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Together, how can we fix financial services worldwide?

It’s not just Brits getting a raw deal from the banks, it’s an international problem. To mark World Consumer Rights Day, Consumer International’s Helen McCallum explains the challenges facing consumers globally.

In 2007 the world was thrown into financial turmoil by the US sub-prime mortgage crash.

At the heart of that crisis was a basic failure to protect consumers from bad products and predatory lending. Years later, as many governments concentrate on tackling high levels of debt and unemployment, consumers around the world are still being let down by financial service providers.

Consumers are being failed around the world

The list of complaints is endless. Bank of America, for example, recently planned to impose a monthly fee of $5 to all current account holders just for the ‘privilege’ of using their debit cards – this at the height of last year’s Occupy Wall Street protests.

In Spain, variable interest rates on mortgages have a minimum cap, but not a maximum. This prevents Spanish consumers from benefiting from low base rates, but not from suffering when interest rates sky-rocket.

Even in Germany, a country that has weathered the storm better than others, there are still only 1,000 debt advisors despite 10% of Germany’s households experiencing over-indebtedness.

The saga continues further afield. In emerging economies like South Africa, Chile and Brazil, easy access to credit is pushing up household debt to worrying levels.

And – in a truly international example – millions of families around the world who rely on money sent home from relatives working aboard are losing out on billions of dollars through the extortionate fees charged by money transfer companies.

The consumer movement fights back

The problems described above are just the tip of the iceberg, and many will sound depressingly familiar to UK consumers. In fact, there’s an astonishing amount of cross-over between the experiences in different countries, and consumer organisations have a lot to learn from each-other.

For example, Consumers’ Union, the US consumer organisation, was instrumental in getting legislation passed to create a new financial regulator charged exclusively with protecting consumers. Consumers Korea has also been lobbying their government for a similar regulatory model.

And now Which? is calling for a consumer protection regulator with teeth as part of its ‘Watchdog not Lapdog’ campaign.

These cases really demonstrate how solutions, as well as the problems, are often common across borders.

Our money, our rights

Consumer groups have their work cut out for them in other ways too. In the UK, victims of abusive practices can seek redress via the Financial Services Ombudsman or through the courts. But many other countries lack consumer protection legislation (or simply the resources to enforce existing rules), so lobbying governments for basic laws and regulations is often an urgent concern.

Access to the most basic of financial services is also a top priority in many developing countries, as it allows those on low incomes to manage their budgets and plan for the future.

Similarly, empowering consumers with basic financial literacy skills is very important. Consumer groups in Kenya, Tanzania and Uganda, for example, are doing great work to educate consumers as can be seen in our new short film.

It’s clear from all of these international examples that we’re in this together. So, to mark World Consumer Rights Day, we want everyone around the world to get a better deal from financial services. It’s our money, so we need rights to protect it. The question is – what problems are you facing with financial services?

Which? Conversation provides guest spots to external contributors. This is from Helen McCallum, the Director General of Consumers International – all opinions expressed here are their own, and not that of Which?

Harry says:
15 March 2012

The biggest part of the problem could be solved by two simple and legally enforceable requirements.

1) Ban promotional rates, introductory bonuses and similar, unless existing customers automatically get the exact same benefits. Promotional rates are nothing more than a bogus mechanism for advertising an artificially high interest rate which nobody will receive forever and the majority of the s customers will not be receiving at all.

2) Severely limit the number of different rates that a bank can have. Every account the bank offers which has instant access must pay the exact same interest rate, no matter how long it has been opened. The same for 30 days. The same again, separately, for 60 and 90 days. And those are probably the only rates that should be allowed, other than *permanent* bonuses (eg 0.5% for online-only access, 1% if the account has more than £10,000 etc) but those bonuses must be the same for all accounts and the regulator should look out for (and be capable of retrospectively reversing) any loophole whose purpose is to allow the bank to advertise a misleading rate of interest which existing customers will not automatically receive.

The main problem Italian consumers are facing in the financial market is awareness. We are living in a recession time, with petrol prices near to the soil of 2 € per liter and therefore a “spending review” should include consumers relation with banks, but they are not aware of that. They don’t know how much they can gain just changing their bank. We calculated there’s an average saving of 330,00 € but most of people simply don’t switch, only 45% out 1126 people who answered our questionnaire did. And if they change bank it still takes too long, for 30% of people answering our questionnaire, at internet time, the switch took them more than one month. Let’s move your money, this is our alert and wish for 2012 consumer day!

The foreclosure crisis continues to exact tremendous societal damage though there are recent developments signalling that the banks are beginning to be held accountable for some of their misdeeds.

