Wednesday, March 16, 2011
Tuesday, March 15, 2011
Ghanaian Consumers Demand Independent Financial Regulator
By Jean Lukaz MIH
On March 15, World Consumer Rights Day (WCRD) 2011, consumers in Ghana are adding their voices to the global campaign for fair financial services. The Consumer Partnership (The COP), in a move to restating the previous year’s concerns about the vulnerability of a borrower beware (caveat emptor) situation to shift to a lender beware (‘caveat venditor’) approach, is advocating for an independent financial regulator in Ghana far from the Bank of Ghana and its insider Investigation and Consumer Reporting Office (ICRO).
According to the World Bank/CGAP, there are as many bank deposit accounts in the world as there are adults. And yet, over half the adults in the world are ‘unbanked’ and 150 million new consumers join the market for financial services every year.
Consumers International (CI), the global voice for consumers around the world has issued a set of international recommendations for strengthening consumer financial protection to G20 leaders, the Financial Stability Board, the OECD and the World Bank.
The report, Safe, fair and competitive markets for financial services: recommendations for the G20 on the enhancement of consumer protection in financial services, calls for the establishment of ‘mandatory financial consumer protection bodies: national regulators with full authority to investigate, halt and remedy violations of consumer protection law, including, where necessary, the right to define specific practices or products as unfair, deceptive or otherwise illegal’. Among the recommendations are also the following related to consumers and their patronage of financial services:
1. Information design and disclosure
2. Contracts, charges and practices
3. The structure and functions of national financial consumer protection bodies
4. Redress and dispute resolution systems
5. Promoting competition in financial services
6. Measures to promote stability and safety of consumers deposits and investments
7. Access to basic financial services and the role of new forms of service.
According to Consumers International Director General, Joost Martens, "These ground-breaking recommendations are the product of a shared sense of anger within the consumer movement that the rights of financial consumers have been neglected for too long. They provide a clear and comprehensive set of demands for significantly improving financial protection for consumers everywhere."
The financial crisis dramatically illustrated that weak consumer protection poses a significant risk to the wider economy as intimated by Sheila Bair, the Chair of the US Federal Deposit Insurance Corporation, “There can no longer be any doubt about the link between protecting consumers from abusive products and practices, and the safety and soundness of the financial system”.
As part of her development support, the German government and its development agency Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) awarded a project to GOPA in Ghana from November 2010 to June 2013 to help streamline the microfinance sub-sector through Responsible Finance, one of its components. This is aimed at Banking Supervision, Financial Literacy and Consumer Protection and consists of technical advice, training and mentoring for the management and technical staff of the Bank of Ghana, the ARB Apex Bank and CUA in the areas of strengthening the supervision and internal controls of rural banks and credit unions as well as improving the consumer protection in the financial sector. It includes, above all, support to the planning and implementation of the institutional reorganisation of the banking supervision (incl. the corresponding consultation processes), technical support to the merger of selected rural banks and credit unions, and the strengthening of the Investigation and Consumer Reporting Office of the Bank of Ghana.
In as much as this is laudable, The Consumer Partnership believes that much more is required of the government of Ghana to show her commitment to protecting Ghanaian consumers from a product as complex as financial services. Over-reliance on consumer education, which is a necessary but wholly insufficient response to the problem, has not solved the case of weak financial consumer protection that is a problem commonly shared by consumers in countries with well-established financial services as well as consumers in countries where the sector is relatively new.
On March 15, World Consumer Rights Day (WCRD) 2011, consumers in Ghana are adding their voices to the global campaign for fair financial services. The Consumer Partnership (The COP), in a move to restating the previous year’s concerns about the vulnerability of a borrower beware (caveat emptor) situation to shift to a lender beware (‘caveat venditor’) approach, is advocating for an independent financial regulator in Ghana far from the Bank of Ghana and its insider Investigation and Consumer Reporting Office (ICRO).
According to the World Bank/CGAP, there are as many bank deposit accounts in the world as there are adults. And yet, over half the adults in the world are ‘unbanked’ and 150 million new consumers join the market for financial services every year.
