Saturday, March 13, 2010

Happy World Consumer Rights 2010.

It gets slightly overshadowed here by another big day in the middle of March, but in case you don't know today, Monday March 15th 2010 is World Consumer Rights Day. You might wonder why this date, well it all stems from a speech by President John F. Kennedy to the Congress on consumer rights on March 15th 1962.

This year the theme is "Our Money, Our Rights" How the global consumer movement is fighting for fair financial services. The theme is timely here in Ireland. We have seen the devastation caused by a banking and financial system out of control. The real victims are the citizens and taxpayers, who had to bail out a system with their taxes and now are paying on the double with increased interest rate charges, increased fees and commissions and less competition. Even leaving aside the near collapse of the system, we need consumer protection and regulation to protect ordinary consumers from the everyday hazards of engaging with financial institutions. I am sure some will accuse me of being the proponent of a "nanny state".

Well I would argue for stronger consumer protection in the area of financial services on two key points. Firstly financial products are what the academics call "credence products" essentially it is hard for the consumer to evaluate the product and their value will only become know over time. The advantage lies with the financial service provider, in most cases consumers are hoping they are acting in their best interests. Unless there are laws and rules there forcing the seller not to take advantage, they will, as we know only too well. Secondly, when things go wrong it can have a devastating effect on the consumer. Bad advice can lead a consumer to take out a loan they can't repay, investing their life's savings in a bad investment, etc, etc. The impact can be severe and significant.

However there is hope that we can rebuild not only a better and stronger banking system, but also a fairer one. Sometimes when you read the reports coming from banks or the financial press, you would get the impression that the banking system solely operates to meet the needs of executives, shareholders and large investors. However the banking system should be there too to meet the needs of ordinary consumers and small businesses.

I met Matthew Elderfield last Monday, when he came and spoke at the Consumer Panel meeting. I was impressed and hopeful for the future. He laid out a very clear, yet ambitious programme, along the lines of the speech he delivered last Thursday. He made some important points, including the fact that consumer protection would remain at the heart of his work and that the new focus on consumer protection was some how to blame for the failure of prudential supervision. I also liked the fact that he is committed to a review of the Consumer Protection Code and to taking a much tougher line on enforcement. However it is a challenging agenda and there will be strong resistance from the vested and well connected interests.

The man responsible for March 15th, great orator, but just wished he hadn't picked St. Patricks Week!

The reform agenda is massive, on the prudential supervision side alone, a lot of work needs to be done. On the consumer protection side, the review of the Consumer Protection Code is long overdue, the gaps and deficiencies in that need to be addressed and then the code needs to promoted among the public. I have been calling for this since it was originally launched in 2007, but for some reason the Financial Regulator has been reluctant to do this. Other areas of concern are diminishing competition, are we sacrificing competition at the altar of rebuilding the balance sheets of banks. We need to see a crackdown on overcharging and mis-selling. Every few weeks there is another overcharging scandal and the response by the financial institutions and the regulator to date has been slow. We also see the number of complaints to the Financial Ombudsman grow, much of it driven by mis-selling.

We are now dealing with the crisis in all types of debt, however we also need to look at how we can avoid such an orgy of credit being doled out by banks in a feckless and reckless manner in future. One measure would be to make irresponsible lending a crime, essentially financial institutions would be held accountable for giving loans and credit for which were hard to justify on the basis of the income of the recipient. The other area is the lack of independent advice driven by hidden commissions and fees to staff and intermediaries. While I accept the many consumers would be reluctant to pay for financial advice, at the very least they should know if and how much commission a bank employee, broker and intermediary is getting from a particular product or institution. And unlike many other European countries, we don't have provision here for a basic bank account that would allow consumers to have access to banking services without the hefty fees and charges. And I could go on and on....but I am still hopeful we can not only build a stronger and better banking system, but a fairer one as well.