The high-level principles on financial consumer protection recently endorsed by the G20 countries emphasise the need for authorities that oversee consumer protection and the promotion of common rules that cover all financial services.

In the context of equitable and fair treatment of consumers, the G20 principles also highlight the need to dedicate special attention on vulnerable consumer groups. Regulation should reflect and be responsive to new financial products, designs and delivery mechanisms. It is vital that the supervision has the perspective of consumer protection. For this reason, too, it is necessary that the Consumer Protection Ombudsman continues to have extensive competence in all consumer contracts on financial services.

In all stages of the financial services delivery process and the customer relationship, the consumer should also be given appropriate information on the risks. All financial promotion material should be honest, understandable and not misleading. While the provision of information was stressed earlier, consumer protection now focuses on ensuring that the product as a whole is fair and does not lead into negative impacts for the consumer.

The G20 principles urge the use of standardised practices, for example forms, to allow comparisons between financial products of the same nature. In connection with complex and risky financial service products, specific disclosure mechanisms should be used to provide the consumer with information, for example warnings. In all stages of the contractual relationship, the service providers should work in the best interest of their customer and be responsible for upholding consumer protection.

Right product for the right customer

The principles adopted by the G20 are to a great extent based on behavioural economics. The consumer is not an expert, and thus he or she is unable to understand complex high-risk products. It is up to the expert to provide comprehensible information about the products. If the product is risky for the consumer’s finances, it should not be offered, in the same manner as products that are harmful to a consumer’s health should not be offered.

In order to make it easier for consumers to find their way around the marketplace, an effort is being made in the United Kingdom to change the operating practices of credit card companies. In the future, the consumers will receive an annual summary of their credit card use. This summary provides an overall idea of the consumer’s annual use of the card: to what extent the card has been used and how much of the credit has been paid back, and what interests and costs have been paid. This makes it easier to compare the card with those offered by other credit card companies, which is apt to promote mobility in the market.

This method represents an effort to give consumers tools for understanding their own behaviour and finding the best contract on one hand, and upholding a high level of consumer protection on the other.

It all simply aims at reinforcing consumer confidence – as without confidence, there is no trade.

Anja Peltonen
Director
The Finnish Consumer Agency

G20 high-level principles on financial consumer protection