“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)
In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.
The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.
Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.
Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.
Understanding Credit Bureaus and Credit Reporting
High-level finding – Client Voices found that clients did not understand how credit bureaus work, or the consequences of having a negative credit record. Clients seemed to be unaware that credit bureaus now keep positive as well as negative information. To combat these shortcomings, the SBS took the following steps:
- Presenting credit histories as a potentially positive asset: Through their media campaign and financial education training programs, the SBS is raising awareness to help clients understand that they can build and invest in their credit histories through good repayment behavior. The credit bureau does not just offer negative outcomes or punishment for nonpayment. “Clients need to be aware that credit histories can result in positives like facilitating access to better interest rates,” says Mariela Zaldivar, Deputy Superintendent of SBS Peru.
- Non-payment warning: In the country’s 2012 transparency regulation, the warning to clients about negative reporting in the credit bureau in the case of non-payment was suppressed. The new regulation on market conduct – published in August 2017 – has reestablished this warning for clients as a preventive measure. Now, clients receive this non-payment warning in their contract summary sheets, where most relevant terms and conditions of loans are explained.
Simple and accessible credit report: In 2015, Peru’s credit bureau system developed a simplified credit report to motivate users to look up their credit information. Today, credit reports are accessible virtually (web or app) and there has been a media campaign to encourage people to use the report. Credit ratings are presented with an easy-to-understand red, yellow and green light coding, and legal jargon has been minimized. “In the past 30,000 reports were accessed every year. Since our recent changes, over 1.5 million reports are accessed per year,” states Mariela Zaldivar. For this development, the SBS was recognized with the Best Practices in Public Management Award organized by the non-profit Ciudadanos al Día, which encourages efficient, successful and innovative public programs that benefit citizens.
Understanding Loans and Insurance Products
High-level finding – Approximately 40 percent of respondents in Peru did not fully understand their loan terms. Clients were especially confused about the insurance policies linked to their loans. They did not know what insurance products they currently had or how they worked. Overall, we estimated that about 30 percent of all clients in Peru were not aware that they even had insurance tied to their loans, let alone what the insurance covered. The SBS addressed these findings with the following:
- Loan terms and conditions: In incorporating the results of the Client Voice report, the SBS started testing how to prioritize the information provided to clients in their contract summary sheets. The new regulation on market conduct reduced the potential items to be included in the summaries, from 12 to 7, in order to promote clarity and simplicity of the information. Moreover, the following items are published in a highlighted, salient way: 1) how much you pay, and 2) what happens if you do not pay on time. Contracts cannot be eliminated, but more client-centered summaries are being implemented.
- Marketing of insurance: In 2017, a new regulation for insurance commercialization was approved. Under this regulation, companies are required to explain the scope and characteristics of product coverage to potential clients. Providers are also required to have insurance agents, which are bank employees whose role is to be the link between institutions and insurance companies, to promote better coordination between them. The insurance agent is in charge of training the staff on insurance and is responsible for sales and post-sale services.
High-level finding – Clients are generally satisfied with microfinance services in Peru. However, 26 percent of clients report that microfinance providers do not treat clients equally, discriminating against those of lower socioeconomic status. To advance equal treatment of clients, the SBS took action by:
Market conduct regulation: In order to strengthen the Consumer Protection in Financial Services System, earlier this year the SBS changed its legal regulatory framework on market conduct. It now incorporates new detailed responsibilities and obligations for financial institutions to improve their business practices. It outlines requirements for how financial providers interact with their clients in three main areas: 1) offering of products and services, 2) transparency of information, and 3) claims management. The attention-grabbing fact here is that the board of the institution is now held responsible for the interaction with the client throughout the lifecycle of the product. Positive and responsible interaction with the client becomes an institutional goal and must be clearly outlined in an annual work program, presented by a full-time market conduct officer, and approved by the board each year.
It has been exciting to witness how the SBS uses evidence to help it establish effective consumer protection policy in Peru. The Smart Campaign encourages actors in the financial inclusion sector, both policymakers and providers, to keep learning from research that reveals the voice of the client.
Learn more about Client Voices and its broad array of recommendations to advance consumer protection at the Smart Campaign website.
Image credits: Accion; SBS Peru
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