Quo Vadis, Financial Services Consumer?
Autumn has come, which means a new stage of parliamentary hardship for lawyers engaged in law making. Consideration of the essential draft laws on financial services consumer protection was postponed several times. I believe it is worth reminding our officials and members of the Parliament about the path to the fair and appropriate financial services consumer protection system. The information might also be helpful for the society. Only provided one knows civilized standards of his/her rights (and responsibilities) in the financial sector, he/she will be able, and has, to require the relevant culture of relations.
Widely recognized benchmarks in the area of financial services consumer protection are embedded in the international documents of such organizations as Group of Twenty (G20), OECD and the World Bank. Since these documents are relatively duplicative and quite detailed, let me provide you, for better perception, with the summary of the work performed. Each criterion is followed by the comment describing the respective situation in Ukraine.
Thus, international principles state the following:
• The law should provide clear consumer protection rules regarding financial products and services.
Widely recognized benchmarks in the area of financial services consumer protection are embedded in the international documents of such organizations as Group of Twenty (G20), OECD and the World Bank.
Unfortunately, this principle is not implemented in Ukraine. Not only are the provisions spread among general laws, which can hardly be applied to the financial sector (e.g. the Law “On Consumer Protection”), and specific laws, but also such provisions are either not clear or not secured by any enforcement measures.
• Prudential supervision and market conduct regulation can be placed in separate agencies or lodged in a single institution but an equal balance between prudential supervision and consumer protection is needed. It would be best if consumers could go to a single agency to obtain help related to financial services.
Although Ukrainian financial sector regulators de jure cover prudential supervision and B2C regulation, the function of consumer protection remains declarative. Thus, a consumer does not receive any resolution in case of a conflict except for being provided with an advice in response to his claim. The single policy and mechanisms to solve problems concerning overindebtedness, access to financial services, protection of vulnerable populations, etc. are missing. Let
The financial sector regulators’ function of consumer rights protection remains declarative.
alone the fact that consumers do not have a “one-stop-shop” to receive unbiased information or resolution.
• Simple and standard consumer disclosure would help consumers with complex financial products — and allow them to compare offers by different providers.
Ukraine lacks standard disclosure requirements related to similar products offered by different types by financial institutions. Not all the products are covered with disclosure requirements. Furthermore, they can be of different legal force (law, secondary legislation). It means that there is enough space for maneuvers to avoid compliance with the law. The requirements related to consumer lending are more or less standardized. At the same time, the situations of “failure to provide true/exact/timely information leading to purchasing of unsuitable/inappropriate services” are not monitored and sanctioned.
• For high-volume core retail financial products, the use of standard provisions in retail financial contracts (developed by the professional associations) is desirable.
There are no such standard contracts in Ukraine.
• Customers should be individually notified of changes in interest rates, fees, and charges as soon as practicably possible.
Regulators do not have a system to address violations related to consumer disclosure. As the rule, changes of interest rates, commissions, etc. are regulated by the contracts. Despite a prohibition set out in the Civil Code to change fixed interest rate under the credit unilaterally, the contracts are often composed in a way as if a consumer agrees to such a change in advance. The amount of commissions, as a rule, is defined by the internal documents of a bank, and the consumer is not notified individually when they are changed. In such a case, contracts should contain a common mechanism for notification at least through the financial institution’s web site. Regulators do not have a system to address violations related to consumer disclosure, and a consumer will most likely have to seek for the resolution in the court.
Regulators do not have a system to address violations related to consumer disclosure.
• Consumers should have access to an affordable and efficient mechanism for recourse, such as an independent financial ombudsman or equivalent institution with effective enforcement capacity.
As for today, out-of-court mechanisms for resolution of disputes between financial services consumers and providers do not exist in Ukraine. Industry-specific arbitration courts are not in demand or are not treated as reliable, whereas national mechanisms do not exist.
These are most fundamental principles. Let us equip ourselves with them and reinforce efforts in “breaking the rock”. International documents pay separate attention to institutional framework for financial services consumer protection, which will be addressed in my next column.
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