WCRD – Financial Services revisited

Today is the World Consumer Rights Day which is celebrated by the consumer movement around the world. This year is special since it is 50 years since President John F Kennedy set out a vision of consumer rights and recognized consumers as a group. Since then the set of rights identified by President Kennedy formed the basis for the 8 consumer rights accepted today – the rights to basic needs, choose, information, education, redress, safety, be heard and healthy environment.

This year’s theme is again financial services. The reason is simple. After the debacle of the financial crisis some years ago, it seems that the lessons which were learned have now been forgotten. Consumers around the world are getting a bad deal from financial services. A lack of effective competition in the market makes it difficult, if not impossible, for them to shop around.

For example, consumers often have trouble understanding different financial products, whether due to a lack of information or because the products themselves are too complex, or both.

Furthermore, changing to a different provider can be challenging, either because the switching process is prohibitively complicated, or simply because there are not enough financial institutions in the market competing to provide better deals.

This is also recognized by two EU Commissioners, Barnier and Dalli. The former in a statement said "Financial markets should be at the service of citizens, not the other way around. Europe must make financial services more fair and transparent for consumers everywhere in Europe”. Dalli on the other hand, recognized that “consumers are often overpaying for their basic financial services and do not always get effective redress they deserve. The European Commission has not been passive in the face of this.” In fact, there are a number of projects that will be launched in an attempt to improve the situation in the EU.

But what is the situation in Malta? Though the recent financial turmoil did not hit directly our banking system, thousands of small investors practically lost their life’s savings through the advice they got from ‘experts’ in the financial sector. It is a misfortune that we still lack data of the estimated amount Maltese investors lost through the financial turmoil and we are more disappointed that the banking system seems to be exerting its advertising muscle in the media to stifle any real discussion on this subject.

In a recent study by the European Commission covering all 27 EU countries, 8 out of 10 mystery shoppers encountered problems when switching financial providers. In Malta, none of the 10 mystery shoppers could successfully complete a switch. Mind you, the sample of banks selected was based on those brands with the highest share of bank accounts. This goes a long way to show the real deal Maltese consumers are getting from the financial sector. Above is a graph taken from the study* which encapsulates the situation in Malta.

I remember that, some years ago, soon after the introduction of the Common Principles on Banking Account Switching, I wrote an article where I made reference to my own experience. I had visited three branches of the three largest banks in Malta and I asked for information since I was aware that the Malta Bankers’ Association has prepared a leaflet on the subject. I found that none had the leaflet and none of the staff really knew about it. Even after some telephone calls only in one occasion was the bank able to provide me, with the press release. I also criticized the fact that the prepared leaflet was full of legal jargon and not understandable to the ‘average’ consumer. I also remember that I was criticized by some people for being too harsh. If anything, the above shows that the situation is still the same. It also shows that self-regulation is ineffective in Malta.

We sincerely hope that the World Consumers Rights Day will not be just another day. The Consumers Association will continue to press to have a regulator that:

• tells consumers what it does and publishes its investigations;
• is strong and stands up to the banks and for consumers and promotes competition;
• is proactive and acts on issues before they become problems.

*Report on “Consumer Market Study on the consumers’ experiences with bank account switching with reference to the Common Principles on Banking Account Switching” produced by GfK and published by the EU Commission which shows the situation on bank account transfers.

Article published in the Times of Malta 15^th March 2012