Why Consumer Protection Makes Business Sense

There is a need to enhance consumer awareness and confidence in doing electronic transactions

> Posted by Smita Aggarwal, Senior Program Director, the Centre for Advanced Financial Research and Learning (CAFRAL)

The following post was originally published on Livemint.

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On a recent visit to Sydney, Australia I needed some cash and I inserted my Indian debit card in an automated teller machine (ATM). Immediately after I put in my transaction request for cash withdrawal, I got a prompt that there would be a $3 charge for that transaction and I had to confirm with a “yes” before the transaction would be processed further. I withdrew my card and left. The e-payments code by Australian Securities and Investments Commission (ASIC), the unified regulator responsible for market conduct, requires all service providers to provide certain mandatory information, including fees and charges, to users before or at the time users first perform transactions.

The experience in Australia shows that the display of charges just before the transaction is done has altered consumer behavior, apart from significantly reducing complaints. Increasing the usage of electronic transactions through ATMs, cards, internet, and mobile phones is a critical step towards digitizing our economy. However, there is a need to significantly enhance consumer awareness and confidence in doing electronic transactions and there could be lessons we can learn from what Australia has done.

The e-payments code, which applies to all service providers offering electronic transactions, and not just banks, states that consumers are not liable for losses when they have not contributed to the loss. Moreover, for transactions with a passcode where it is unclear whether the consumer has contributed to the loss, the consumer’s liability is capped. There is also a framework for mistaken payments, i.e., when you make an error of entering the wrong account number and the payment goes to the wrong recipient. The framework provides for return of the money to the sender, provided the money is still in the recipient’s account, and encourages the users to report the error soon enough so that the likelihood of recovery is high.

Another example of altering consumer behavior through increased transparency is that all credit card statements in Australia are required to prominently state: “Minimum payment warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance”. This is followed by an actual calculation of the amount you will pay in total and the number of years it would take to clear the current dues. The actual visibility on the statement of the implied loan amount and tenor (could be even 10 years or more) prompts the customer to make an informed decision about how much to pay and increases her confidence to use the credit card in a responsible way. The e-payments code also has tailored provisions to facilitate low-value electronic transactions. For example, providers are not obliged to provide a statement or receipt for low-value transactions and instead must provide access to users to view their balance and transaction history. Additionally, no personal identification number is required for small-value “tap and pay” transactions through near-field communication and the incidence of frauds so far has been quite limited.

Considering the significant influence advertising has on consumers and the natural tendency of providers to focus only on positives in advertising, as part of its consumer protection mandate, ASIC also tracks advertising of financial products. Omission in advertising could be misleading to the consumer. For example, an advertisement which says that a bank offers a credit card with no fees, but does not say prominently that the customer needs to have a mortgage loan from the same bank to be eligible to get this card, would be unacceptable to the Australian regulator. Similarly, while marketing products through Twitter, banks are expected to be truthful, despite brevity.

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