UNCTAD calls for action to address consumer vulnerability in financial services

Consumers are being targeted by new types of scams and frauds as digitalization and innovations in financial markets explode.

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The cascade of crises facing consumers, from COVID-19 to food and energy price shocks from the war in Ukraine and climate change, put billions of people in a vulnerable position.

The digital transformation of economies is also pushing consumer vulnerability to new heights.

Amid heightened vulnerability, global experts discussed financial consumer protection at the meeting of UNCTAD’s Intergovernmental Group of Experts on Consumer Protection Law and Policy on July 18-19.

“Accessing and benefiting from financial services is a fundamental consumer right,” said Teresa Moreira, Head of Competition and Consumer Policy at UNCTAD, “it is essential for carrying out most economic transactions today and to improve a consumer’s life,” she added.

A United Nations General Assembly resolution recognizes that “consumer confidence in a well-functioning financial services market promotes long-term financial stability, growth, efficiency and innovation.” This is the key to achieving one of the Sustainable Development Goals.

Expanding access is the first step

According to the World Bank, in 2021, 76% of the world’s population had a bank account, an encouraging increase of 50% over the past 10 years. But women, the poor, the less educated and those outside the labor market remain underserved.

Although having a bank account is a major step towards accessing financial services, the increasing complexity of these services creates more vulnerabilities for consumers, hampering their interests and well-being.

Existing gaps in infrastructure and consumer literacy could prevent vulnerable consumers from reaping the full benefits of digital financial services, and even increase inequalities in economic opportunity.

“Financial literacy and inclusion are two of the most powerful tools for people’s personal development,” said Cynthia Zapata, director of consumer protection in Costa Rica.

“That’s why we target our consumer education campaigns to those who need it most: women, migrants, refugees and indigenous peoples. »

Call for regulation and enforcement

The United Nations Consumer Protection Guidelines include a section on financial services, providing concrete recommendations on financial consumer protection.

Governments should enact laws and policies with clear objectives of protecting consumer access to financial services and regulating business practices.

Rigorous monitoring and enforcement are required. “Efforts should be made to ensure that the overall legal framework provides sufficiently comprehensive coverage and to avoid conflicts or lack of clarity,” said Chilufya Sampa, executive director of the Zambian Competition and Consumer Protection Commission. .

Some Member States also encourage self-regulatory initiatives in the financial sector. The commitment of service providers plays an important role in ensuring responsible business conduct.

Consumer education is also a priority. Better financial education strategies are needed, especially to target vulnerable and disadvantaged consumers.

Policy actions required

UNCTAD recommends that member States take the following measures to strengthen financial consumer protection:

  1. Adopt and regularly update adequate legal frameworks to protect consumer rights in financial services.
  2. Establish and strengthen implementing agencies and oversight bodies with the authority and resources to carry out their mission.
  3. Improve and ensure good business practices, with an emphasis on fair and equitable treatment; ethical behavior; disclosure and transparency; education and awareness; consumer privacy protection; and the availability of dispute resolution.
  4. Design and implement multi-stakeholder strategies to improve access to financial services, inclusion, education and literacy.
  5. Implement effective policies to tackle remittances, consumer over-indebtedness and bankruptcy.
  6. Harness the potential of digitalization in financial services while protecting consumers from emerging threats.

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