The 2008 Global Financial Crisis was caused not so much by a failure in prudential regulation but rather by a failure in market conduct regulation. Flexible supervision of financial institutions allowed bad business to be conducted and greed was unabated which resulted in spectacular financial collapse. This hurt consumers and many institutions to their core.
Financial Consumer Protection (FCP) is critical for both the customers and service providers. FSP is increasingly becoming a key priority for policymakers around the world, since it plays a major role towards healthy development of the financial sector, financial inclusion, and broader economic growth. The financial well-being of society is closely linked to economic growth. No state wishes to be left behind. The financial services sector presents a myriad of particularities which require slightly different treatment of consumers and thus, consumer protection needs to be in a fashion that is cognizant of these dynamics, with consideration of developments within the financial sector such as digital financial services and the borderless world, where goods and services cross borders unabated.
Over the past years, many low-income countries have undergone extensive financial reforms. Despite these reforms, in the financial sectors, many households and enterprises, especially in Africa, are still unable to participate in the sector. While it is well known that financial institutions and markets can help induce economic growth, it is much less clear how financial development can become inclusive and kick start a process of sustainable economic growth with a positive effect on the poor. Financial inclusion and Consumer Protection play a critical role in this regard. Policy makers have become more aware of the importance of strengthening and prioritizing consumer protection and financial literacy (CPFL) frameworks and campaigns1. These efforts aim, amongst others, to not only protect the population from unscrupulous providers of financial services, but also to “protect consumers from themselves”.
The World Bank as well and the United Nations Conference on Trade and Development (UNCTAD) remain committed to promoting Financial Consumer Protection.
At the continental level, the African Continental Free Trade Area (AfCTA) established by the African Union is a key development for Africa as critical tool to boost trade and economic growth and strengthen integration among African countries milestones for development. One main objective of the AfCTA is to eliminate tariffs on intra-African trade in goods and services. Financial services remain central to this objective. In light of this, AfCTA recognises the critical role of consumer protection and notes that in order to ensure a smooth transition during trade liberalization, complementary policies such as consumer protection and competition policies need to be put in place. In recent times, Heads of State and leaders have warned against predatory lending.
Gender also plays a critical role in financial services, as such it remains a critical element in this context. The need for responsible finance remains central, particularly considering various global, continental and national developments. Fair and transparent treatment of customers is not always recognized, and lack of financial capability is still being exploited. In many cases, women are at the receiving end due to various reasons including lack of financial literacy and lack of policies, regulation or enforcement thereof. The providers of financial services need to realise that there are advantages for them from an informed customer decision.
Although a lot is being done towards Financial Consumer Protection globally, there is a lot to be done in particular in Africa. Progress has been made with only a few countries that have policies in place, whereas others are in the process of developing a national strategy on financial consumer protection, yet others are lagging behind. South Africa, Tanzania, Nigeria, Malawi and Zimbabwe, to mention a few, have made great trends towards these policies. President Uhuru Kenyatta was recently quoted in advising the Central Bank of that country to prevent predatory lending.2 It is the high time that Africa gets together, to learn from one another to enhance financial consumer protection. In light of this, it is critical that globally, Financial services recognize the importance of Financial Consumer Protection as a major element for Financial Inclusion. The Financial services industry includes:
- Deposit and Credit Products and Services
- Private Pensions
- Retail Payment Services
- Credit Reporting Systems
- Financial Capability
For Financial Consumer Protection to be effective, the World Bank suggests that the following areas be prioritized and established: –
- Legal and supervisory framework: legal framework, institutional arrangements and mandates, supervisory activities, enforcement,
- Disclosure and transparency: format and manner of disclosure, disclosure of terms and conditions, key facts statements,
- Fair treatment and business conduct: unfair terms and conditions, unfair practices, product suitability, sales practices, agents, compensation,
- Data protection and privacy: lawful collection and usage of customer data, confidentiality and security of customer information, sharing customer information,
- Dispute resolution mechanisms: internal complaints handling, out-of-court formal dispute resolution mechanisms,
- Financial Education and Literacy
- FinTech developments and innovations