Every year, there are 150 million new customers of financial services worldwide. Lack of information – or ’information asymmetry’ – between consumers and the banks places these new customers at a disadvantage. Consumer protection seeks to level the playing field between suppliers and consumers of financial services. Retail customers have less information about their financial transactions than do the financial institutions providing the services, which can result in excessively high interest rates paid, lack of understanding about financial options, and insufficient avenues for redress. Such an information imbalance is greatest when customers are less experienced and products are more sophisticated. Without adequate consumer protection, the benefits of financial inclusion can be lost.

Consumers have rights. These include the right to be heard, the right to information, the right to choice and the right to redress. Market conduct regulation can correct the information imbalance and encourage market expansion by apportioning information disclosure at the right time. Laws and protections specific to the financial service sector also help safeguard these rights. These include laws on fair market practices for providers, equitable treatment of customers, full disclosure of relevant information to consumers, redress mechanisms for complaints, financial education for consumers, credit counseling for over-indebted consumers, and the protection of privacy of customer information.

Regulators need to work with both consumers and industry to supervise market conduct. Self-regulation by banks can help create a culture of transparency, but to ensure transparent pricing and disclosure, enforcement is also needed. Ombudspersons can support the regulator by addressing individual complaints, while independent consumer advocates can offer additional support to consumers. By building trust among consumers, increasing demand for financial services, and improving the quality of investor portfolios, transparency also leads to deeper and more efficient financial markets.