Fin consumerprotection goodpractices_final

Good Practices for
Financial Consumer Protection

Good Practices
for Financial
Consumer Protection
June 2012

© 2012 International Bank for Reconstruction
and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org
This work is a product of the staff of The World Bank
with external contributions. The findings, interpreta-tions,
and conclusions expressed in this work do not
necessarily reflect the views of The World Bank, its
Board of Executive Directors, or the governments they
represent.
The World Bank does not guarantee the accuracy of
the data included in this work. The boundaries, colors,
denominations, and other information shown on any
map in this work do not imply any judgment on the
part of The World Bank concerning the legal status of
any territory or the endorsement or acceptance of such
boundaries.
Rights and Permissions
The material in this work is subject to copyright. Be-cause
The World Bank encourages dissemination of its
knowledge, this work may be reproduced, in whole or
in part, for noncommercial purposes as long as full at-tribution
to this work is given.
Any queries on rights and licenses, including subsidiary
rights, should be addressed to the Office of the Pub-lisher,
The World Bank, 1818 H Street NW, Washing-ton,
DC 20433, USA; fax: 202-522-2422; e-mail: pu-brights@
worldbank.org.
Cover Photo: SvetlanaLukienk/Shutterstock.com

Acknowledgements
Good Practices for Financial Consumer Protection was
prepared by a team led by Susan L. Rutledge, Senior
Private Sector Development Specialist at the World
Bank. The core team consisted of Nagavalli Annamalai
(Lead Counsel), Rodney Lester (Senior Advisor, Re-tired),
and Richard L. Symonds (Senior Counsel, Re-tired),
all from the World Bank. They were joined by
Eric Haythorne (Lead Counsel, Retired) and Juan Car-los
Izaguirre Araujo (Consultant) also from the World
Bank. Also joining the team was Nicola Jentzsch, then
Senior Research Fellow, Technische Universität Ber-lin.
In addition, valuable contributions were made by
Milton Cartwright, Manager Pensions and Investment
Policy of United Kingdom’s Financial Services Author-ity
and David Stallibrass of the Office of Fair Trading of
the United Kingdom. Special thanks also go to Shaun
Mundy, international consultant on financial literacy
and former Head of Financial Capability Department
of the United Kingdom’s Financial Services Authority,
Rosamund Grady, Conjoint Professor and Chief Ex-ecutive
Officer at the Sydney-based Centre for Inter-national
Finance and Regulation, John Pyne, Associate
Director of Insurance Supervision at the Qatar Finan-cial
Centre Regulatory Authority, and Patrick McAl-lister,
Director of Housing Finance in Asia/Pacific at
Habitat for Humanity International. Editorial support
was kindly provided by Marga O. De Loayza and Snig-dha
Verma.
Valuable comments were received from Zoran Anu-sic,
Giuliana Cane, Deepa Chakrapani, Martin Cihak,
Massimo Cirasino, Charles Michael Grist, Orsalia
Kalantzopoulos, Claire McGuire, Nataliya Mylenko,
Antony Randle, Consolate Rusagara and Vijay Srinivas
Tata (all World Bank), as well as Denise Dias, Tilman
Ehrbeck, Katharine McKee, Timothy Lyman and Ra-fael
Mazer (all from the Consultative Group to Assist
the Poor). Thanks also to Marie-Renee Bakker, Marsha
Olive, Fernando Montes-Negret and Sophie Sirtaine
(all from the World Bank’s Europe and Central Asia
Region) who supported the early development of the
work financial consumer protection.
External peer review comments were gratefully received
from Tomáš Prouza, Chairman of the Board of the As-sociation
of Financial Advisers of the Czech Republic
and former Deputy Finance Minister of the Czech Re-public,
William Knight, Chairman of the International
Financial Consumer Protection Network (FinCoNet)
and Former Commissioner of the Financial Consumer
Agency of Canada. For comments on an early draft,
thanks to Sarah Lynch of the European Commission,
Jane Rooney, Director of Financial Literacy and Con-sumer
Education at the Financial Consumer Agency
of Canada, and Lewis Mandell, Professor and Dean
Emeritus, University at Buffalo - The State University
of New York and Senior Fellow at the Aspen Institute’s
Initiative on Financial Security.
Comments were also gratefully received from AC-CION
International, Alliance for Financial Inclusion,
Analistas Financieros Internacionales S.A., Banco de
México, Banco de Portugal, Bank of Uganda, Superin-tendencia
de Bancos of Guatemala, Consumers Inter-national,
International Association of Pension Supervi-sors,
International Network of Financial Ombudsmen,
Organisation for Economic Co-operation and Devel-opment,
Palestine Monetary Authority, Pension Fund