In February 2012, The U.S. Department of Justice and 49 state attorneys general agreed to a settlement with 5 major mortgage loan bank/servicers that will provide $25 Billion to help struggling homeowners. The mortgage deal is a “down payment” to bring much needed relief to many homeowners though many others are not covered by the settlement. Holding banks accountable with a thorough investigation of the banks’ role in the nation’s financial collapse is still needed. Banks will continue to try to block the passage of new laws needed to protect consumers from mortgage abuses not covered by the settlement. At the same time, U.S. consumers need increased access to better quality financial services products while being protected from abuses in the marketplace.

The new Consumer Financial Protection Bureau (CFPB) provides tremendous promise that consumers will be protected in key marketplace areas including basic banking, credit cards, overdraft, student loans, remittances and payday lending markets to name a few. Consumers must participate fully to ensure that the agency meets its mission to protect the public.

Malta’s Regulator is absent when most needed. Recently, thousands of small investors, mostly pensioners, lost their life’s savings after being ‘lured’ to participate in a high risk property-linked investment product. They were not made fully aware of all the risks.

Consumers feel that the Regulator did not tackle the case in an expeditious and transparent manner to help them secure their interests, though very serious allegations of inside-trading were made. Additionally, it seems that the bank involved, by withholding its advertising on the media, is exerting pressure to discourage the publication of news items concerning this issue.

A vast majority of Spanish Consumers are trapped in long duration mortgage loans with un-capped variable interest rates. Foreclosure procedures are clearly designed to favor banks. When a foreclosure takes place, the bank keeps the property used as collateral but consumers are still bound to repay the amount of the loan not covered by the collateral’s value plus all the fees and taxes. Property is valued by companies usually owned by the banks themselves!

In Denmark the biggest problem consumers face in the financial services market is over-indebtedness. Danish Households have the highest level of debt in the world, compared to the household incomes. Moreover, a large proportion of the debt takes the form of loans with variable interest rates and no repayment. Even though there is also considerable savings in pensions and houses to counterbalance it, it makes the households very vulnerable to changes in the interest rates and in the real estate prices.

Today more than half of the Danish house owners at the age of 30-40 years, are in a situation of technical insolvency due to the fall in real estate prices under the financial crisis. What we need is a much more responsible lending practice, as well as an interest rate ceiling to prevent the most irresponsible business models for lending.

In Greece the biggest problems we face are over-indebtness, expensiveness in every day products for basic needs and on universal services. Also, another major issue is the fact that court procedures are too long and costly (at least in Greece). Courts may take even ten years to finalize their decisions.

In Germany vzbv carried out a mystery shopping with 50 banks testing the contents of the investment advice documentation that has been legally binding for two years now. Result: the quality of the protocols is poor, doesn’t reflect the information given by the investor on his situation and intentions and doesn’t reflect correctly the advice and recommendation given by the bank. In the end the documentation will more help the bank, not the consumer, for example when it comes to a court case.

For the WCRD vzbv made a press conference on 7 March presenting these results together with the claim that the Germany consumer centres and the vzbv should be institutionally funded for the task of being a ‘financial watch dog’ (watching the markets, evaluating consumer cases and problems, reporting and making claims at the regulator and policy). This would then be a kind of a dual system with financial supervision: one authority having regulatory instruments and one watch dog that collects, assesses and passes on market and consumer problems with financial services and providers. We also pushed this at a big conference on the same 7 March – explicitly mentioning the WCRD as being the roof under which it takes place- together with the results achieved in 2011 in this – at the moment unfunded – initiative. At the same time vzbv presented its negative opinion on the first draft law for a reform of financial supervision where consumer protection doesn’t get an overall task of the regulator and thus will go on leading a wall flower existence.

In Hong Kong, it is the financial literacy of the consumers as well as the sales practices of the so-called financial advisers that warrant most concern.

On of the examples was the sale by various banks of Lehman Brothers ‘minibonds’ that resulted in over twenty thousand consumer complaints, and resulted in legal action taken by Hong Kong Consumer Council through its Consumer Legal Action Fund. The complaints raised various legal issues regarding the existence of a fiduciary relationship between the banks and customers concerning the Lehman products, the effect of misrepresentation or negligent misstatement or omission of material facts, and the legal effect of signature on contractual documents under such circumstances.

The question that follows is whether the bank had acted in the best interest of customers and made full disclosure of all material facts.

The type of products which were the subject of complaint can only be described as ‘dangerous’ to the general public. Measures should be introduced to prevent these products from being marketed as anything but dangerous. Minimum standards should be developed with a basic requirement that products on general offer to the public must be readily comprehensible.

