Policy and practice in Germany

Abstract: In Germany, EU directives have been the primary source of consumer protection legislation in banking and financial services, especially legislation on consumer credit and investment services. Otherwise, there is little significant statute law, either at federal or provincial (Länder) level, apart from a recent Consumer Bankruptcy Law. Most consumer problems have to be solved within the framework of the very general Civil Code or the law on unfair contract terms. This means that there is strong emphasis on the role of the courts in interpreting the law in specific cases. In recent years consumer organizations have played an important part in bringing class action cases in the courts – notably on issues concerned with value dating, bank charges and the early termination of mortgage and insurance contracts. There is virtually no tradition of securing consumer protection through codes of conduct. Banking ombudsman schemes have been set up in recent years, but are subject to some criticisms by consumer organizations.     

Policies and practice in Denmark and Sweden

Abstract: Danish laws regulating banking and financial services organizations have no consumer protection provisions, although there is one law regulating a particular kind of payment instrument, the Payment Cards Act. However, general consumer protection law applies to banks and other financial services organizations, as well as other kinds of business. In particular, the Marketing Practices and Price Marking and Price Display Acts give responsibilities to the consumer ombudsman. This legal framework is complemented by guidelines issued – after consultation – by the consumer ombudsman, for example on conduct of business in bank advice, mortgage business and distance selling involving payment cards. The Danish system may be summarized as providing for standards of business behaviour laid down in general terms by law, backed by a supervisory authority with little power of coercion but playing an important role in influencing businesses to adopt high consumer protection standards and in negotiating solutions to problems as they emerge. The Swedish system is generally similar, but less advanced in the use of guidelines for the conduct of business. Both countries provide consumers who have unresolved complaints with easy access to alternative dispute resolution systems and the courts are rarely used to establish case law.     

Policy implications

Abstract: In the European Union, the framework of financial services legislation at EU level has been aimed primarily at forming a single market for banks, insurers and other financial services firms. Substantial progress has been made towards this objective. Also, the EU initiatives have stimulated a reappraisal of national regulatory systems. Most of this EU legislation (with the exception of the consumer credit directives) has not had consumer protection as one of its main aims, although it has been assumed that consumers will eventually benefit from a wide choice of financial services providers and from price competition. However, partly in response to consumer pressure, the European Commission is developing a set of initiatives more closely geared to protecting consumers’ interests. Within the context of the EU’s approach, there remain considerable variations in the approach to protecting consumers’ interests in different member states as a result of legal and cultural differences.     

Errare humanum est: Financial Literacy in European Consumer Credit Law

Examples of financial mistakes made by consumers lend support to the view that systematic mistakes of consumers exist in the EU credit market and that service providers respond strategically to these by redesigning their products. This paper seeks to determine how existing regulation can be improved to ensure consumer protection. Using insights from behavioural economics, this paper argues that financial literacy??that is, knowledge and understanding of complex financial products and skills to navigate the financial market??as a cornerstone for European financial consumer law is problematic. Current regulation is based primarily on information provision to consumers, which should enable them to make appropriate decisions about the risks and suitability of financial products. Although behavioural economics does not necessarily require legal intervention to take other forms than the introduction of information duties, the type of intervention is dependent on the design and needs of a particular market. The EU consumer credit market, in our view, demands more than the current regulation offers in terms of consumer protection. In particular, behavioural studies reveal that consumers generally do not have a sufficient level of financial literacy in order to enable them to make informed, rational decisions. Moreover, behavioural biases have a distorting influence on consumer decision making. The law as it stands, therefore, seems ill-equipped to offer protection to consumers and to prevent them from rash and bad decision making. Reviewing existing regulation and case law, we propose that in the EU law, the Consumer Credit Directive and the Markets in Financial Instruments Directive require updating in order to offer sufficient protection to vulnerable groups of consumers who, on average, have low levels of financial literacy.     

An Overview of Consumer Law in Nigeria and Relationship with Laws of Other Countries and Organisations

There is no single statute dealing with the rights and obligations of parties in relation to products and services in Nigeria. The sector-specific approach is adopted with laws and agencies put in place to regulate specific areas of consumer protection such as food and drugs; energy, telecommunications, product standards, aviation, banking, and financial services. As a former colony of the United Kingdom (UK) , many Nigerian statutes are modelled on English statutes. This historical link is also reflected in the decisions of Nigerian courts which adopt, on persuasive basis, the decisions of the English courts particularly those of the House of Lords. Nigeria belongs to some international, regional, and supranational organisations which influence the consumer law of the country. This paper gives an overview of the Nigerian consumer law with particular reference to product safety, product liability, and telecommunications services and refers to the laws of other countries and organisations where applicable. The paper concludes that Nigeria has, subject to the identified gaps, attained an appreciable level of consumer protection.     