vi
Good Practices for Financial Consumer Protection
Regulatory and Development Authority of India, Polish
Financial Supervision Authority, Retirement Commis-sion
of the Government of New Zealand, Superinten-dencia
de Banca, Seguros y Administradoras Privadas
de Fondos de Pensiones of Peru, Superintendencia de
Bancos of Paraguay, Swiss Financial Market Supervi-sory
Authority, TD Bank, UK Financial Ombudsman
Service, US Federal Deposit Insurance Corporation,
US Federal Reserve Board, (US) National Association
of Insurance Commissioners, and World Savings Banks
Institute. Thank you all for your valuable insights and
suggestions.
In addition to World Bank funding, financial support
for the work of country diagnostics and implementation
programs has been generously provided by the (World)
Bank Netherlands Partnership Program (BNPP), the
Japan Population and Human Resources Develop-ment
Program (PHRD), the Financial Sector Reform
and Strengthening (FIRST) Initiative, the Swiss State
Secretariat for Economic Affairs (SECO), the United
Kingdom Department for International Development
(DFID) and the United States Agency for International
Development (USAID).

Acronyms & Abbreviations
AML Anti-money laundering
ANEC European Association for the
Co-ordination of Consumer
Representation in Standardization
APEC Asia Pacific Economic Cooperation
API Arab Payments Initiative
APY Annual percentage yield
ASBA Asociación de Supervisores Bancarios de
las Américas (Association of Supervisors
of Banks of the Americas)
B2C Business to Consumer
BEUC Bureau Européen des Unions des
Consommateurs (European Consumers’
Organisation)
BIS Bank for International Settlements
BNPP (World) Bank Netherlands Partnership
Program
CEMLA Centro de Estudios Monetarios
Latinoamericanos
CESR Committee of European Securities
Regulators
CFT Combating the financing of terrorism
CGAP Consultative Group to Assist the Poor
CISPI Commonwealth of Independent States
Initiative
CIU Collective Investment Undertaking
COE Council of Europe
CPSS Committee on Payment and Settlement
Systems
DFID United Kingdom Department for
International Development
EC European Commission
ECJ European Court of Justice
ERISA US Employee Retirement Income
Security Act
ESIS European Standardized Information Sheet
ETS European Treaty Series
FIMM Federation of Investment Managers
Malaysia
EU European Union
FATF Financial Action Task Force
FCAC Financial Consumer Agency of Canada
FDIC US Federal Deposit Insurance
Corporation
FinCoNet International Financial Consumer
Protection Network
FINRA US Financial Industry Regulatory
Authority
FIRST Financial Sector Reform and
Strengthening Initiative
FSA UK Financial Services Authority

viii
FSAP Financial Sector Assessment Program
FSB Financial Stability Board
FTC US Federal Trade Commission
G20 Group of Twenty
GDP Gross domestic product
IADB Inter-American Development Bank
IAIS International Association of Insurance
Supervisors
ICO UK Information Commissioner’s Office
ICP Insurance Core Principle
IDD Initial disclosure document
IEFP Institut pour l’Education Financière du
Public
IFC International Finance Corporation
IFRS International Financial Reporting
Standards
IOPS International Organisation of Pensions
Supervisors
IOSCO International Organization of Securities
Commissions
ISO International Organization for
Standardization
KYC Know Your Customer
LIBOR London Inter-bank Offered Rate
MAS Monetary Authority of Singapore
MiFID Markets in Financial Instruments
Directive
MSME Micro, Small and Medium Enterprises
NAIC US National Association of Insurance
Commissioners
NASD US National Association of Securities
Dealers
NGO Non-government organization
NPS National Payments System
OECD Organisation for Economic
Co-operation and Development
OTC Over-the-Counter
PIN Personal identification number
PHRD Japan Population and Human Resources
Development Program
SADC Southern African Development
Community
SAPI South Asia Payments Initiative
SEC US Securities and Exchange Commission
SECCI Standard European Consumer Credit
Information
SECO Swiss State Secretariat for Economic
Affairs
SEEP Small Enterprise Education and
Promotion Network
SEPA Single Euro Payments Area
SFC Securities and Futures Commission of
Hong Kong
SME Small and medium enterprises
SRO Self-regulatory organization
TILA US Truth in Lending Act
UCITS Undertakings for Collective Investment in
Transferable Securities
UK United Kingdom
UN United Nations
US United States of America
USAID United States Agency for International
Development
USC United States Code
WBG World Bank Group
WHCRI Western Hemisphere Credit and Loan
Reporting Initiative

