Financial consumer protection regulation is an essential element of any inclusive financial system. As demonstrated by the recent global financial crisis, protecting consumers is an important factor contributing to financial stability. Regulatory failure was one of the causes of the meltdown of the financial industry, resulting in loss of confidence and trust in the financial system.
Protecting consumers’ rights and needs and instilling confidence in the financial industry is essential for existing and new consumer alike. This is particularly true in low access environment and for low-income consumers who have limited experience and education of financial services. Without basic protection, consumers are vulnerable to predatory practices and may accept inappropriate products. In this context, financial service providers need to protect the consumers’ interests and adopt responsible behavior that can ensure the consumers receive the benefits of formal financial systems.
Protecting consumers’ rights and needs and instilling confidence in the financial industry is essential for existing and new consumers alike.
As the world moves towards deeper and broader financial access, particularly in emerging markets, the effective implementation of financial consumer protection and improved financial capability of the consumers becomes crucial. The World Bank targets of universal financial access for all working adults by 2020 cannot be achieved without the necessary laws, regulations, supervisory and oversight structures that can ensure the development of a modern, secure and transparent financial industry.
G20 Finance Ministers and Central Bank Governors endorsed the High Level Principles on Financial Consumer Protection in 2011, developed by the OECD Task Force on Financial Consumer Protection. These voluntary principles are meant to assist the efforts to enhance financial consumer protection, complementing existing international financial principles or guidelines. More countries are committing to the Maya Declaration and address explicit measures to improve financial consumer protection.
Recent research underscored the need for effective consumer protection policies to be grounded on rigorous research of what the consumer desires. In particular, behavioral research conducted by CGAP highlighted specific ways to incorporate insights from behavioral research into policy-making and implementation of consumer protection regulation and supervision.