From this day onward, the NBU will protect the rights of financial service consumers. The respective Law of Ukraine On Amendments to Certain Laws of Ukraine Regarding Protection of Consumer Rights in Financial Services (formerly known as Draft Law No. 1085-1) was voted “for” by 309 members of the parliament.
Over the past eight years, not a single government authority in Ukraine has enforced the protection of financial service consumers’ rights. As a result, the NBU received over 13,000 complaints from disgruntled users of financial services in 2018 alone. Lacking the relevant mandate up until now, the NBU has been unable to either preempt violations or take action against those committing them.
The adopted law is meant to change this fact. The approved law puts the NBU in charge of protection of consumer rights in financial services and provides it with instruments to regulate financial market participants’ behavior in relation to clients. This makes Ukraine the world’s 120th country to protect the rights of financial service consumers. The NBU will in turn become the world’s 98th central bank to fulfill this function.
One of the Law’s major novelties is mandatory disclosure of information regarding the real value of financial products and services.
“One of the most widespread violations among banks and nonbank financial institutions today is misrepresentation of loan interest rates. This is also one of the most serious problems faced by citizens when using financial services. Real interest rates can sometimes be hundreds of times as high as advertised rates, making it unexpectedly hard for individuals to repay loans and thus adding to social tension,” NBU Governor Yakiv Smoliy said in a comment regarding the Law’s enactment.
The arrival of the special unified format of information disclosure will make it impossible for banks to charge hidden interest, he noted.
“This will have a positive effect on borrowing costs, as the Law will free the market from information asymmetry, and banks will start to compete using real, rather than advertised, rates,” the NBU Governor said.
Also, the law will eliminate hard-selling of redundant services by financial institutions, making changes to core terms of loan agreements, as well as transferring personal data to third parties without advance notice or in a unilateral manner. The list of violations goes on, but the problems noted above are what Ukrainians face most often, a USAID survey shows.
The NBU has already set up a function called the Office for the Protection of Consumer Rights in Financial Services that will respond to customer complaints, draft the legal framework, set requirements to transparency and credibility of the information to be disclosed by banks and nonbank financial institutions, and inspect these entities.
The NBU has already published the Concept Paper on Protection of Consumer Rights in Financial Services suggesting to obligate banks to disclose credible and exhaustive information on products, as well as introduce convenient counters to compare prices of products.
Within three months after adoption of the Law, the NBU will draft a relevant legal framework, comprising regulations stipulating new rules for nonbank financial institutions to reduce the frequency of violations.