Consumers International (CI), the global voice for consumers around the world has issued a set of international recommendations for strengthening consumer financial protection to G20 leaders, the Financial Stability Board, the OECD and the World Bank.
The report, Safe, fair and competitive markets for financial services: recommendations for the G20 on the enhancement of consumer protection in financial services, calls for the establishment of ‘mandatory financial consumer protection bodies: national regulators with full authority to investigate, halt and remedy violations of consumer protection law, including, where necessary, the right to define specific practices or products as unfair, deceptive or otherwise illegal’. Among the recommendations are also the following related to consumers and their patronage of financial services:
1. Information design and disclosure
2. Contracts, charges and practices
3. The structure and functions of national financial consumer protection bodies
4. Redress and dispute resolution systems
5. Promoting competition in financial services
6. Measures to promote stability and safety of consumers deposits and investments
7. Access to basic financial services and the role of new forms of service.
According to Consumers International Director General, Joost Martens, "These ground-breaking recommendations are the product of a shared sense of anger within the consumer movement that the rights of financial consumers have been neglected for too long. They provide a clear and comprehensive set of demands for significantly improving financial protection for consumers everywhere."
The financial crisis dramatically illustrated that weak consumer protection poses a significant risk to the wider economy as intimated by Sheila Bair, the Chair of the US Federal Deposit Insurance Corporation, “There can no longer be any doubt about the link between protecting consumers from abusive products and practices, and the safety and soundness of the financial system”.
As part of her development support, the German government and its development agency Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) awarded a project to GOPA in Ghana from November 2010 to June 2013 to help streamline the microfinance sub-sector through Responsible Finance, one of its components. This is aimed at Banking Supervision, Financial Literacy and Consumer Protection and consists of technical advice, training and mentoring for the management and technical staff of the Bank of Ghana, the ARB Apex Bank and CUA in the areas of strengthening the supervision and internal controls of rural banks and credit unions as well as improving the consumer protection in the financial sector. It includes, above all, support to the planning and implementation of the institutional reorganisation of the banking supervision (incl. the corresponding consultation processes), technical support to the merger of selected rural banks and credit unions, and the strengthening of the Investigation and Consumer Reporting Office of the Bank of Ghana.
In as much as this is laudable, The Consumer Partnership believes that much more is required of the government of Ghana to show her commitment to protecting Ghanaian consumers from a product as complex as financial services. Over-reliance on consumer education, which is a necessary but wholly insufficient response to the problem, has not solved the case of weak financial consumer protection that is a problem commonly shared by consumers in countries with well-established financial services as well as consumers in countries where the sector is relatively new.
Friday, March 4, 2011
Unsafe in Any Currency
By Jean Lukaz MIH
Access to financial services is now considered a basic consumer right but the evils of banking and insurance and the vulnerability of poor consumers have grown beyond borders and continents. In Ghana, where over 80 percent of Ghanaians are financially illiterate, and this amazingly includes highly-educated folks, the financial services sector has been swarmed by predatory lending practices from those businesses pretending to be commercial, to the micro-finance and -insurance service specialists, to the non-commercial quasi-NGO (QUANGOs) social missionaries, to the grey area of new innovative mobile phone banking twists. Consumer naivety in financial services has even become a common financial joke in Ghana where consumers are said to always confuse ‘shares’ with ‘shirts’. The Financial Services sector in Ghana and in Africa seem to be loosely regulated by governments and businesses are just paying lip service to voluntary codes outlined by forums such as the Partnership for Making Finance Work for Africa (MFW4A) and the UN Blue Book on Building Inclusive Financial Sectors for Development that have inherent measures to curtail proliferating cross-border shylocks.
