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

A consumers’ Agenda (ii)

During the first part of this article, I pointed out a very high priority that would ensure consumer rights. This priority is to ensure increase in competition in the local markets. I focused on e-commerce as one very important way to induce competition into the local markets and to ensure that the benefits of competition are transferred to the consumers.

Throughout this article, I shall focus on a local structure which is supposed to ensure fair competition, and also address the issue of consumer redress. I shall concentrate on the Fair Competition and Consumers’ Affairs Division however, and discuss how this Division can be improved. If there is one thing that both political parties seem to agree on, it is that we need a new Consumers’ Agency.

Should this be a government department or should it be an authority? If we look at the experience we had with other authorities, I seriously doubt that we need another such authority as the large majority of these act just like any other government department. The only difference is that we are paying much more for such authorities and are still getting the same result.

But should it be this way? I believe that things can be very different with a little bit of political will and professionalism.

I believe that such an agency should operate as an authority, i.e. operate within the framework of government policy but independent of government. It should also be proactive. By its very nature it should be a regulatory structure to ensure that markets open up and competition is for the benefit of consumers.

To ensure this, the legislation should give more independence to this Agency than it is presently giving to many authorities. If we merely give such an Agency similar legislation to what is, for example, given to MRA, we only get another MRA, i.e., another government rubberstamp.

Though legislation is necessary, it is not sufficient. There are certain other requirements which are necessary for such an Agency to be able to meet the objectives stated above. One such requisite is the orientation of the person leading such an Agency. Let me make myself clear. I do not mean political orientation, as I am sure that the government will ensure that the person leading such an Agency will be sympathetic, to say the least, with the government of the day. But this does not necessarily mean that this Agency will be a rubber stamp. If the person has enough political clout, is professional in his/her duties, and is committed to ensure greater competition which will benefit the consumer, then I am sure that such a person will deliver.

I am speaking from experience. During the time I was representing the local consumer association, I met a small number of such persons, one of whom was Mr Joseph Tabone, who was Chairman of the Malta Communications Authority. During my contacts with him as Chairman, I could see that though he was operating within government policy, he was also ensuring that the local consumer would benefit. One such benefit that emerged from our encounters, was that when we discussed the introduction of itemized telephone billing, he agreed and, in spite of the obstinate opposition of the then Telemalta, his determination and professionalism succeeded in winning the day for consumers.

When I mentioned orientation above, I was referring to the mindset that those leading such an authority should have. Going through the websites of both the local Division and the Office of Fair Trading, I was struck by the difference relating to the objectives of these two institutions. The objective looks similar, but I believe that fundamentally it is different. Whereas the local objective was “Protecting the proper functioning of the market for consumers and traders alike”, the OFT’s objective was “Making markets work well for consumers”. The fundamental difference is that whereas the Division’s objectives is to ensure the proper functioning of the market, implying that the main objective is to see that the market is a level playing field for business, the OFT’s objective is to see that the benefits of the market are transferred to consumers. This is a marked difference, as the objective is not only to have competition, but to ensure that the benefits end up in consumers’ pockets.

As I already mentioned, autonomy from the government is essential. There are two reasons. First, in Malta the basic utility markets depend on the government. Observe the inertia and the resistance of the Division to get involved in the present and past water and electricity tariff saga. Second, this Agency needs to be independent of any political influence especially one in favour of the local business. We all know the great connections that exist between business and the local political class. A case in point was when some time ago the Division believed that an advert was not within the limits of the present legislation. It issued a statement. The firm - a communications one - rebutted the allegations. Suddenly there was complete silence. Why? I very much doubt that the Division’s stand was incorrect as I am sure that before issuing their statement they did their homework well. One can imagine what happened.

I believe that in order to secure such autonomy it would be very helpful if such an Agency be transparent and accountable not to a particular Minister but directly to Parliament. To ensure both transparency and accountability, such an Agency must be reviewed by a Parliamentary Committee so that Parliament would be able to devote as much time as is necessary, thereby, ensuring that this Agency would be achieving its aims.

