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NBU to Start Protecting Consumer Rights in Financial Services in Early 2020

NBU to Start Protecting Consumer Rights in Financial Services in Early 2020

On 6 August 2019, the National Bank of Ukraine (NBU) hosted a roundtable discussion with financial sector representatives concerning the issue of protecting consumer rights in financial services, which was proposed for public discussion in June this year.

In order to increase the level of financial inclusion, the regulator is taking initiative to build an effective system of protecting consumers of financial services, NBU Governor Yakiv Smolii said as he opened the event.

"The financial sector needs an effective mechanism to protect the rights of financial institutions’ customers. This will make financial services even more attractive and encourage citizens to use them more extensively. In order to implement this function comprehensively, the NBU has created a new structural unit – the Office for the Protection of Consumer Rights in Financial Services – which will be responsible for consumer rights protection and will develop a client-oriented regulation. The quality of our work will provide benefits both for customers and for financial institutions, which will be able to intensively promote their services in order to meet their clients’ needs," said Yakiv Smolii.

The function of consumer rights protection will start to properly operate in early 2020, the NBU Governor added.

During the roundtable discussion, the NBU representatives focused on the main violations when providing financial services to clients, in particular the following: solicitation of third party services, deceptive calculation of the interest rate (hiding tariffs and charges), and false advertising.

"While false advertising and hidden charges allow banks to make profits in the short term, they destroy public confidence in the banking system in the long run.  This situation does not facilitate economic growth or lending recovery. That is why we plan to set requirements for banks’ disclosure on their websites and in advertising. Such regulation is necessary to make banks disclose to customers the full information on financial services and is intended to promote competition in the banking system," said Kateryna Rozhkova, First Deputy Governor of the NBU.

She noted that before signing the contract, the consumer should have a clear understanding of the basic conditions for receiving and using the financial service and be able to easily compare different banks’ offers.  In the long run, this will encourage citizens to use other financial services and reduce the level of nonperforming loans.

Olha Lobaichuk, the Head of the Office for the Protection of Consumer Rights in Financial Services, informed the participants of financial sector that comments on the published concept of consumer rights protection would be accepted until 15 August 2019.  It is planned that the revised draft documents with comments taken into account will have been approved by the end of September this year. After this, the market participants will have three months to further customize websites and amend their marketing materials.

"Once the concept is approved, the financial institutions will be required to disclose accurate information about their products on their websites and in advertisements, and to warn their clients about the potential risks.  They will also need to provide convenient tools (calculators, examples) for comparing the cost of their services.  The NBU, for its part, will provide financial institutions with recommendations on how to handle the citizens’ inquiries and will monitor law compliance based on the analysis of their inquiries," she added.

Serhii Karpenko, Director of the Strategy and Development Department, said that the implementation of this function would primarily result in restoring confidence in the financial sector.

"Analysis of the global experience demonstrates that in most countries, central banks deal with consumer protection issues.  One of the world’s key indicators of the financial inclusion level is whether a citizen has a current bank account. In Ukraine, about a third of the population has no bank accounts. Thus, the financial institutions have the prospect to significantly expand their customer base if they succeed in disclosing information on their financial products and services," he stated further.

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