Contents
Introduction.....................................................................................................................1
Common Good Practices for
Financial Consumer Protection............................................................................................7
Good Practices for Financial Consumer
Protection by Financial Service......................................................................................... 11
Banking Sector............................................................................................................................................ 11
I. Consumer Protection Institutions.......................................................................................................... 11
II. Disclosure and Sales Practices............................................................................................................. 14
III. Customer Account Handling and Maintenance....................................................................................... 18
IV. Privacy and Data Protection................................................................................................................ 24
V. Dispute Resolution Mechanisms............................................................................................................. 26
VI. Guarantee Schemes and Insolvency...................................................................................................... 28
VII. Consumer Empowerment & Financial Literacy........................................................................................ 29
VIII. Competition and Consumer Protection................................................................................................ 31
Securities Sector.......................................................................................................................................... 33
IX. Investor Protection Institutions........................................................................................................... 33
X. Disclosure and Sales Practices.............................................................................................................. 35
XI. Customer Account Handling and Maintenance........................................................................................ 38
XII. Privacy and Data Protection.............................................................................................................. 40
XIII. Dispute Resolution Mechanisms......................................................................................................... 41
XIV. Guarantee Schemes and Insolvency..................................................................................................... 41
XV. Consumer Empowerment & Financial Literacy......................................................................................... 42
Insurance Sector ......................................................................................................................................... 44
XVI. Consumer Protection Institutions....................................................................................................... 45
XVII. Disclosure and Sales Practices.......................................................................................................... 47
XVIII. Customer Account Handling and Maintenance.................................................................................... 51
XIX. Privacy and Data Protection.............................................................................................................. 51
XX. Dispute Resolution Mechanisms........................................................................................................... 52
XXI. Guarantee Schemes and Insolvency.................................................................................................... 53
XXII. Consumer Empowerment & Financial Literacy...................................................................................... 53
Non-Bank Credit Institutions......................................................................................................................... 55
XXIII. Consumer Protection Institutions..................................................................................................... 55
XXIV. Disclosure and Sales Practices.......................................................................................................... 58
XXV. Customer Account Handling and Maintenance....................................................................................... 61
XXVI. Privacy and Data Protection............................................................................................................ 64

x
XXVII. Dispute Resolution Mechanisms....................................................................................................... 65
XXVIII. Consumer Empowerment & Financial Literacy................................................................................... 66
References...................................................................................................................... 69
Annex I: Private Pensions Sector....................................................................................... 75
XXIX. Consumer Protection Institutions...................................................................................................... 76
XXX. Disclosure and Sales Practices........................................................................................................... 76
XXXI. Customer Account Handling and Maintenance..................................................................................... 78
XXXII. Privacy and Data Protection........................................................................................................... 78
XXXIII. Dispute Resolution Mechanisms..................................................................................................... 78
XXXIV. Guarantee Schemes and Safety Provisions......................................................................................... 79
XXXV. Consumer Empowerment & Financial Literacy...................................................................................... 79
Annex II: Credit Reporting Systems................................................................................... 81
XXXVI. Privacy and Data Protection........................................................................................................... 82
XXXVII. Consumer Empowerment & Financial Literacy .................................................................................. 84
Annex III: Background..................................................................................................... 87
Financial Consumer Protection and Global Financial Regulation........................................................................... 87
Designing Financial Consumer Protection Programs............................................................................................ 89
Design of the Good Practices for Financial Consumer Protection.......................................................................... 93
Possible Areas for Future Work by the International Community .......................................................................... 94
Notes............................................................................................................................. 97
List of Tables
Table 1: WBG Country Diagnostic Reviews of Consumer Protection and Financial Literacy........................................... 3
Table 2: Overview of Consumer Protection Regulation for the Banking Sector......................................................... 32
Table 3: Overview of Consumer Protection Regulation for the Securities Sector...................................................... 43
Table 4: Selected Key Readings on Consumer Protection for the Insurance Sector................................................... 44
Table 5: Selected Codes of Conduct for the Insurance Sector............................................................................... 46
Table 6: Overview of Consumer Protection Regulation for the Insurance Sector...................................................... 54
Table 7: Selected Codes of Conduct for Lending in Europe................................................................................... 57
Table 8: Overview of Consumer Protection Regulation for Non-Bank Credit Institutions........................................... 68
Table 9: Overview of Consumer Protection Regulation for Credit Reporting Systems ................................................ 82
List of Boxes
Box 1: Measures to Ensure Success of Financial Education Programs..................................................................... 92