Getting Cinderella to the ball: putting education at the heart of financial education

The recent banking collapse has called into question all activity related to financial services, from regulation to consumer protection, to financial education. Since the Organisation for Economic Co‐operation and Development's 2005 ‘Recommendations on Principles and Good Practices for Financial Education and Awareness’, there has been an increase in financial education activity, yet the world is a different place. The role of financial education, its scope and its potential, must now be critically analysed to help ensure its efficacy in supporting financial rectitude in challenging times. The authors draw on several years’ experience in the design and delivery of financial education programmes and debt prevention interventions, informed by their perspective as educationalists. In this theoretical commentary, they seek to influence the discourse on financial education, and position education as a foundational discipline in financial education. The authors identify potential risk to the future of financial education, engaging with the literature that questions the validity of financial education as an endeavour in consumer protection, which points to the dearth of empirical evidence to support its effectiveness, and which queries the efficacy of resourcing such initiative development. They argue that financial education focused on consumption cannot serve the citizen; rather, financial education must be rooted in the needs of the individual. Through these analyses, the authors highlight areas of further research, which when undertaken, can lead to more effective outcomes for all. This article introduces the concept of financial edification as an approach to financial education, predicated on the needs of the individual. In repositioning financial education as a pedagogical endeavour, the article asserts that financial education, when not driven by education, cannot achieve its true potential; it is time for Cinderella to go to the ball.     

Policy and practice in the Netherlands

Abstract: As in many other areas of public policy in the Netherlands, development of consumer protection in banking and financial services has been characterized by a consensual approach. Consumer organizations have been involved along with representative business bodies in building self-regulatory systems within a statutory framework, especially in relation to issues related to overindebtedness. This approach has characterized dispute settlement procedures as well as a code of conduct on good lending practice and a national credit registration system. The Consumer Credit Act provides a system of maximum interest rates for different kinds of credit, which may be varied according to market conditions. The needs of consumers at the lower end of the credit market are specifically catered for by a network of municipal credit banks, which also provide debt settlement services.     

Consumers’ perspectives on online banking services

The forces of economic change, coupled with advancements in technology, prompt banks to rethink their use of traditional branches and begin forming new partnerships to deliver financial services. The Internet seems to be the new delivery channel in the banking sector. Factors such as the security of personal data or the reliability of a financial institution have been identified by previous studies as the determinants of electronic‐banking adoption. In this paper, a series of new factors, such as the difficulties of using the Internet, are shown to play a crucial role in the consumer’s attitude – adoption or rejection – of this new alternative channel. We examine consumer behaviour by modelling multivariate categorical response data using a generalized linear model. Our choice model is based on the assumption that an individual’s decision to use electronic services depends on a number of explanatory variables, and we try to estimate the factors that affect an individual’s decision to use online services.     

The Brexit Dynamics: British and EU27 Challenges After the EU Referendum

Prior to the Brexit referendum, the UK government sent an information brochure to households across the country. Surprisingly, key findings of a study by the UK Treasury — including an expected per capita income loss of £1800 — were not included in the brochure. Calculations indicate that if this information had been included, the outcome of the referendum would have been 52.1% for Remain. Instead, the pro-Brexit campaign utilised anti-immigrant rhetoric to create a scapegoat for the under-provision of local public services, when actually this was due to massive cuts in budget transfers to local communities after the financial crisis. Looking ahead, major reforms are now necessary if the EU is not to disintegrate. Given the fresh support in the UK and US for banking deregulation, the EU must stand firm in support of prudential supervision and banking regulation to prevent a new international banking crisis.     

Consumer Law and Policy in Ghana

This paper presents a picture of the landscape of consumer law and policy in Ghana and reviews the scope of protection of consumer interests with specific regard to product safety and liability, consumer sales, and telecommunication services. It assesses the legislative and policy framework on consumer contracts, product safety, and unfair commercial practices; discusses the role of national agencies in enforcing safety standards; and highlights some critical consumer issues in telecommunications service delivery. The paper examines the regulatory framework on other consumer issues such as advertising, labelling, and marketing of consumer products; terms and conditions of consumer contracts; and after sales services including the enforcement of guarantees, warranties, refund, and return policies. The paper also discusses the extent of external influence on the development of consumer law and policy in Ghana and reviews the level of interaction with other legal systems and supranational bodies in the three focal areas. The contribution also explores areas of Ghana’s consumer protection framework which could benefit from guidance from the EU transnational model on consumer protection and makes recommendations for the enhancement of the emerging legislative and policy regime on consumer protection in Ghana.     

