Consumer Rights Day 2010 – Our Money, Our Rights

This year’s theme for the Consumer Rights Day chosen by the Consumers’ International focuses on how consumers have fared recently within the financial sector. All know that the main losers of the recent financial crisis were the consumers who not only saw their investments evaporate but had to pay through their taxes to stop this crisis. In Iceland, where most of the banking sector collapsed, the taxpayers are not only being asked to pay to salvage the economic system but each person is being asked to pay $135 per month for 8 years in order to pay for the money lost by English and Dutch depositors.

In Malta, though we didn’t experience any bank failure, many consumers saw their savings being washed away after investing in supposedly good solid funds being sold by our local banks. BEUC, the European Consumers’ Voice, has issued a report on the situation. This report pins the main reason on the under-regulated and under-supervised financial systems which put immediate financial rewards before companies’ stability and risk evaluation.

It also points out that the main losers were the consumers whose interests are rarely taken into consideration in this sector. In order to protect consumers and restore their confidence in the financial sector, BEUC put out a package of measures. These measures include:

Financial supervision and regulation – there must be more powerful and independent national supervisors with powers to control effectively advertising, financial information and unfair practices such as bundled and tied products). These supervisors should also set up an early warning system to inform consumers of the risk category of various financial products. BEUC is also asking for more binding rules at EU level as soft law or self-regulation in this sector has failed dismally.

Pre-Contractual information on financial products and services – we need pre-contractual information which should be short and easily understandable to consumers. The model which is being developed by CESR, the Committee of European Securities Regulators, should provide a good basis. This model indicates whether or not the invested capital is guaranteed, the investment volatility and the suggested retention period.

Financial advice – The need for an independent advice is more needed nowadays. Advice is generally given by financial service providers and is often not targeted to consumers’ needs and expectations but rather linked to the banks’ commercial practices, thus creating a conflict of interest. BEUC is suggesting the funding of independent advisors to ensure that the product matches the MiFID (Markets in Financial Instruments Directive) profile of the consumer.

Responsible lending – Lenders should ascertain that the consumers have the necessary capacity. On the other hand, interest rates should be capped while promotional rates should be prohibited.

Deposit Guarantee Schemes – These schemes should be equally guaranteed across Europe to ensure that consumers are encouraged to seek the best opportunities within the Single Market. Payout procedures should be efficient and timely while the schemes themselves should be robust to ensure that if there is a market failure, it is the operators themselves, as required by the EU Directive, who pays. The past experience showed that it was the consumer who paid up for the shortcomings of the banks and the financial operators.

Corporate Governance – strict rules and supervision must be developed to ensure that financial institutions behave responsibly while there should be transparency and accountability of managers’ remuneration.

Harmonisation of legislation – one particular area where there is urgent need of harmonisation is on financial intermediaries. In this area there is a need to limit the initial commissions and introduce rules on registration, qualification, transparency, liability and insurance.

Redress – a sizeable percentage (39%) of European consumers believe that the financial services sector is the most difficult in which one can obtain redress. This is understandable given the resources that this sector can muster. In order to try to obtain a balance, BEUC is proposing the adoption of Group Action procedure at both national and cross-border level. The other proposal is that redress procedures be simplified.

The above should provide an action programme for all those who are aware of the great imbalance that consumers face in this sector. We hope that all those in power will use this year’s World Consumers’ Day to subscribe to the above programme of action. We believe it is high time that these start putting their money where their mouth is as it is the only way to rekindle consumers’ trust in such a vital sector.

Published on Maltastar.com on 15^th March 2010