1
Until the financial crisis of 2007-09, the glob-al
economy was adding an estimated 150
million new consumers of financial servic-es
each year. Rates of increase have since slowed but
growth continues apace. The financial crisis highlighted
the importance of financial consumer protection for the
long-term stability of the global financial system. At the
same time, rapid increases in the use of financial ser-vices
have pointed to the need for strengthened finan-cial
regulation and consumer education to protect and
empower consumers. In the absence of strong financial
consumer protection, the growth-enhancing benefits of
expanded financial inclusion may be lost or severely un-dermined.
Financial consumer protection1 sets clear rules of
conduct for financial firms regarding their retail cus-tomers.
It aims to ensure that consumers: (1) receive
information to allow them to make informed decisions,
(2) are not subject to unfair or deceptive practices and
(3) have access to recourse mechanisms to resolve dis-putes.
Complementary financial literacy initiatives are
aimed at giving consumers the knowledge and skills
to understand the risks and rewards of using financial
products and services—and their legal rights and obli-gations
in using them. Clear rules of conduct for finan-cial
institutions, combined with programs of financial
education for consumers, will increase consumer trust
in financial markets and will support the development
of these markets.
The international community has recently increased
its focus on financial consumer protection with the
release of the G20 High Level Principles. Regulators
have noted the pressing need for a set of guidelines of
market conduct against which existing policies, laws and
regulations, institutions and initiatives can be measured
and assessed. The lack of recognized guidelines has of-ten
led policymakers to focus on only a few of the many
consumer protection issues while failing to close gaps
in other areas. During their February 2011 meeting,
the Group of 20’s Finance Ministers and Central Bank
Governors called on the Organisation for Economic
Co-operation and Development (OECD), the Finan-cial
Stability Board (FSB) and relevant international or-ganizations
to develop common principles on consumer
protection in financial services in time for their October
2011 meeting.2 In October 2011, the G203 released its
High-Level Principles on Financial Consumer Protection4
and ongoing work by the OECD Task Force on Finan-cial
Consumer Protection continues. (The first version
of the Good Practices for Financial Consumer Protection
was published prior to the release of the High Level
Principles for Financial Consumer Protection. However
the Good Practices complement the High Level Princi-ples
and provide practical advice on ways to implement
the concepts within the Principles.)
Numerous other initiatives are also underway to
strengthen financial consumer protection by inter-national
government organizations. In November
2010, the G20 Leaders also asked the FSB to work with
the OECD and other international organizations to ex-plore
options to advance consumer finance protection.5
In October 2011, the FSB published its report on Con-sumer
Finance Protection with particular focus on credit.6
Also starting in 2005, the OECD developed Recom-mendations
on Good Practices for Financial Education
Introduction

2
and Awareness as well as specific good practices on fi-nancial
education and awareness relating to credit, in-surance
and private pensions.7 In addition, the OECD
has issued numerous working papers and other reports
on financial literacy and financial education, including
the 2012 Working Paper on Current Status of National
Strategies for Financial Education: A Comparative Analy-sis
and Relevant Practices.8 In Europe in addition to the
Directives related to consumer finance, the European
Commission has conducted studies on retail financial
services, including retail investment advice, consumer
credit, distance marketing of financial services, mort-gages
and consumer education in financial services.9 In
November 2011, the European Insurance and Occupa-tional
Pensions Authority launched a public consulta-tion
on proposed Guidelines on Complaints-Handling
by Insurance Undertakings.10 The Inter-American De-velopment
Bank supports the strengthening of finan-cial
consumer protection in various projects.11 In ad-dition,
the Government of the Russian Federation has
provided a $15 million Financial Literacy and Finan-cial
Education Trust Fund, administered by the World
Bank and the OECD, to: (1) develop methodologies
for measuring the financial capabilities of a variety of
groups in developing countries, (2) test and refine these
methods through their application in a range of existing
programs in Bank client countries and (3) disseminate
information on best practices in financial literacy12 mea-surement
and enhancement through websites, work-shops
and other means. Initial reports from the Trust
Fund will be disseminated starting in late 2012.
International and regional non-government organi-zations
are also playing an increasingly important
role in financial consumer protection. The Respon-sible
Finance Forum lists financial consumer protection
regulation and financial capability as two of the three
pillars of the framework for Responsible Finance.13 In
January 2012, the Association of Supervisors of Banks
of the Americas (ASBA) released its draft paper on Su-pervision
and Consumer Protection Best Practices and
Recommendations. The 2011 Maya Declaration on Fi-nancial
Inclusion recognizes consumer protection and
empowerment as “key pillars of financial inclusion ef-forts
to ensure that all people are included in their coun-try’s
financial sector”.14 Also in 2011 the Alliance for
Financial Inclusion launched the Consumer Empower-ment
and Market Conduct Working Group to discuss
emerging policy and regulatory issues about consumer
protection and review empowerment measures that
promote financial access and improve the quality of fi-nancial
inclusion. Consumers International has released
recommendations on financial consumer protection, in-cluding
a call for international standards and guidelines
as well as development of an international organization
to share best practice and support the development of
standards and guidelines.15 In addition, the Internation-al
Organization for Standardization (ISO) Committee
on consumer policy (ISO/COPOLCO) is in the process
of developing a proposal to develop new international
standards on consumer financial disclosure, particularly
on mobile telephone-based financial services and inter-national
remittances.16 On financial literacy, in 2008 the
OECD created the International Network on Financial
Education,17 which brings together policy-makers work-ing
on financial education worldwide. Consumers Inter-national
and Microfinance Opportunities together have
developed a handbook to assist consumer advocates in
their work on financial counseling.18 This summary is
not exhaustive but helps illustrate the many ongoing
international initiatives that support financial consumer
protection. All the initiatives are helpful in strengthen-ing
the global response to weaknesses in financial con-sumer
protection. Nevertheless, still more could be done
by civil society organizations, particularly those operat-ing
at a global level.
The World Bank is also supporting the international
dialogue on financial consumer protection through
development of Good Practices based on country-level
experience and ongoing technical assistance.
The World Bank’s Good Practices are based on in-depth
country-level reviews of consumer protection and finan-cial
literacy. Initially developed in 2006 at the request of
the Czech Republic, Good Practices for Consumer Protec-tion
and Financial Literacy in Europe and Central Asia
have been used as an assessment tool for country diag-nostic
reviews. These Good Practices were largely based
on developments in a number of countries that had be-gun
to address consumer protection in retail financial
markets. Subsequently, in November 2010, the World
Bank launched a Global Program for Consumer Protec-tion
and Financial Literacy. As noted in Table 1, as part
of the Global Program, a total of 18 country reviews

