Can Financial Institutions Look Inside and Change?

> Posted by Antonino Serra Cambaceres, Consumer Justice and Protection Programme Manager, Consumers International

World Consumer Rights Day is March 15. To celebrate, this week we’ll be sharing posts that explore the importance of client protection and initiatives that strengthen responsible practices in providing financial services. Given the tremendous growth of mobile phone-based financial services, it’s fitting that the theme of this year’s day is “fix our phone rights.”

While looking at some banking advertisements during a research study we conducted in 2009 on financial consumer protection in Latin America, we found one that used the motto A bank that doesn’t seem like a bank. Curious, right? Why should a bank say that the benefit it offers clients is that it is not like a bank?

In 2007, at the Consumers International Office for Latin America and the Caribbean we drew attention to the need to discuss the problems that consumers face in relation to financial products and services by organizing two workshops in Santiago, Chile and Buenos Aires, Argentina, on consumer protection, debt, and overindebtedness. The issues raised in the workshops convinced us that this was a substantial issue; the 2008 world financial crisis confirmed what we suspected.

We looked at transparency of information, ethical business, financial education for consumers and banks, and responsibility lending. We wanted to show financial institutions that the way they were conducting their business was not aligned with consumer protection in many areas, and that a fair relationship with consumers will bring wins to all.

In 2010, we developed a Monitoring Guide for Banks and Financial Institutions as a tool for consumers and consumer organizations to assess how financial services providers perform in their countries, whether they comply with consumer rights protection, and to compare institutions. Two organizations, ADELCO from Argentina and ODECU from Chile applied the guide and the results showed that financial institutions were, in many aspects, far from ideal.

A number of changes are needed to improve the relationship between consumers and financial institutions. Financial institutions’ policies must address consumers’ needs, ensuring a respect for their rights, and putting in place practices that are aligned with ethics and transparency in business conduct and financial education for consumers.

With these issues in mind, we realized that a new guide was needed specifically for banks. Although many banks implement corporate policies to satisfy the requirements of their current and potential clients and perform surveys on the implementation of these policies, we wanted to give banks a tool that helps them to evaluate themselves from a consumer perspective. The Self Assessment Guide for Banks shows that consumers are not only concerned about interest rates or the accuracy of information, but also about bank policies in areas such as corporate responsibility, the environment, their relation with their workers, and which projects they are financing.

But the heart of the guide is how financial institutions deal with sensitive consumer protection issues. For example, we ask them to evaluate if they give consumers accurate and complete information, whether they are offering products that consumers can’t afford, and if they have policies that offer sales incentives to their employees. These are the concerns that consumers have when approaching a financial institution for their products and services. There is a need for a wider financial inclusion and financial education for consumers. All these issues are what we are advocating for regionally and internationally and they are the core of our work in, for example, the G20/OECD Financial Services Taskforce.

The guide was launched in February 2014 in Buenos Aires, and we are now discussing the application of the guide with financial institutions throughout Latin America. There are positive signals that by the end of the year some will be conducting their own evaluations.

Simply put, we want banks that seem like banks, but banks that also respect consumer rights, are accountable and transparent, and conduct their business with a sense of social responsibility. Only then, we believe, will consumers not fear banks.

Image credit: Consumers International

Have you read?

The Suitability Approach to Client Protection: Comments on the Mor Committee Report

Client Protection is Gaining Ground in Indian Microfinance

A Study of Client Protection Practices in Latin America and the Caribbean