The Hong Kong Monetary Authority recently issued a circular to all Authorized Institutions (AIs) to draw their attention to a number of conduct-related issues in relation to the sale of investment products so as to ensure adequate protection of investors.

This includes:
– Adequate disclosure of relevant material information, with particular attention on some special product features and risks of certain investment products (examples are Subordinated debentures, Perpetual debentures, Contingent convertible or bail-in debentures, Basket equity-linked products).

– Ensure that, among other factors, special features and risks including the issuer’s credit risk are properly taken into account in their product due diligence process.

– Take into consideration all relevant factors, including the customer’s concentration risk, in performing suitability assessment.

– Maintain proper records of client orders. Use of mobile phones for receiving client order instructions is discouraged.

The biggest problem Australian consumers face in the financial services market is a lack of competitive pressure on the big four banks. With their 80 per cent share of the market in home loans and household deposits, and a willingness to keep passing on costs to customers despite continuing record profits, there are plenty of reasons for Australians to look beyond the big four banks and find a better deal. But perceptions that switching is too much hassle or that there are no better deals out there keep many consumers anchored to the big four. The CHOICE Move Your Money campaign is setting out to push past those barriers, and put some genuine competitive pressure on the major banks. Go to choice.com.au/moveyourmoney

Consumers of financial services in Nigeria face a twin-problem of Electronics/Mobile Banking and Debit Card issues. This problem is inflicted on unsuspecting consumers through the Automated Teller Machine Debit Card or scam done through the use of computers or mobile phones. For instance, the consumer gets a debit alert that his/her money has been withdrawn from a far distance town, even when the debit card is intact in his/her custody.

The Council has received a complaint whereby a consumer’s money was fraudulently withdrawn from her account even when she reported earlier that her card was stocked in that bank’s ATM machine. Many of the banks deny liability in such fraudulent transactions, claiming the consumers’ cards or/and PINs were compromised.

Improper charges are the Brazilian consumers’ biggest problem face in financial services. This complaint is in the first place in the ranking of National System of Consumers’ Protection and in the ranking of Central Bank of Brazil. Just six banks are responsible for 85% of the market and the financial sector is one of the most demanded sectors. In ranking of Idec, the financial sector was the most demanded. This complaint, in part, comes from the lack of information provided by banks, although it’s an obligation of the bank according to the Consumer’s Defense Brazilian Code.

The biggest problem faced by Malaysian consumers in the Banking sector is the lack of transparency to the consumers in the banking and insurance services. Many of the complaints by consumers relating to the financial sector often have to do with lack of understanding or misunderstanding of interest, charges and penalties. The consumers are not informed or that information is hidden somewhere in the “terms and conditions” and the consumers are not aware of these charges. It is the right of the consumer to be made aware clearly on all related charges to be incurred so that the consumers can make decisions based on informed choices. One example is that the bank reserve the right and discretion to review interest rates at any time and for no valid reason.

There have been several cases in which the interest rates have been revised upwards and the consequence is that the consumer has to bear a heavier financial burden. Thus banks and financial institutions, with prodding and enforcement by the regulator should ensure that the consumer is given clear and reliable information, and if for any reason, the charges are to be altered, they should first seek the consent of the consumer.

The biggest problem of Chilean consumers in the financial services market is the serious difficulty to understand basic financial concepts. Most of people, specifically those who need credits from financial institutions to manage low salaries, do not have financial education that brings tools to know, among others concepts, the following: (a) the importance of looking for the best credit options available (in terms of comparison between interest rates, operational cost different to interests and use the advantages of quoting); (b) impact of “minimum payments” according to rules established in contract, bearing in mind that the debt increases by effects of interests; (c) over-indebtedness.

Mira says:
15 March 2012

The privatised creation of money by banks is at the root of debt, poverty, inequality, unaffordable housing. It makes our boom-and-bust economy completely unstable, and is also fuelling the environmental and energy crisis. This video explains everything you need to know in just 20 minutes

This 22 minute video explains the 3 simple changes we need to make to fix our broken banking system. http://bit.ly/oyrH41

This is where Capitalism & Greed finally goes as it concerns greed/ salaries wages . The problem is Deregulation from the Government & no responsibility or ethics from those in charge.Head Offices have been disbanded in fact many are these Call centres directed by sole accountants for their own gain when Governments, Customer & public services do it we are on a hiding to nothing . Yesterday it was the Police not recognising fraud.Often it is the Banks, Media Regulatory organisations & Charities.
DECONSTRUCT & bring back the Managers with Discretion & Compensation.This is false economy.

ropa erotica says:
8 October 2012

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