On March 15, World Consumer Rights Day (WCRD) 2010, The Consumer Partnership in collaboration with the Ghana Standards Board (GSB) jointly organized a seminar on the Consumers International global theme ‘Our Money, Our Rights’, where a number of financial consumer protection initiatives by SPEED Ghana and the Ghana Microfinance Institute Network (GHAMFIN) targeted at the illiterate and poor consumers were also discussed. This had been an important step in targeting the non-English speaking population as financial literacy educational road shows and drama were conducted in local languages.
The best consumer protection is self-protection and consumers require consumer education to protect themselves in the market place. There is the need for consumer education on financial services to focus on financial capability, responsible finance, consumer protection, and the conduct of business regulation in Ghana. However, most consumer education efforts by government agencies are ineffective because they are in English only and targeted at the literate population who read one or two major newspapers. This leaves about half the population uninformed and uneducated. Consumer Protection Advocacy must thus border on the need for access to stable, secure and fair financial services, which is important for consumers everywhere, not least in the context of the global financial crisis. Government policy makers have a duty to increase consumer information ( ‘truth in lending’ for example), invest in financial literacy initiatives (i.e., consumer education), insist that the retail financial industry take steps to protect consumers (self-regulatory codes of conduct, for example) and encourage the development of an independent regulatory oversight body responsible for monitoring, reviewing and taking complaints. In order to protect consumers, the Government must ensure that consumers have regular reliable information on what services financial institutions offer at which price and what the risk involved is, so that consumers can make well-informed choices.
In a move to protecting Ghanaian consumers in Financial Services, the Bank of Ghana (BoG) has established a new Investigation and Consumer Reporting Office (ICRO) within the Banking Supervision Department (BSD) as the financial industry watchdog office of the Bank of Ghana (BoG), with responsibility for protecting consumers of financial products and services and educating them on their rights and responsibilities. While this effort is laudable, the government must be moving more towards state sponsorship of regulation instead of state provision since this prevents duplication of mandates as is the case of this new ICRO within the Bank of Ghana that is working with the same mission, laws and regulatory authority in all matters relating to banking and non-banking financial business, that is
• Bank of Ghana Act 2002, Act 612
• Banking Act, 2004 (Act 673)
• Financial Institutions (Non-Bank) Law 1993, PNDC Law 328
• Companies Code Act 179, 1963
• Bank of Ghana Notices /Directives / Circulars / Regulations
Ghana must emulate the example of the US in moving for a new regulatory authority specifically dedicated to the protection of consumers of financial services in the form of the new Consumer Financial Protection Agency (CFPA) that was eventually based on the recognition of the vulnerability of consumers to financial services that are ‘Unsafe at any Rate’ as concluded by Elizabeth Warren in her treatise in a 2007 article in Democracy Journal:
‘It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street... Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance ... The difference between the two markets is regulation’.
The ineffectiveness of the regulatory role of the Bank of Ghana (BoG) in the financial services sector has been exposed since 2004 when it directed all commercial banks in the country, to abolish and in some instances reduce, what it described as unfair bank charges and fees being charged by the various commercial banks operating in the country. The directive, which employed moral suasion as a regulatory tool, only provided a carte blanche for the commercial banks to further exploit poor Ghanaian consumers through extremely high and unfair interest rates.
The banking population of Ghana is about 20% and many Ghanaian households do not save with the banks because of the low interest on savings resulting in a gap that has gained Ghana the status of the country with the highest lending rate in sub-Saharan Africa.
With Ghana's interest rate currently ranging between 23.5% and 41.6% compared with an average estimated rate of 14% for sub-Saharan African countries and 3.34% for Asia's emerging economies, the present business environment promotes a let the borrower beware [‘caveat emptor’] approach to banking and financial services, which the UN Bluebook on Building Inclusive Financial Sectors for Development (2006) considers as a minimalist option that is purely ‘anti-consumer’. This attitude exploits uninformed and uneducated financial consumers and leaves very little responsibility to the lenders. There is the need for an enforced shift from letting borrowers beware to letting the lenders beware, a ‘caveat venditor’ approach as a first step.