The Impact of EU Norms and Policies on Consumer Protection Enforcement in Serbia

Pursuant to its 2008 Stabilization and Association Agreement governing the process of EU integration, Serbia is obliged to align its consumer protection standards (including those related to enforcement) with those of the EU. This article considers the overall approach to enforcement of consumer law in Serbia, focussing in particular on the extent to which EU enforcement principles have been successfully exported to Serbia and whether the goals of EU consumer policy have been achieved. It argues that the incorporation of EU norms has brought fundamental changes to Serbian enforcement mechanisms at a formal level, such as in relation to mediation processes as well as the introduction of injunctions for the protection of collective consumer interests. In practice, however, the impact of this incorporation is quite limited. A number of factors that restrict the practical effectiveness of the mediation processes and injunctions required by EU law are explored in the article, including weak sanctions, excessive reliance on poorly resourced consumer organizations, absence of a business culture of compliance or a sophisticated and determined consumer protection enforcement culture sufficiently grounded in expertise, as well as an overarching political, legislative, and institutional instability. These factors also undermine the general aim of EU policy to achieve effective consumer protection enforcement in the Serbian context.     

Policy and practice in the United Kingdom

Abstract: The UK currently has well-developed but very fragmented systems and structures for consumer protection in banking and financial services, including legislation, regulatory bodies and various forms of self-regulation. At the time of writing, the government has launched proposals for a much more integrated, statute-based system that would cover a large part of the market place and that would be implemented by a single new regulatory body, the Financial Services Authority. However, a number of significant details are still absent from the proposals or are the subject of strong criticism, either from the industry side or from consumer organizations. Also, some types of life assurance, non-life insurance and most mortgage lending may remain outside the proposed new system. It remains to be seen when the proposals will become law and what precise form they will take.     

Banking regulation in the European union: Some issues and concerns

Banking regulation and supervision in the EU today has to be conducted in accordance with the Single Market legislation promulgated by the European Commission. The creation of a European Single Market in financial services, which was provided for in the Treaty of Rome of 1957 and in the Single European Act of July 1987 which revised it, was originally planned for completion by the end of 1992, although the final pieces of the jigsaw were not in place until the beginning of 1996. This article explains what the European Single Market in financial services represents, the rationale for it, and the measures, including the use of legally binding Directives, adopted to deliver it on the banking front. It concludes with a discussion and analysis of some of the issues and concerns which implementation of the Single Market program for banking services has given rise to, with special emphasis being placed on the evolution of minimum capital standards for banks.     

Financial services spillover effects on informal economic activity: evidence from a panel of 20 European countries

ABSTRACT

This study aims to investigate the spillover effects of the financial services sector development on the size of informal economic activity in the case of the European Union (EU) countries. The results from panel data analysis show that there exists an inverted U-shaped relationship between financial services and informal economic activity in the EU; that is, at the initial levels of the financial development, the reaction of informal economic activity is positive while it becomes negative at the further stages of the financial development in the EU. Thus, this study finds that financial services sector is a major contributor to changes in the volume of informal economic activity in the EU countries.     

Financial service providers: Does it matter if banks don't behave ethically?

The ethical consumer literature predominantly concentrates on fast‐moving consuming goods and thus, neglects insights to consumer behaviour within ethical services. As the financial services sector continues to grow in the UK, this paper addresses this anomaly by providing further insight into consumers and their ethical banking practices. More specifically, it examines their motivations as well as the trade‐offs and barriers which prevent greater uptake. Using a combination of in‐depth interviews and projective techniques, the research draws on Freestone and McGoldrick's model to reveal a lack of awareness towards ethical financial service providers and sheds light on various perceptions regarding what constitutes an ethical financial service. Additionally, numerous underlying personal benefits of ethical financial services became apparent alongside consumer expectations of customer care. In conclusion, our findings help to create a revised model which identifies more precisely the stages of ethical awareness, motivation and behaviour of ethical consumers both in the context of ethical financial services but also ethical consumption practices in general.     

Consumer rights of the elderly as vulnerable consumers in South Africa: some comparative aspects of the Consumer Protection Act 68 of 2008

