protection in the area of microfinance and there must be adequate institutional arrangements for implementation and enforcement of these rules. • There should be a principles-based Code of Conduct for Microfinance that is devised in consultation with the industries involved, and is monitored and enforced in the last resort by a statutory agency.

5. Customer Disclosure and Sales Practices • Customer disclosure and sales practices should be included in the Microfinance Code of Conduct and monitored by the supervisory authority. • Microfinance institutions serving in excess of 10,000 customers should be rated for their credit-worthiness and claims paying by internationally credible institutions. • The regulator or supervisor should publish annual public reports on the development, health, strength and penetration of the microfinance sector.

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7. Customer Account Handing and Maintenance • Customer account handling and maintenance practices should be included in the Microfinance Code of Conduct and monitored by the supervisory authority • Examples from model code: • Full disclosure in plain language • Effective or annual percentage rate • Two way lines of communication • Disclose all information to be shared with third parties and allow customers to opt out

8. Privacy and Data Protection • The law should require microfinance institutions to ensure that they protect the confidentiality and security of customer’s information, against any anticipated threats or hazards to the security or integrity of such information, and against unauthorized access to, or use of, customer information that could result in substantial harm or inconvenience to any customer. In Azerbaijan, the Law on Banks (Art. 41) specifies that bank secrecy applies to customer and correspondent accounts and deposits, information about existence of accounts, account transactions and balances, however, this law does not include many microfinance institutions which, therefore, have no secrecy requirement.

9. Dispute Resolution • A system should be in place that allows consumers to seek • third party recourse in the event they cannot resolve an • issue with the microfinance institution, which could be an • ombudsman or tribunal. In Azerbaijan, as in many countries, customers must use the court system to seek redress from a financial institution - a cumbersome process.

10. NEXT STEPS • The Good Practices are still in draft form • SEEP Consumer Protection Working Group vetting across all geographies • Your comments will help improve the Good Practices • Looking for additional countries to perform a consumer protection diagnostic - please let us know if you are interested!!

11. Thank you for your attention!