3
Introduction
have been completed as of the date of this publication.
Supporting and complementing the country reviews are
additional country-level technical assistance, including
three country action plans, two implementation pro-grams
and 18 household surveys of financial literacy
and consumer behavior, including the household sur-veys
financed by the Russian Trust Fund.19 In addition,
the World Bank has approved a total of $28 million in
loans and credits for consumer protection and financial
literacy programs two countries (Russian Federation
and Malawi).20
The Good Practices are intended to be used primar-ily
as a diagnostic tool. The Good Practices provide
a useful reference point for preparation of the country
diagnostic reviews and thus assist policy-makers in an-swering
the question, “How does the country’s legal and
regulatory framework for financial consumer protection
compare to international practice?” Since no country
is starting from scratch, a compilation of helpful ap-proaches
worldwide may help identify opportunities for
specific countries in strengthening financial consumer
protection. In this respect, the Good Practices provide
concrete, evidence-based methods of strengthening fi-nancial
consumer protection. Using the country-level
experience of the World Bank Group in strengthening
financial consumer protection and relying on interna-tional
approaches that appear to work well in practice,
the Good Practices for Financial Consumer Protection
present a practical approach that regulators can use in
their efforts to strengthen consumer protection in fi-nancial
services. The Good Practices are not intended
to be “best practice” worldwide. Rather they are a com-pilation
of the most frequently used practices that have
been successfully carried out in the field. They thus rep-resent
a rough summary of useful approaches in encour-aging
the improvement of conduct of financial institu-tions
in dealing with their retail customers. It is hoped
that the Good Practices will contribute to the evolving
global dialogue on what constitute effective approach-es
to improving financial consumer protection in any
country context.
The Good Practices provide a comprehensive diag-nostic
tool to help identify the consumer protection
issues in all parts of the financial sector. The Good
Practices are not intended to supersede benchmarks,
guidelines, principles or good practices of any sector-specific
international organization. Rather the Good
Practices focus solely on issues related to consumer
protection (and market conduct generally) across all
financial services and complement the sector-specific
guidance. Most importantly, the Good Practices help
policy-makers in identifying cross-cutting consumer
protection issues in the various parts of the financial
sector and thus assist them in designing coherent, com-prehensive
and coordinated regimes for the improve-ment
of consumer protection in the financial system.
TABLE 1: WBG Country Diagnostic Reviews of Consumer Protection and Financial Literacy
Country Year of Publication Country Year of Publication
Czech Republic 2007 Bosnia & Herzegovina Planned 2012
Slovakia 2007 Kazakhstan Planned 2012
Bulgaria 2009 Malawi Planned 2012
Romania 2009 South Africa Planned 2012
Lithuania 2009 Nicaragua Planned 2012
Azerbaijan 2009 Ukraine Planned 2012
Croatia 2010 Armenia Planned 2012
Russian Federation 2010 Mozambique Planned 2013
Latvia 2010 Tajikistan Planned 2013