Since the beginning of 2010, it seems that most of the global agencies such as Consumers International (CI), World Bank and the International Organization for Standardization (ISO) Consumer Policy Committee (COPOLCO) have gained a new consciousness on the exposure of African and third world consumers in general to the vicissitudes of the financial sector. CI used financial services as the theme of WCRD 2010 to raise awareness of the issue that cuts across borders not only in Africa but also in Europe and the US as the crises has shown. The World Bank Group is developing a Global Program on Consumer Protection and Financial Literacy to address these questions and help consumers help themselves, using a successful program piloted in Europe and Central Asia, the Global Program will be available to developing countries worldwide. And ISO-COPOLCO has initiated a process to gather information on consumer protection issues related to the provision of financial services, and the growth of new technologies and business models that have evolved in response to consumers' needs in financial services such as ethical practices in the provision of financial information and disclosure, best practices regarding the provision of financial services, appropriate design of information for targeted consumer financial products, questionable business practices (e.g. aggressive marketing practices, unfair contract terms) and liability issues, as well as mechanisms of enforcement and redress.
The global consumer, it appears, is not fully protected and is unsafe in any currency given the present practices in the financial services sector.
Contact:
Jean Lukaz
Executive Director
The Consumer Partnership-Ghana [The COP]
Jytlukaz-AT-gmail.com
http://www.ghanaconsumerwatch.wordpress.com
http://www.ghanaconsumerwatch.blogspot.com
http://www.theconsumerpartnership.wordpress.com
Access to financial services is now considered a basic consumer right but the evils of banking and insurance and the vulnerability of poor consumers have grown beyond borders and continents. In Ghana, where over 80 percent of Ghanaians are financially illiterate, and this amazingly includes highly-educated folks, the financial services sector has been swarmed by predatory lending practices from those businesses pretending to be commercial, to the micro-finance and -insurance service specialists, to the non-commercial quasi-NGO (QUANGOs) social missionaries, to the grey area of new innovative mobile phone banking twists. Consumer naivety in financial services has even become a common financial joke in Ghana where consumers are said to always confuse ‘shares’ with ‘shirts’. The Financial Services sector in Ghana and in Africa seem to be loosely regulated by governments and businesses are just paying lip service to voluntary codes outlined by forums such as the Partnership for Making Finance Work for Africa (MFW4A) and the UN Blue Book on Building Inclusive Financial Sectors for Development that have inherent measures to curtail proliferating cross-border shylocks.
On March 15, World Consumer Rights Day (WCRD) 2010, The Consumer Partnership in collaboration with the Ghana Standards Board (GSB) jointly organized a seminar on the Consumers International global theme ‘Our Money, Our Rights’, where a number of financial consumer protection initiatives by SPEED Ghana and the Ghana Microfinance Institute Network (GHAMFIN) targeted at the illiterate and poor consumers were also discussed. This had been an important step in targeting the non-English speaking population as financial literacy educational road shows and drama were conducted in local languages.
The best consumer protection is self-protection and consumers require consumer education to protect themselves in the market place. There is the need for consumer education on financial services to focus on financial capability, responsible finance, consumer protection, and the conduct of business regulation in Ghana. However, most consumer education efforts by government agencies are ineffective because they are in English only and targeted at the literate population who read one or two major newspapers. This leaves about half the population uninformed and uneducated. Consumer Protection Advocacy must thus border on the need for access to stable, secure and fair financial services, which is important for consumers everywhere, not least in the context of the global financial crisis. Government policy makers have a duty to increase consumer information ( ‘truth in lending’ for example), invest in financial literacy initiatives (i.e., consumer education), insist that the retail financial industry take steps to protect consumers (self-regulatory codes of conduct, for example) and encourage the development of an independent regulatory oversight body responsible for monitoring, reviewing and taking complaints. In order to protect consumers, the Government must ensure that consumers have regular reliable information on what services financial institutions offer at which price and what the risk involved is, so that consumers can make well-informed choices.
