Why We Gave Consumer Protection a 5

> Posted by Susy Cheston, Senior Advisor, CFI

Visitors to our FI2020 Progress Report on Client Protection will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the three legs of the client protection stool—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?

We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s 2014 Global Survey on Consumer Protection and Financial Literacy reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so Pollyannaish as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.

We also looked at the Global Microscope, which shows a wide range of policy and practice in each of the 55 markets it surveys. The Microscope provides a wealth of detail, including noting the countries that have weak market-conduct rules and grievance redressal mechanisms. In general, the MENA region is struggling in these areas. On the whole, in one-third of the countries studied, the Microscope found that significant efforts are needed in both regulation and its implementation. Yet, there are glimmers of best practice. The Latin American region stands out, with Peru, Colombia, Chile, and Bolivia ranked in the lead on consumer protection indicators in 2014, and the Philippines (as always) is worth noting, too.

Overall, with significant recent progress by national regulators such as Indonesia, continued deepening from leaders such as Peru and the Philippines, and progress on global standard-setting, we are just encouraged enough to give regulators a cautiously optimistic 6 in progress to date.

On the provider side, which we awarded a 3 for progress to date, there are bright spots. Among them, industry codes of conduct, and individual financial service providers that recognize the linkage between consumer protection and their own success. However, there are many forces pushing against industry leadership. The challenges and costs of reaching the base of the pyramid together with the challenges and costs of implementing good consumer protection practices can be daunting. We may seem like cockeyed optimists—but we nevertheless hold fast to the vision that providers can and must incorporate consumer protection into their professional identity. Not only is it the right thing to do, it positions clients to be effective, loyal services users, contributing to long-term financial bottom-lines.

Of course, as the market evolves, consumer protection challenges evolve with it. Technology can benefit consumer protection. Among the many examples are how technology can reduce opportunities for petty staff corruption and provide new ways for consumers to share complaints. But technology also brings new risks, such as complex and confusing interfaces, connectivity interruptions, lack of pricing transparency, and new types of fraud. Consumer data in digital form is proliferating, and most countries do not have protections in place about the use of that data. We are now in a period of learning about the consumer protection implications of rapidly changing technologies, and the jury is out on whether client protection is prone to be stronger or weaker amidst those changes.

We weighed all of these considerations and scored the world’s progress toward consumer protection for the base of the pyramid. The last I checked, the “People’s Vote” was a slightly less optimistic 4. Check out the FI2020 Progress Report on Client Protection and cast your own vote.

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