4
The need for a comprehensive approach to consumer
protection is highlighted by the integration of many fi-nancial
institutions into conglomerates.
The Good Practices for Financial Consumer Protec-tion
reflect more than six years’ work in develop-ment
by the World Bank Group. As already noted,
the Good Practices have now been tested in 18 coun-tries
worldwide (14 middle-income countries and four
low-income countries).21 Further testing will continue
for reviews to be conducted elsewhere in Africa (par-ticularly
sub-Saharan Africa), as well as in Asia, Latin
America and the Caribbean, where innovations in the
delivery of financial services will likely provide valuable
lessons learned for countries worldwide. Other World
Bank Group activities have also been incorporated into
the Good Practices. These include studies on financial
literacy and financial education through the Develop-ment
Economics Research Group,22 the Human De-velopment
Network, the Financial Inclusion Practice
(including the Micro & SME Finance and Financial
Infrastructure Service Lines),23 the Legal Department,
and units providing access-to-finance advisory and in-vestment
services throughout the International Finance
Corporation.24 In addition, the Good Practices incor-porate
key lessons from the work of Consultative Group
to Assist the Poor (CGAP), a policy and research center
housed at the World Bank that supports the develop-ment
of, and related consumer protection issues for, the
microfinance sector.25
The Good Practices have been formulated with input
from existing international benchmarks and other
accepted Good Practices developed by a wide range
of organizations. They include the good/best practices,
principles, benchmarks and recommendations of the
United Nations, OECD, the European Commission,
the Asia-Pacific Economic Cooperation forum, the
Bank for International Settlements, the International
Association of Insurance Supervisors, International Or-ganisation
of Pension Supervisors, the International Or-ganization
of Securities Commissions, and the G20 on
Principles for Innovative Financial Inclusion. From all
of these, recommendations related to consumer protec-tion
have been selected and brought together.
The Good Practices incorporate both the approaches
of developed countries and the experiences of reform-ing
emerging economies. Over the last 30 years, most
programs on financial consumer protection have been
undertaken in industrialized countries. However in re-cent
years, valuable work has been conducted in devel-oping
countries and emerging markets, notably Brazil,
China, Colombia, India, Malaysia, Mexico, Peru, Rus-sia,
and South Africa. As effective approaches become
evident from countries worldwide, they will be incorpo-rated
into future revisions of the Good Practices.
The Good Practices have been subject to substantial
international review and comment. In addition to rig-orous
testing at the country level, the Good Practices
have benefitted from extensive international comment
over several years. The Good Practices were first pub-licly
released as a Consultative Draft, Good Practices for
Consumer Protection and Financial Literacy in Europe
and Central Asia: A Diagnostic Tool in August 2008 and
they were finalized in August 2010.26 Subsequently,
the Good Practices were revised and updated to reflect
recent developments in financial consumer protection
as well as insights from additional country reviews in
Latin America and Africa. Good Practices for Financial
Consumer Protection were then released as Consultative
Draft in March 2011. During the consultation period,
the Good Practices were presented and discussed at nu-merous
international conferences, including the World
Bank Group-CGAP conference in Washington D.C. in
September 2008, a cross-regional video-dialogue (De-velopment
Debates) hosted by the World Bank Institute
in February 2011, the annual meeting of FinCoNet in
Toronto in May 2011 and the World Congress of Con-sumers
International in Hong Kong also in May 2011.
As noted in the Acknowledgements, over 25 regulators
worldwide have also provided written comments, which
have been incorporated into the final draft.
Four important points are worth noting at the out-set.
First, the Good Practices apply only to a country’s
regulated financial system and not to informal finan-cial
services, such as loan sharking. Second, not all of
the Good Practices are expected to be applied in full
in all countries. Implementation of the Good Practices
should inevitably be tailored to relevant country-specif-ic
needs and objectives. Third, the Good Practices do
not cover an exhaustive list of financial products and
services. Instead, they set out suggestions for consumer
protection regarding only the most commonly used fi-

5
Introduction
nancial products and services. Fourth, the Good Prac-tices
are expected to further evolve and develop based
on future country diagnostic reviews as well as the prin-ciples,
practices, policy papers and seminars of interna-tional
and national organizations, including those from
non-government organizations.
Good Practices for Financial Consumer Protection is
presented in three chapters. Chapter 1 provides an in-troduction,
summarizing the international context for
the development of the Good Practices and the meth-odology
used in their development. Chapter 2 proposes
39 common Good Practices that apply across the spec-trum
of consumer financial services and may provide
useful input into further development of international
principles for financial consumer protection. Chapter 3
presents a set of Good Practices for each of four main
types of financial services, namely banking, securities,
insurance and non-bank credit. Annexes I and II present
Good Practices for Private Pensions and Credit Report-ing,
both of which are still in the early stages of develop-ment.
Annex III provides a background note covering:
(1) the context underlying the growing importance of
consumer protection in the financial regulatory agenda
of all countries, (2) the rationale and underlying prin-ciples
applied in designing consumer protection frame-works
in any country context, (3) issues in the design
of the Good Practices and (4) areas for possible future
work in financial consumer protection by the interna-tional
community.

2
A well-functioning consumer protection regime
provides effective safeguards for retail financial
services consumers while empowering con-sumers
to exercise their legal rights and fulfill their legal
obligations. Summarized below are 39 basic Good
Practices found in a well-functioning financial consum-er
protection regime.
Consumer Protection Institutions
1. The law provides clear consumer protection rules
regarding financial products and services. The
necessary institutional arrangements are in place
to ensure thorough, objective, timely, and fair
implementation (and enforcement) of the rules.
2. Codes of conduct for sector-specific financial
institutions are developed by the sector-specific
association (in consultation with the financial
supervisory agency and consumer associations,
if possible). Monitored by statutory agencies or
effective self-regulatory agencies, these codes
are formally adhered to by all sector-specific
institutions. The codes may be augmented by
voluntary codes of conduct devised by individ-ual
financial institutions for their own opera-tions.
The codes are widely publicized.
3. Prudential supervision and consumer protec-tion
supervision may be placed in separate
agencies or lodged in a single institution. How-ever
regardless of the institutional structure,
the allocation of resources between prudential
supervision and consumer protection is ad-equate
to enable the effective implementation
of consumer protection rules.
4. All legal entities that provide financial services
to consumers are licensed (or registered) and
supervised with regard to their market conduct
(i.e. their business practices in relation to retail
customers) by the appropriate financial super-visory
authority.
5. The judicial system ensures that the ultimate
resolution of any consumer protection dispute
regarding a financial product or service is af-fordable,
timely and delivered in a professional
manner.
6. The media and consumer associations actively
promote financial consumer protection.
Disclosure and Sales Practices
7. Before a financial institution makes a recom-mendation
to a consumer regarding a specific
financial product or service, it gathers suffi-cient
information from the customer to ensure
that the product or service is likely to meet the
needs and capacity of that consumer.
8. For all financial products or services, consum-ers
receive a short one or two page summary
statement (or electronic equivalent), presented
Common Good Practices for

