UNCTAD urges action to address consumer vulnerability in financial services

Consumers are targeted by new types of scams and fraud as digitalization and innovations in the financial markets boom.

The cascade of crises facing consumers, from COVID-19 to food and energy price shocks due to the war in Ukraine and climate change, puts billions of people in a vulnerable situation.

The digital transformation of economies is also propelling consumer vulnerability to new heights.

Amid the heightened vulnerability, world experts discussed financial consumer protection at UNCTAD’s meeting of the intergovernmental group of experts on consumer protection law and policy held on 18 and 19 July.

“Accessing and benefiting from financial services is a basic consumer right,” said Teresa Moreira, head of competition and consumer policies at UNCTAD, “It’s essential to realizing most economic transactions nowadays and for improving a consumer’s life,” she added.

A UN General Assembly resolution recognizes that “consumer confidence and trust in a well-functioning market for financial services promotes financial stability, growth, efficiency and innovation over the long term.” It’s key to the achievement of any of the Sustainable Development Goals.

Expanding access is the first step

According to the World Bank, in 2021, 76% of the world population had a bank account, an encouraging increase of 50% in the last 10 years. But women, the poor, the less educated and people outside the labour market remain underserved.

Although having a bank account is a major step towards accessing financial services, the growing complexities of these services create more vulnerabilities for consumers, hampering their interests and wellbeing.

Existing gaps in infrastructure and consumer literacy could prevent vulnerable consumers from fully enjoying the benefits of digital financial services, even increasing inequalities in economic opportunities.

“Financial literacy and inclusion are two of the most powerful tools for people’s personal development,” said Cynthia Zapata, director for consumer protection in Costa Rica.

“That is why we are targeting our consumer education campaigns to those who need them the most: women, migrants, refugees and indigenous peoples.”

Call for regulations and enforcement

The UN guidelines for consumer protection include a section on financial services, providing concrete recommendations on protecting financial consumers.

Governments need to enact laws and policies with clear goals of protecting consumers’ access to financial services and regulating business conducts.

Strong oversight and enforcement are needed. “Efforts should be made to ensure that the overall legal framework provides sufficiently comprehensive coverage and to avoid conflicts or lack of clarity,” said Chilufya Sampa, executive director of the Zambia Competition and Consumer Protection Commission.

Some member states also encourage self-regulation initiatives in the financial sector. Engagement of service providers plays an important role in ensuring responsible business conducts.

Educating consumers is also a priority. Better financial education strategies are required, especially to target vulnerable and disadvantaged consumers.

Required policy actions

UNCTAD recommends that member states take the following actions to strengthen financial consumer protection:

1. Enact and regularly update adequate legal frameworks to protect consumer rights in financial services.
2. Establish and strengthen enforcement agencies and oversight bodies with the necessary authority and resources to carry out their mission.
3. Enhance and ensure good business practices, with an emphasis on fair and equitable treatment; ethical behaviour; disclosure and transparency; education and awareness-raising; protection of consumers’ privacy; and availability of dispute resolution.
4. Design and implement multi-stakeholder strategies to enhance access to financial services, inclusion, and education and literacy.
5. Implement effective policies to address remittances, consumer over-indebtedness and bankruptcy.
6. Harness the potential of digitalization in financial services while protecting consumers from emerging threats.