Although consumer protection is not a new concept in South African law, the Consumer Protection Act 68 of 2008 (CPA) now provides for a much more comprehensive and encompassing mechanism to protect consumers. Consumers are protected, not only in the provision of goods and services, the conclusion of contracts but also in the promotion and marketing thereof. The CPA further provides special protection to a particular type of consumer which is the vulnerable consumer and includes elderly consumers. Importantly, and for the first time in the history of South African law, the consumer is provided with eight core fundamental consumer rights. As this contribution is an attempt to provide an interdisciplinary analysis from a legal perspective, identification of what is considered to be an ‘elderly' consumer, needs to be assessed by referring to relevant empirical studies from both an international as well as South African perspective. The focus of this study is on the protection of the elderly as a category of vulnerable consumers in terms of the CPA. The investigation will attempt to show that the elderly is protected in terms of all eight of the fundamental consumer rights within the CPA. Special reference will be made to two fundamental rights of the consumer in terms of the CPA. First, the elderly consumer's right to equality in the consumer market (Part A of the CPA) which provides additional protection as the CPA also refers to the Constitutional right to equality. Second, the elderly consumer's the right to fair and responsible marketing (Part E of the CPA) which in terms of the research is compared with the EU Unfair Commercial Practices Directive. Certain problems regarding elderly consumers are identified and the importance of consumer rights as well as the implementation of the correct consumer policy is argued.     

Proposal and validation of a financial protection perception scale

This article proposes and validates a financial protection perception scale (FPPS) from the perspective of the financial services consumer. The scale was applied to a sample of 1137 individuals residing in Brazil and validated using exploratory and confirmatory factor analysis and standard multivariate validation methods. The FPPS, composed of 14 items, allows the development of an indicator that defines the level of protection perceived by the consumer of financial services, evaluated along the dimensions of transparency, suitability, security, and complaints. The tests and fit indices indicated the reliability and validity of the FPPS. With this scale, researchers, managers, and policymakers can assess the extent to which consumers feel protected when using financial services.     

Anesthesiologists and anesthetist: are we paying for outcome or process?

The concept of Value Exchange is fundamental to any discipline that focuses on interactions between providers and consumers. In both the study of Marketing and the study of Economics, one learns that a producer and consumer will engage in an exchange relationship only so long as the value/cost relationship is positive. Once the cost of the exchange is equal to the value of that exchange, further economic activity is irrational. In a market-based economy, the market is obviously the regulator unless there is some imperfection inhibiting the interaction of the buyer and seller. When there is an imperfection, it is the government's responsibility to intervene and function as a proxy promoting rational buying and selling. In this paper, the author will attempt to demonstrate that the consumer has been economically irrational when purchasing anesthesia services and government has been slow and minimally effective when intervening to rectify this market imperfection.     

Banks and Financial Discrimination: What Can Be Learnt from the Spanish Experience?

This paper analyses the phenomenon of financial discrimination that has been identified in many developed countries in the aftermath of the financial crisis. We would consider the process of worsening quality in the provision of banking products and services as part of the increasing problem of financial exclusion, which should consider not only physical access to branches but also the difficulties of using banking services and products. Our primary concern is focused on the collective of vulnerable customers, so we have carried out an analysis at a micro-scale (urban districts and municipalities) to identify the main determinants of financial discrimination of territories according to their socioeconomic profile. This study constitutes a first attempt to analyse financial discrimination in the provision of banking products and services at an urban micro-scale. We have considered the cases of Madrid and Barcelona in Spain as good references, as these large urban territories have a high level of social inequality. The methodology applied is quantile regressions, a useful technique for analysing the “extreme” nature of the phenomenon of financial discrimination. Our results confirm that the more overloaded branches are located in districts characterized by a lower socioeconomic profile, indicating a banking industry trend towards “low-cost” retail banking to serve the group of less profitable, more vulnerable customers. Some recommendations are outlined for policymakers in line with the aims and scope of the Payment Accounts Directive of the European Union.

     

A Question of Trust: the Pursuit of Consumer Trust in the Financial Sector by Means of EU Legislation

The decrease in consumer trust in the financial sector and the attempts to restore it are receiving a great deal of interest, especially since the financial crisis at the end of 2008. EU legislation is one of the ways that attempts have been made to regain the trust of investors. In the second section, the concept of “trust” will be subjected to an in-depth yet not exhaustive examination, with the aim of reducing its elusiveness. The third section will discuss three recent EU proposals. Examination of these legislative proposals reveals that (1) the term “trust” is not precisely defined, and (2) without stating further reasons, the restoration of trust in the financial sector is considered a worthy goal. In light of the aforementioned, the fourth section will address the desirability of clarity regarding the term “trust.” The fifth section will then assess whether legislation is a suitable means to restore consumer trust, and the sixth section explores whether the restoration of consumer trust in the financial sector is a worthy goal. Indeed, the European legislator and other policymakers seem to consider a low level of consumer trust a bad thing, a high level of consumer trust a good thing, and a higher level of consumer trust an even better thing. This article will argue that it is doubtful whether EU legislation is a suitable means for restoring consumer trust in the financial sector and, moreover, that considering the perverse incentives in the current financial sector, among other things, a realistic degree of trust, implying a certain distrust, appears preferable.