8
in a legible font and written in plain language,
describing the key terms and conditions, in-cluding
recourse mechanisms, applicable to
the financial product or service. Summaries
are based on industry-agreed standards for the
minimum types of information to be published
for each type of financial product or service—
and allow easy comparison among financial
service providers. Summaries are distributed by
financial institutions.
9. Before a consumer purchases a financial prod-uct
or service, the financial institution provides
a written copy of the institution’s general terms
and conditions, as well as the specific terms and
conditions that apply to the product or service.
10. The law specifically prohibits the use of fraudu-lent
sales practices, such as misleading advertis-ing,
in the marketing of financial products and
services.
11. Except for securities and derivatives, financial
products or services with a long-term savings
component—or those subject to high-pressure
sales practices—have a “cooling-off” period,
during which the consumer may cancel the
contract without penalty. Nothing prevents a
financial institution from recovering any pro-cessing
fees incurred.
12. Whenever an individual borrower is obliged
by a financial institution to purchase a product
or service as a pre-condition for receiving an-other
product or service, the borrower is free to
choose the provider for the product or service.
13. In their advertising, financial institutions dis-close
that they are regulated and the advertis-ing
materials identify the relevant regulatory or
supervisory agency.
14. Staff of financial institutions who deal direct-ly
with consumers receive adequate training,
suitable for the complexity of the products or
services they sell. In particular, financial inter-mediaries
are qualified as appropriate for the
complexity of the financial product or service
they sell.
Customer Account Handling and Maintenance
15. Financial institutions prepare regular state-ments
for each customer account regarding
key details of customer financial transactions as
well as written (or electronic) confirmations of
the terms of each transaction. For investment
products, customers receive periodic state-ments
of the value of the assets in their account.
16. As early as possible, customers are individually
notified in writing (or by electronic means) of
changes in interest rates, fees, and charges or
other key terms and conditions of their finan-cial
products or services.
17. Financial institutions maintain up-to-date
customer records and provide customers with
ready access to their records, either without
charge or for a reasonable fee.
18. Clearing and settlement of retail payments is
based on clear statutory and regulatory rules—
or is subject to effective self-regulatory arrange-ments.
19. Financial institutions are prohibited from em-ploying
abusive collection or debt recovery
practices against their customers.
Privacy and Data Protection
20. For credit registries, the law specifies the extent
and timeliness of the updating of customer in-formation,
gives customers ready and free ac-cess
to their credit reports from credit registers
(at least once a year), and provides procedures
for correcting mistakes in credit reports.
21. Financial institutions are required to protect
the confidentiality and technical security of
customer data. The law states specific rules and
procedures concerning the release of customer
records to any government authority.
22. The law provides consumer rights regarding
information sharing, including access, rectifi-cation,
blocking and erasing of errors, and out-dated
personal information. The law also sets

