With the expansion of digital financial services (DFS) for the underserved, policymakers and regulators must set the conditions to allow innovative financial products to flourish while providing the market guardrails that ensure customers, especially those accessing financial services for the first time, can access DFS with confidence and adequate protections.
According to the World Bank’s most recent Global Financial Inclusion and Consumer Protection Survey, more than 95 percent of the 124 respondent jurisdictions have some kind of financial consumer protection legal framework. Other studies, such as the Global Microscope series and the World Bank’s Good Practices for Financial Consumer Protection, have demonstrated that legal and regulatory responses to consumer protection risks have been strengthening over time. Such developments are important accomplishments and demonstrate the prioritization of consumer protection as an enabler of financial inclusion. However, our work doesn’t stop there.
Not all financial consumer protections frameworks are effective in addressing key consumer protection risks for the financially excluded. In some cases, elements of such frameworks may even impede financial inclusion goals. Common challenges include legal and regulatory gaps, disproportionate (non-risk-based) interventions, inconsistent oversight, competing or overlapping regulatory mandates, and the inability or lack of enforcement. These challenges are exacerbated by a rapidly changing sector where digital technologies have introduced new providers, products, business models and delivery channels. Appropriate legal and regulatory responses can help to mitigate new and evolving risks while promoting responsible inclusive finance, stronger markets, and better served clients.
To address the demand for practical resources to promote strong legal frameworks for responsible inclusive finance, CFI, DLA Piper’s global pro bono initiative, New Perimeter, and the legal team at Accion developed the Handbook on Consumer Protection for Inclusive Finance. Organized around the Client Protection Principles (CPPs), the Handbook expands on its predecessor, the Model Law and Commentary for Financial Consumer Protection (Model Legal Framework) to address the unique characteristics of digital financial services. It’s informed by CFI’s Consumer Protection Standards for Digital Credit, which provide a shared set of practices for responsible digital lending through a provider lens, and updated Guidance for these standards. It also reflects consultation with experts and practitioners, experience from our work with regulators and financial service providers (including fintech companies), research on 19 regulatory environments, and guidance issued by international organizations and collaborative working groups.
The Handbook complements existing tools and guidance by distilling recommended legal and regulatory approaches for financial consumer protection into illustrative and user-friendly model language with explanatory commentary. Like the Model Legal Framework, the Handbook is intended for a broad range of stakeholders and is designed to be used in several ways: to develop or revise financial consumer protection legal frameworks, to serve as a diagnostic tool to assess existing frameworks, and to support dialogue and collaboration between government and industry.
The Handbook distills recommended legal and regulatory approaches for financial consumer protection into illustrative, user-friendly language and commentary.
The Handbook comprehensively updates the Model Legal Framework, including new and revised provisions and commentary related to DFS. It significantly expands recommendations regarding the privacy and security of consumer data, which traditional consumer protection frameworks may not address or where standalone data privacy regimes do not exist. In addition, the Handbook advocates for strong internal controls in the design process for products, services and delivery channels to support the concept of “consumer protection by design” in addition to monitoring consumer outcomes. It also tackles questions around algorithm-based lending, transparency safeguards for digital interfaces, third-party accountability, fraud, and coordination among supervisory authorities with converging regulatory mandates, among other topics.
No single resource can address every issue relevant to financial consumer protection, but the Handbook focuses on key areas of consumer risk based on consensus in the responsible inclusive finance ecosystem. As recommendations around strong consumer protection policy continue to evolve, so too will future editions of the Handbook, and we welcome your comments and feedback.