The National Bank of Ukraine has announced a new mechanism for protection of financial services consumer rights that makes banks and nonbanking financial institutions liable for the quality of offered services.
For this purpose, the NBU prepared the Principles of Protection of Financial Services Consumer Rights that change approaches to disclosure by the banks and nonbanking institutions of information on the price of services and the rules of their communication with consumers. In addition, the NBU establishes a separate unit assigned to safeguard rights of customers of financial institutions.
The NBU plans to publish the relevant drafts on the NBU’s official web-site for discussions with the public, banks, and other financial institutions before implementing them.
What is the challenge?
The Law of Ukraine On Consumer Lending, that has been effective for two years, failed to improve protection of consumer rights in financial services. The law has proven to be ineffective even with regards to providing consumers with credible information on prices of services, although it was the key objective of the law.
The situation can be changed, if the Verkhovna Rada approves the draft law on protection of consumer rights in financial services (No. 2456d) for almost two years awaited by the Ukrainian citizens. However, so far the draft has passed only the first reading. The situation with the consumer protection in financial services causes public mistrust in the Ukrainian financial sector, hinders its development, and distances it from the EU standards that should be implemented under the EU–Ukraine Association Agreement.
With that in mind and continuing to hope that the Verkhovna Rada will pass the mentioned draft law, the NBU decided to offer the market another way to protect consumer rights and designed a series of regulations that even without the respective law can regulate the most burning issues in relations between customers and financial institutions. In particular, the NBU has drafted documents intended to regulate both disclosure of information on financial products and services – being the most sensitive issue between consumers and financial institutions – as well as the way banks and the NBU review public grievances.
“The system of financial services consumer protection in the EU countries has the lead role in the economic and social policies. Since this is the basis of trust in the financial sector and the foundation of public prosperity on the account of financial instruments, and not the other way around. One of the leading principles of consumer rights protection is the principle of responsible and fair treatment of all categories of consumers of financial services, creating and implementing the mechanism of out-of-court resolution of disputes on financial services and disclosure of exhaustive information on financial services.
This is what Ukraine should strive for. We are confident that Ukrainians, like Europeans, should be given the chance to defend their right to quality financial services and financial institutions should assume liability for the quality to their customers”, noted NBU Governor Yakiv Smolii.
What changes will the suggested novelties bring?
First, uniform approaches to disclosing information on the price and other features of financial products and services will be introduced. At present, information asymmetry rules the financial services market and different financial institutions provide information on their services either willingly or unwillingly in a misleading manner. This distorts competition (since honest description of products as a rule makes them less appealing) and prevents customers from making a reasonable choice.
Second, uniform standards for communication of banks with the customers for reviewing grievances; deadlines and contents of requests and responses will be determined. Thus, banks will receive credible report of a violation, and customers will be provided with a reasoned and not an abstract response.
And third, the consumer rights protection function of the NBU will be expanded. In particular, the staff responsible for this function will be increased resulting in improved awareness of customers about their rights and the NBU will check compliance of banks with the market conduct rules. In fact, the NBU will become the defender of last resort for consumers of financial services, when financial institutions fail to protect consumer rights.
“We are certain that the banking community will support our initiative, since protection of financial consumers’ rights is an investment in the future and not an additional burden. Since a faulty consumer rights protection system is detrimental for all the parties, i.e., responsible financial institutions that lose their advantage due to being open, consumers struggling to resolve their disputes with financial institutions and losing their trust in the financial system, and the macrofinancial stability as a whole, since mistrust in financial services forces Ukrainians to stash their cash under the mattress.
It should be borne in mind that by signing the EU–Ukraine Association Agreement, we committed to bring the regulations on the financial sector in line with EU acquis, and improving consumer rights protection is an important stage of this process”, noted NBU Deputy Governor Roman Borysenko.