One last point. One also needs to look at other complementary structures. We simply cannot have the Agency and the Consumer Affairs Council having nearly the same functions. We need to decide what function the latter should have. Once we decide about these functions, we need to ensure that it has the resources to achieve such functions and also be transparent and accountable, not to the Minister but to the local consumers.

Published on Maltastar 26th February 2010
http://bbb84.blogspot.com/

A consumers’ agenda for 2010 (i)

Consumers have been the pawns in the political game. When one needs to bolster his political ground, consumers top the agenda. This happens in all elections. Unfortunately, soon after the election result is published, the consumers are generally the first to top the line to be faced with austerity measures.

But apart from the political games, consumers face some permanent difficulties. Ideally they should be treated as royalty especially if we are to adopt the maxim ‘The consumer is king’. More pragmatically, what the consumers really crave for is to have a fair deal. The common day experience is much more sober. What can be learned from such experience to draw up an agenda?

The consumer is king when there is a very competitive market. Malta by its very nature is small and though they say that small is beautiful, it is creates a very restrictive market for competition. What can be done?

There are several factors which can be dealt with locally but there are external forces which can really mould the local market. One such thing is e-commerce. One market which during the last few years has been recently influenced by internet is the book market. Mind you, like any other factor the effects can be both positive and negative. The negative side is that we practically finished up with a local monopoly in this sector. On the other side, local book prices have decreased because the local monopolies are facing direct and effective competition from such firms as Play.com. Some years ago, the local price of an imported book marked £5 in the UK usually was Lm5 even though the exchange rate was heavily in favour of the Malta Lira. Today due to the fact that many Maltese are buying their books from internet, prices have decreased substantially.

We can expect similar effects on other markets if e-commerce continues to increase. Unfortunately, such progress brought about a negative response from the local importers. Their economic siege mentality is still strong. One way of preventing e-commerce is through going into franchise agreements. In this way, they prevent e-commerce for the products they import as the foreign internet site will not be available to Maltese consumers.

Such a strategy makes also sense to the mother company as it is able to continue market segmentation in spite of the idea of the Single Market. Through such a strategy, firms would be able to charge different prices to their benefit. As such, such a situation is also worrying to many other consumer groups in the EU and pressure is mounting for some action at EU level. Such a situation is really making a mockery of the idea of a Single European Market.

Fortunately, I believe that local consumer will find an ally at the EU level when John Dalli will take over as Commissioner for Health and Consumer Affairs. In spite of the fact that such an issue does not fall directly under his responsibility, as it falls under DG Market, I am sure that Mr Dalli will use his Office to push for the resolution of such an issue.

I take this opportunity to wish Mr Dalli success in his new Office. I am sure that Mr Dalli will push to ensure that the Single Market will become a reality through greater competition to the benefit of consumers especially in such European ‘isolated’ communities like Malta.

Hemm bzonn ta’ aktar u mhux anqas informazzjoni

Dan l-ahhar l-MFSA permezz ta’ stqarrija mahruga mit-Taqsima ghall-Ilment tal-Konsumatur harget twissija lil dawk li setghu kienu interessati f-investimenti ‘Asset-backed Securities.

L-ghan ta’ din l-istqarrija kien li twissi lil dawk li kienu imhajra li dan hu investiment ghal dawk li huma profesjonisti u li ghandhom esperjenza. Din l-istqarrija tidher li qajmet kjass ghal dawk li kienu qed imexxu dan it-tip ta’ nvestiment ghaliex gabu reklam ta’ pagna fil-gurnal tieghek biex jiprova jirribatti din l-istqarrija.

Jien qbajt skantat b’din ir-reazzjoni ghaliex din kienet stqarrija f’posta. Kienet qed twissi biex min jidhol ghal dan l-investiment ikun jaf ghal x’hiex qed jidhol. Ir-reklam li gabu l-istess nies li qed imexxu dan l-investiment juri l-htiega ta’ din it-twissija. Min qara r-reklam ta’ min qed imexxi l-investiment u ma fehemx kif jahdem dan l-investiment, m’ghandux jidhol ghalih. Min fehem ghandu joqghod attent ghal punti li qajmet l-istqarrija.