In a move to protecting Ghanaian consumers in Financial Services, the Bank of Ghana (BoG) has established a new Investigation and Consumer Reporting Office (ICRO) within the Banking Supervision Department (BSD) as the financial industry watchdog office of the Bank of Ghana (BoG), with responsibility for protecting consumers of financial products and services and educating them on their rights and responsibilities. While this effort is laudable, the government must be moving more towards state sponsorship of regulation instead of state provision since this prevents duplication of mandates as is the case of this new ICRO within the Bank of Ghana that is working with the same mission, laws and regulatory authority in all matters relating to banking and non-banking financial business, that is
• Bank of Ghana Act 2002, Act 612
• Banking Act, 2004 (Act 673)
• Financial Institutions (Non-Bank) Law 1993, PNDC Law 328
• Companies Code Act 179, 1963
• Bank of Ghana Notices /Directives / Circulars / Regulations
Ghana must emulate the example of the US in moving for a new regulatory authority specifically dedicated to the protection of consumers of financial services in the form of the new Consumer Financial Protection Agency (CFPA) that was eventually based on the recognition of the vulnerability of consumers to financial services that are ‘Unsafe at any Rate’ as concluded by Elizabeth Warren in her treatise in a 2007 article in Democracy Journal:
‘It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street... Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance ... The difference between the two markets is regulation’.
The ineffectiveness of the regulatory role of the Bank of Ghana (BoG) in the financial services sector has been exposed since 2004 when it directed all commercial banks in the country, to abolish and in some instances reduce, what it described as unfair bank charges and fees being charged by the various commercial banks operating in the country. The directive, which employed moral suasion as a regulatory tool, only provided a carte blanche for the commercial banks to further exploit poor Ghanaian consumers through extremely high and unfair interest rates.
The banking population of Ghana is about 20% and many Ghanaian households do not save with the banks because of the low interest on savings resulting in a gap that has gained Ghana the status of the country with the highest lending rate in sub-Saharan Africa.
With Ghana's interest rate currently ranging between 23.5% and 41.6% compared with an average estimated rate of 14% for sub-Saharan African countries and 3.34% for Asia's emerging economies, the present business environment promotes a let the borrower beware [‘caveat emptor’] approach to banking and financial services, which the UN Bluebook on Building Inclusive Financial Sectors for Development (2006) considers as a minimalist option that is purely ‘anti-consumer’. This attitude exploits uninformed and uneducated financial consumers and leaves very little responsibility to the lenders. There is the need for an enforced shift from letting borrowers beware to letting the lenders beware, a ‘caveat venditor’ approach as a first step.
Since the beginning of 2010, it seems that most of the global agencies such as Consumers International (CI), World Bank and the International Organization for Standardization (ISO) Consumer Policy Committee (COPOLCO) have gained a new consciousness on the exposure of African and third world consumers in general to the vicissitudes of the financial sector. CI used financial services as the theme of WCRD 2010 to raise awareness of the issue that cuts across borders not only in Africa but also in Europe and the US as the crises has shown. The World Bank Group is developing a Global Program on Consumer Protection and Financial Literacy to address these questions and help consumers help themselves, using a successful program piloted in Europe and Central Asia, the Global Program will be available to developing countries worldwide. And ISO-COPOLCO has initiated a process to gather information on consumer protection issues related to the provision of financial services, and the growth of new technologies and business models that have evolved in response to consumers' needs in financial services such as ethical practices in the provision of financial information and disclosure, best practices regarding the provision of financial services, appropriate design of information for targeted consumer financial products, questionable business practices (e.g. aggressive marketing practices, unfair contract terms) and liability issues, as well as mechanisms of enforcement and redress.
The global consumer, it appears, is not fully protected and is unsafe in any currency given the present practices in the financial services sector.
Contact:
Jean Lukaz
Executive Director
The Consumer Partnership-Ghana [The COP]
Jytlukaz-AT-gmail.com
http://www.ghanaconsumerwatch.wordpress.com
http://www.ghanaconsumerwatch.blogspot.com
http://www.theconsumerpartnership.wordpress.com
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