consumer protection financial literacy sue
TRANSCRIPT
World Bank/International Monetary Fund/Federal Reserve SystemSeminar for Senior Bank Supervisors from Emerging Economies
Consumer Protection and Financial Literacy
Sue Rutledge, Coordinator World Bank Global Program
October 2010
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o Consumer rights awarenesso Financial institutions (or financial industry associations) could prepare
a simple, easy-to-understand brochure about the consumer's legal rights regarding remittances
o Consumer disclosureo Financial supervisory agency could ensure that comparable
information is made available to consumers
o For example, collecting from financial institutions their standard pricing for various types of remittances
o Data should be publicly available in newspapers and internet
Global Map of the Financially Included
Source: CGAP, Financial Access 20092
o Consumer protection in financial services is delivered through two mechanisms:
1. Consumer protection laws and regulations (including self-regulation)
2. Financial education for consumers and schoolchildren
o Consumer protection & financial literacy combines both.
What is Consumer Protection & Financial Literacy?
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o Core part of global financial regulatory agenda
o Insurance - consumer protection (CP) is one of core principles for insurance supervision (International Association of Insurance Supervisors)
o Securities – CP is one of core principles for securities regulation (International Organization of Securities Commissions)
o Private pensions - CP is one of main objectives of private pension supervision (International Organisation of Pensions Supervisors)
o Banking – CP is part of preconditions for banking supervision (Basel Committee)
o Payments – CP is part of General Principles for International Remittances Services (Bank for International Settlements/World Bank)
o CP is part of statutory objectives for many financial supervisory agencies e.g. United Kingdom, Ireland, Sweden, Colombia, Austria, Singapore, Kazakhstan
o Also part of financial inclusion agenda
o Alliance for Financial Inclusion argues that bringing unbanked into formal financial system presents risks. Without CPFL, financial institutions may use information imbalance to their advantage—and disadvantage of consumers.
How do Consumer Protection & Financial Literacy fit into Financial Sector Development?
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Increased Households’ Financial Risk
Source: European Credit Research Institute, Central Bank of Azerbaijan
0
20
40
60
80
100
120
Average annual growth rates of household credit(%, average 2003‐2008)
Source: Unicredit
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Key Issues to Improve Consumer Protection
Consumer Disclosure
Business Practices
Consumer Redress
Financial Literacy
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o Simple, easy to understand & comparable consumer information
o Easy price comparisons
o Key facts statements or glossaries of financial terms
o Mystery shoppers
Consumer Disclosure
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Comparison Shopping helped Consumers in Peru
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o Cooling-off periods for high-pressure sales
o Standardized training for retail sales personnel
o Standard contract provisions
o Regulation of intermediaries
o Licensing of debt collectors
o Investigation of financial frauds
o Self-regulatory codes of conduct
Business Practices
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Insights from Country StudiesWho is responsible for business conduct
supervision?
Country Financial Supervisory Agency Depends on Financial Service
Azerbaijan X
Bulgaria X
Croatia X
Czech Republic X
Latvia X
Lithuania X
Romania X
Russia X
Slovakia X
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o Designated complaints contact point in each financial institution
o One central location for submitting complaints about financial services
o Statutory ombudsman or industry association ombudsman?
o Published analysis of types and trends of complaintso “It isn’t legal”
o “It isn’t fair”
o “I don’t understand”
Recourse Mechanisms
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Out of Court Dispute Resolution Mechanisms
Country Out of Court Dispute Resolution System
Azerbaijan None
Bulgaria Conciliation Committees
Croatia Mediation Centers
Czech Republic
Financial Arbiter (payments services only but beingexpanded)
Latvia Banking Association Ombudsman (payment services only)
Insurance Ombudsman (property and motor insurance only)
Arbitration Courts
Lithuania Consumer protection agency (payment services only)
Romania None
Russia Small Courts
Slovakia Arbitration Court (banking sector)
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o Surveys of households re financial literacy, consumer behavior & consumer confidence
o Financial education at “teachable moments” when consumers want it
o Teaching good financial habits for young children
o Helping consumers avoid financial traps
Financial Literacy
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Financial Education
Country Financial Education Program
Azerbaijan National financial education program under preparation
Bulgaria Awareness campaign for pensions only
Croatia Awareness campaign for pensions only
National financial education program under preparation
Czech Republic None
Latvia None
Lithuania Financial education program in schools only
Romania Awareness campaign for pensions only
Russia National financial education program under preparation
Slovakia Awareness campaign for pensions only
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Solutions involve many Stakeholders
protection, education)
GOVERNMENT• Ministries (e.g. Finance, Economy, Education)• General agencies (e.g. consumer protection, data protection, competition)• Councils (e.g. consumer protection, education) • Compensation schemes
GOVERNMENT –Financial Sector
• Central Bank• Financial supervisory agencies• Financial consumer protection agency• Compensation schemes
INTERNATIONAL COMMUNITY
• Donors• Regional organizations• Standard setters• International associations
REDRESS MECHANISMS• Ombudsman• Arbitration• Mediation, conciliation• Courts
CIVIL SOCIETY• Consumer associations• Debt counseling • Foundations• Academia• Media
FINANCIAL INDUSTRY
securities, credit bureaus)
FINANCIAL INDUSTRY• Industry associations• Training centers• Financial institutions (incl. distributors)• Financial market infrastructure (e.g. securities, credit bureaus)
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What Stakeholders Say
Russia, Banking Association“The depth and breadth of the World Bank’s Diagnostic Review are unsurpassed.”
Russia, Consumer Protection Service“The Review will contribute to our national dialogue on consumer protection in financial services.”
Slovakia, Ministry of Finance“This is exactly the kind of work that should be done to help client countries.”
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And Keep Saying
Lithuania, State Consumer Rights Protection Authority: “This work is an important step in enhancing financial consumer protection, which is very relevant for Lithuanian consumers facing financial difficulties.”
EU Commissioner for Consumer Affairs:“We owe the World Bank a debt of gratitude for this excellent report they have produced on Bulgaria.”
FinCoNet: “This is the first time that anyone has written down in one place all the best international practices on financial consumer protection.”
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World Bank Consumer Protection & Financial Literacy Program
Household Survey of Financial Literacy & Consumer Behavior Action Plan to
Implement Recommendations
Diagnostic Review of Legal &
Regulatory Framework
Implementation Program
12 months - $100k
3 months - $40k
3 months - $40k 3–6 months - $100k
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o 4 Household Surveys -- Azerbaijan, Bulgaria, Romania & Russia
o 11 Diagnostic Reviews -- Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Kazakhstan, Latvia, Lithuania, Romania, Russian Federation & Slovakia
o 2 Action Plans-- Azerbaijan & Latvia
o 2 Implementation Programs – Russia & Azerbaijan
o Good Practice Benchmarks -- Detailed provisions on CPFL in banking, securities, insurance, private pensions & credit reporting
o Working Paper on Lessons Learned – top downloaded paper on ssrn.com
o Website with published reports www.worldbank.org/eca/consumerprotection
Country Programs to Date
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Expression of Interest Worldwide
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World Bank/International Monetary Fund/Federal Reserve SystemSeminar for Senior Bank Supervisors from Emerging Economies
Consumer Protection and Financial Literacy
Sue Rutledge, Coordinator World Bank Global Program
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