Nemmen li m’hemm hadd li ghandu esperjenza f’dawn l-affarijiet u fl-istess hin m’ghandux interessi personali bhal l-MFSA. Fost ohrajn nirrakomanda hafna pubblikazzjoni importanti hafna li harget l-MFSA ghal dawk li jinvestu fi prodotti finanzjarji – Gwida ghall-konsumatur meta jinvesti fi Prodotti Finanzjarji. L-esperjenzi qarsa li ghaddew hafna li nvestew dawn l-ahhar snin, juri l-bzonn ta’ aktar informazzjoni.

B’hekk biss nistghu nergghu inqajmu l-fiducja ta’ hafna li harqu subajhom dan l-ahhar biex jergghu jibdew jinvestu. Bhal din l-istqarrija ghandna bzonn aktar u mhux anqas. U ghandna bzonnom bhal l-ilma fid-desert.

Benny Borg Bonello

http://bbb84.blogspot.com

Published in Torca 29^th November 2009

Bank Information

During the years, bank charges have been one issue that both business and local consumers have had to endure. It was very unfortunate that when the banking market started to open up in Malta the first thing that increased were not the benefits to consumers, but the charges. The prime mover was HSBC but this was soon followed by Bank of Valletta and later APS. Thus, the result was an escalation of bank profits and higher charges for consumers.

Mind you, this is not a local phenomenon, though in a small market the impact is much greater. The EU is very much concerned about this aspect since this phenomenon is creating a very uneven market within the Single Market. One result of such concern was the setting up of the Consumer Markets Scoreboard which tries to monitor market signals across the EU. This is becoming a very important policy tool and there are plans that this will be expanded over the years.

The latest Consumer Markets Scoreboard confirmed that there were three different retail financial services issues where consumers experience difficulties:

Pre-contractual information;
Some services are opaque in structure; and,
Switching of bank accounts.

In this article I want to take a closer look at the first factor, using as an example the third factor as there have been some recent developments.

One essential feature of a market economy is that consumers would be able to get the best deal available. At times this would require switching of bank accounts. This seems to be a simplistic operation but in practice it is not that simplistic, and often quite complicated and frustrating.

The EU is taking this matter quite seriously. In fact, one of the measures is that of simplifying the transfer of current accounts between different banks. Theoretically, this should not be complicated but in reality it seems that even transferring accounts from one branch to another within the same bank seems to be shrouded in mystery. Recently, someone wrote to a local newspaper pointing this out:

Does this also apply to switching accounts from one branch to another of the same bank, because from my experience this also was a harrowing ordeal?!

Such experiences should now be a thing of the past. However, there is one precondition. The consumers should know about their rights. From the initial statement that was issued by the Malta Bankers’ Association which is a local agency responsible for introducing these measures, the Principles are available at the branches of the most popular banks in Malta.

But what is the availability of such information? What type of information is being given to consumers?

I personally visited a branch of each of the three largest banks - HSBC, Bank of Valletta and APS. In none of these branches was the information readily available in the form of a leaflet. Thus, I had to ask specifically for the information. At first glance this should not be a problem. But if there is a queue of people waiting to be served, this suddenly becomes a problem and the information cannot be said to be readily available to the consumer before the transaction takes place. In two of the branches I visited, it took more than 20 minutes to obtain the information.

At the APS branch, the person behind the counter found it difficult to understand what I wanted. It was after the intervention of a higher official that he understood what I required. After all this effort, all I got was the initial statement printed in the local press.

With regard to HSBC and the Bank of Valletta, at least the person behind the counter understood what I wanted and obtained the document after waiting for it to be printed. Mind you, in both cases, though I specifically asked for the information, both clerks at first thought that I wanted to switch my current account and were going to start the process before I was given the information.

BOV gave me the full document which includes the Principles and other information. The document given was full of technical jargon. I had to go through it to find the new facilitating process that was being proposed to switch current accounts. Instead of an information document, consumers are being presented with a legal document. Moreover, in all cases the documents received were in English.

