4 January 2010
Critical issues, policy solutions and practical examples of consumer protection. This note examines the role of consumer protection in financial inclusion. 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 financial institutions providing services. This can result in excessively high interest rates, lack of understanding about financial options, and insufficient avenues for redress. Although many financial institutions adopt practices to ensure customers are well served, some have used their information advantage to increase profits at the expense of consumers.
The paper states that:
• Benefits of financial inclusion can be lost without adequate consumer protection;
• Consumers need information to make good decisions;
• Market discipline facilitates financial market expansion;
• Improving financial literacy requires a multi-stakeholder framework involving consumers, financial institutions and governments;
• Market conduct regulations should be consistent across the financial sector.
Finally, general consumer protection laws often fail financial consumers. Protections unique to financial services include fair market practices, equitable treatment, disclosure, redress, financial education and credit counseling.