The supervision of the financial industry is being reorganised in several countries and consumer authorities are increasingly participating in the process. There are also legislative projects aimed at improving the position of debtors.
In Finland the supervisory responsibility in finance and credit matters has for several decades been shared by the Consumer Ombudsman and the Financial Supervisory Authority (formerly the Financial Supervision Authority). The Consumer Ombudsman's mandate is based on a broad general authority regarding all consumer trade, including financial services, to monitor compliance with the Consumer Protection Act. This broad-based approach helps ensure that the key principles of regulating consumer trade are followed consistently in all industries, such as in the case of electric supply and telecommunications markets.
The Financial Supervisory Authority and the Consumer Ombudsman have concurrent authority and a legal responsibility to cooperate. The Consumer Agency finds this Finnish model to be flexible and considers the roles of the two agencies to complement each other through their respective areas of expertise and different points of view. The Consumer Ombudsman's starting point is specifically the consumer's position, while the Financial Supervisory Authority concerns itself with the customer's position, even when the customer is a business, as well as monitoring the solvency of actors in the industry.
The financial crisis has spurred various international forums to begin calling for strengthening the role of consumer authorities in supervising the financial sector and to approach questions pertaining to the need for regulation specifically from the consumer's viewpoint. Fortunately, in Finland the situation has been different. This is reflected, amongst other things, in the content of credit terms. In several countries financial supervision is focused on monitoring solvency, which has resulted in less attention being paid to supervising practices related to marketing and contract terms. In some cases, these two aspects of supervision have even been in conflict with one another.
New regulation and authorities in North America
In the United States, the government proposed in June to establish a new consumer agency, the Consumer Financial Protection Agency (CFPA), which would be charged with protecting consumers in the context of credit, deposit and payment transaction markets. The key values promoted by the agency would be transparency, clarity, fairness, responsibility and availability. Establishing the agency is part of President Obama's wider Financial Regulation Plan. Also pending is the establishment of a new cooperative body known as the Financial Services Oversight Council. It would be tasked with coordinating regulation and the settlement of disputes as well as identifying signs of potential new risks.
Canada, for its part, has had a separate consumer agency for the financial industry (FCAC, the Financial Consumer Agency of Canada) in operation since 2001. Its tasks include monitoring compliance with consumer protection legislation in the financial industry and producing commercially independent and easily understandable information for consumers regarding financial services.
In response to the financial crisis, Canada is taking action to reform credit legislation. The objective is to restrict practices which are unfavourable to consumers. One of the legal provisions designed to promote responsible lending prohibits creditors from raising customers' credit limits without their express approval. Fees for exceeding the account limit may not be collected if exceeding the limit is a result of pre-authorisation charges made by companies rather than actual use of credit. Consumers must also be provided advance information on upcoming changes to interest rates on a monthly basis to help them make decisions pertaining to their finances. Consumers must also be informed, with examples, of how long it will take them to pay off their credit by making minimum monthly instalments. Few people realise that, for instance, paying off EUR 1,000 of credit in minimum instalments at 18% interest takes 10 years. Minimum instalments are profitable to the creditor but unfavourable to the consumer. If the consumer can afford it, he should pay off the loan faster. In the future, creditors should draw the customer's attention to matters such as these.
International organisations taking an active role
Questions of consumer protection in the financial industry have also been a focal point of the OECD this past spring. In June, the OECD issued recommendations on how to increase the financial awareness of consumers. Analysing the financial crisis has led the OECD to determine that questions of financial literacy and consumer protection have thus far been given insufficient attention in the supervision and regulation of the financial industry. The OECD recommendations are covered in more detail elsewhere in this issue.
The EU is also taking steps to reform its system of financial supervision. In May the European Commission issued a Communication on the matter and arranged a public consultation, which ended in July. The European Consumers' Organisation BEUC has criticised the Commission's plan for not giving enough consideration to the viewpoint of consumer protection.
In early September the Commission will hear various parties on responsible lending, which is important in that it recognises the need for responsibility on the behalf of companies. Thus far the emphasis has been more on the irresponsibility of consumers.
BEUC has also taken a stance regarding recovery from the financial crisis and measures in response to it, including the need for improving consumer protection in the context of financial services. BEUC has summarised its key suggestions for development in its priorities for the Swedish Presidency.
Read BEUC's suggestions