The document I received from HSBC was much shorter as it included only the three steps required, together with sample letters. This formed only one annex of the original document. Though shorter, it was direct and to the point and quite easy to follow. I was also given the latest schedule of bank charges.

Three points emerged from this exercise. First, Maltese consumers are not conscious of such developments. Even though there was a press statement, this was not enough to make consumers conscious. The staff at one of the banks had to request their marketing section to help them search for the document on their website as I was the only person who asked for such a document.

Second, as already described above, the information is not quite available. Thirdly, though the information was prepared at one source (the Malta Bankers’ Association) I ended up with three different versions of the same document. I would expect that such information be standard.

I sincerely hope that this was the initial phase and that a leaflet in simple language explaining how the consumer should go about the process of switching current accounts would be produced and be readily available.

Unless this is done, the local banks will succeed in making a mockery of a good EU requirement. Unfortunately, this would not be the only time that they succeed in producing a legal document covering their ass and mystifying a process that should be beneficial to the local consumer. They have already done it with MIFID and the Consumer Credit requirements. Let us hope they will not do it again.

Published on Maltastar.com on 19^th November 2009

L-MRA u t-tariffi tad-dawl u l-ilma

Ricentament thabbar li l-Gvern se jahsibha biex jerga’ jcaqlaq ’il fuq it-tariffi tad-dawl u l-ilma. Miniex se nidhol fuq l-effetti li mziura bhal din se jkollha sew fuq is-setturi industrijali u kummercjali u sew anke fuq il-familji. Izda se nerga’ ndur fuq ir-regolatur – l-Awtorita’ ta’ Malta dwar ir-Rizorsi (MRA).

Fi Frar ta’ din is-sena, din l-Awtorita’ wara baraxx ta’ kritika kienet nediet konsultazzjoni pubblika dwar il-principji li għandhom jintuzaw biex jigu determinati t-tariffi tal-elettriku.

F’Mejju rega’ kien hemm revizjoni u l-MRA fir-rapport tagħha, minghajr ma ghamlet l-ebda referenza ghall-konsultazzjoni pubblika, tidher li accettat il-metodu li thaddem l-Enemalta, metodu li jirrifletti l-pozizzjoni tal-Enemalta bhala monopolju. Ghalhekk il-prezzijiet ma jirriflettux il-prezzijiet li seta’ kellna li kieku kellna suq aktar miftuh.

Dan jitfa’ fuq il-konsumaturi l-inefficjenzi ta’ min imexxi din il-korporazzjoni. Aktar minn hekk, dan il-metodu jkompli jinkoraggixxi li l-inefficjenzi jkomplu ghaddejjin u jhallas ghalihom il-konsumatur.

Ftit taz-zmien ilu, din l-Awtorita’ kellha tibdil fit-tmexxija. Ghalhekk qed nistennew li issa l-Awtorita tohrog rapport tal-konsultazzjoni li saret u tghid liema proposti laqghet u ghaliex. Fuq kollox l-Awtorita’ ghandha tispjega kif il-proposti li laqghet iharsu lill-konsumaturi u kif qeghdin iwasslu biex ikollna Enemalta aktar efficjenti.

Letter published in l-Orizzont 4^th November 2009

Paradise Lost

On my last visit to Valletta, at the Bus Terminus, I was struck by the amount of HSBC adverts on buses. Just a small deviation - though I find nothing objectionable re adverts on buses, I do object to adverts on the back for two reasons. First, it reduces the driver’s visibility of the traffic behind the bus and secondly, the graphics or message may catch the attention of the driver behind the bus to such an extent that the risk of a collision is greatly increased. I hope that the Public Transport Authority will consider these facts.

Most of these adverts focused on investment products. I mentioned HSBC as their adverts on buses dominated the scene. However, there are similar campaigns on other media by other banks.

These campaigns are understandable taking into consideration the recent turmoil in the financial markets. I found it very striking as the local media practically disregarded this fact – the effect of this turmoil on individual consumer. We have heard that our banking system and the economy weren’t much affected by the global financial turmoil. It was a relief that the local big cats (the banks) didn’t get burnt as the repercussions would have been much greater. The only benefit of this turmoil was that the government finally approved the amendments to the Deposit Compensation Scheme regulations which increased the cover to €100,000 per individual. Needless to say, most of the burden was again passed on to the taxpayer as our big cats succeeded in shifting most of their responsibilities.

But there was one question that was randomly asked and to my knowledge never answered: Is our system so much insulated and isolated from the global system? If it is, we’re not only missing the risks and difficulties of the last turmoil but we also missed the benefits during growth periods which had lasted for years.

The second question is how our consumers, who during the last few years invested their savings, fared. This point practically has been totally absent from the media comments. In my opinion this is a serious omission by our media. This is not the first time that this happened. Another occasion that comes to mind was when the Argentina crisis hit the Maltese investors. Even then the most conspicuous thing in the comments of the local financial commentators was the absence of discussion on the extent that the small local investor was affected. It is a pity that the effect of the last financial debacle on the local small investor had to face the same fate.

Another point that amazed me was that even the small investors themselves barely voiced their dismay, concern and anger. It was only the very rare exception that one would read comments such as

Some three years ago we made an investment thro HSBC (Malta), since then our money, in this investment, has been melting like ice. To add insult to injury we received a notice that our bank charges are to be increased. The trouble is that we do not like to withdraw the investment which now is worth just over half of we invested. What shall we do?? (Times of Malta, 1^st October 2009)

I’m sure that such comments are not restricted only to investments made through HSBC. They apply also to investments made through other banks and other licensed financial institutions or brokers. I’m also sure that there are many who share the above experience.

But if this is so, why have very few people voiced their experience. I notice that many of my friends are silent on this subject but you can sense that they are uncomfortable about it. Recently a friend of mine gave me an indication. While we were talking about this subject, he asked me a question: how will you break such news to your wife or husband? He opined, and I tend to share such an opinion, that in many instances, decisions regarding investment decisions of a couple are usually taken by one of them. Consequently, if the couple’s savings have been invested in some financial product which has resulted in negative returns i.e. the investment is lower than the sum invested, it is very difficult to inform the other partner that their life’s savings are in jeopardy. This is especially so if the couple is nearing retirement or are in retirement.

There may be other reasons for this lack of openness by individual consumers. Two that come to mind are that no one would like to tell others that his investment acumen simply failed and secondly, that there are others who are still expecting their positive results in spite of the recent turmoil in financial markets. The last class I mentioned have continued their periodic investment with no appreciable change in their behaviour and thus do not have a negative impact on the economy.

But my concern is for the impact the others have. Recently, I was invited to attend a meeting regarding pension funds. We listened to the representative trying to sell us a group pension scheme. There was very little interest. One could sense this through the very limited number of questions asked. However, after the meeting the general feeling was very apparent. None wanted to have to do with such schemes. One could easily get hints that their experience after investing in the products offered locally was far from good. Mind you these are highly professional people (not in the financial area). They form part of the upper middle class, and succeed in saving part of their income. Most probably they were the main small investors.

My concern is simply that we cannot just let this cohort leave the financial markets and ‘invest’ in other things which might prove to be more speculative as if nothing has happened. If we’re not to lose this group there are some serious questions to be asked. Can anybody try to assess the impact that the recent financial turmoil had on the individual investors, especially those who are on the verge of retiring? If there were losses, how extensive were these? Were the financial instruments which were sold to these consumers appropriate to them? If not, do we have a lacuna in our regulatory structure or was it lack of supervision? Did those institutions who were providing these financial instruments take any action to ensure that their advice in future is more sound? Did they feel the need to change their managers who were responsible for such investments?

There need to be answers to these questions. Apart from this, the plea for help from the above-mentioned consumer cannot simply be disregarded. He represents the silent majority. I am sure that only straight answers and transparency will help this cohort to reconsider their position and start trusting the financial system again, this time more carefully.

Published in Maltastar.com on 18th October 2009