9
Common Good Practices for Financial Consumer Protection
out basic rules of information sharing among
participants of the credit reporting system, in-cluding
credit registers, reporting institutions,
and users of credit reports.
23. Every financial institution informs each of its
customers of its policies for the use and sharing
of the customer’s personal information.
24. Credit bureaus are subject to oversight by the
appropriate government (or non-government)
authority.
Dispute Resolution Mechanisms
25. Every financial institution has a designated
contact point with clear procedures for han-dling
customer complaints, including com-plaints
submitted verbally. Financial institu-tions
also maintain up-to-date records of all
complaints they receive and develop internal
dispute resolution policies and practices, in-cluding
processing time deadlines, complaint
response, and customer access.
26. Consumers have access to an affordable, effi-cient,
respected, professionally qualified and
adequately resourced mechanism for dispute
resolution, such as an independent financial
ombudsman or equivalent institution with
effective enforcement capacity. The institu-tion
acts impartially and independently from
the appointing authority, the industry, the in-stitution
with which the complaint has been
lodged, the consumer, and the consumer as-sociation.
Decisions by the financial ombuds-man
or equivalent institution are binding on
the financial institution.
27. Statistics of customer complaints, including
those related to breaches of codes of conduct,
are periodically compiled and published by the
ombudsman or financial supervisory authority.
The complaints are compiled by product type
to facilitate identification of patterns and op-portunities
for improvements of service.
28. Regulatory agencies are legally obliged to pub-lish
aggregate statistics and analyses related to
their activities regarding consumer protec-tion—
and propose regulatory changes or finan-cial
education measures to avoid the sources of
systemic consumer complaints. Industry asso-ciations
also play a role in analyzing the com-plaint
statistics and proposing measures to avoid
recurrence of systemic consumer complaints.
Guarantee and Compensation Schemes
29. The law provides that the regulator can take ap-propriate
measures to protect consumers in the
event of financial distress of a financial institution.
30. Any law on financial insurance or a guarantee
fund is clear on the insurer, the classes of de-positors
who are insured, the extent of insur-ance
coverage, the contributor(s) to the fund,
each event that will trigger a payout, and the
mechanisms to ensure timely payout to all in-sured
persons.
31. Depositors, life insurance policyholders, secu-rities
and derivatives account holders, and pen-sion
fund members enjoy higher priority than
other unsecured creditors in the liquidation
process of a relevant financial institution.
Financial Literacy & Consumer Empowerment
32. A broad-based program of financial education
and information is developed to increase the
financial literacy of the population.
33. A wide range of organizations (including
government, state agencies and non-govern-mental
organization) are involved in develop-ing
and implementing the financial literacy
program. The government appoints a ministry
(e.g. the Ministry of Finance), the central bank
or a financial regulator to lead and coordinate
the development and implementation of the
program.
34. Initiatives are undertaken to improve financial
literacy of consumers of all ages. This includes
encouraging the mass media to cover issues re-lated
to consumer finance, including consumer
protection in financial services.

10
35. Government and state agencies consult con-sumers,
industry associations and financial
institutions to develop proposals that meet
consumers’ needs and expectations. They also
undertake consumer testing to try to ensure
that proposed initiatives, including those re-garding
pre-contractual consumer disclosure
and dispute resolution, are likely to have their
intended outcomes.
36. The financial literacy of consumers and the
impact of consumer empowerment measures
are measured through broad-based household
surveys that are repeated from time to time to
see if the current policies are having the desired
impact on the financial marketplace.
Competition
37. Financial regulators and competition authori-ties
consult with one another.
38. Competition policy in financial services con-siders
the impact of competition issues on con-sumer
welfare, and especially planned or actual
limits on choice.
39. Competition authorities conduct and publish
periodic assessments of competition among
retail financial institutions and make recom-mendations
on how competition among retail
financial institutions can be optimized.

Banking Sector
Good business relationships between commercial banks
and the public are crucial for the development of any
country’s banking system. Needed are mutual trust and
confidence between banks and consumers. To the ex-tent
that transparent pricing is absent, consumer aware-ness
and protection is inadequate, or dispute resolution
mechanisms are costly or ineffective, banking systems
are less efficient and accessible than they would other-wise
be.
A full assessment of the banking sector and the environ-ment
in which it operates is critical to determine wheth-er
some of the practices listed below are relevant for a
particular country. These practices have been distilled
from various sources, including prevailing and accepted
practices in countries reputed to have good consumer
protection in the banking sector. The Good Practices
also draw on the international Good Practices and stan-dards
wherever applicable and appropriate.27 It is im-portant
to note that the practices have been crafted to
enable their use in both countries with well-developed
banking systems and those with less-developed systems.
To ensure the usefulness of these Good Practices, a cer-tain
degree of generalization and a minimum require-ment
approach has been taken. The fundamental rights
of the common consumer vis-à-vis the banking system
are thereby preserved, while relevance in the context of
the country concerned is also ensured.
I. Consumer Protection Institutions
Consumer Protection Regime
The law should provide clear consumer protection rules
regarding banking products and services, and all insti-tutional
arrangements should be in place to ensure the
thorough, objective, timely and fair implementation
and enforcement of all such rules.
a. Specific statutory provisions should create an ef-fective
regime for the protection of a consumer of
any banking product or service.
b. A general consumer agency, a financial supervisory
agency or a specialized financial consumer agency
should be responsible for implementing, oversee-ing
and enforcing consumer protection regarding
banking products and services, as well as for col-lecting
and analyzing data (including inquiries,
complaints and disputes).
c. The designated agency should be funded adequate-ly
to enable it to carry out its mandates efficiently
and effectively.
d. The work of the designated agency should be carried
out with transparency, accountability and integrity.
e. There should be co-ordination and co-operation be-tween
the various institutions mandated to imple-ment,
oversee and enforce consumer protection and
financial system regulation and supervision.
Good Practices for Financial Consumer
Protection by Financial Service
3

12
f. The law should also provide for, or at least not pro-hibit,
a role for the private sector, including vol-untary
consumer organizations and self-regulatory
organizations, in respect of consumer protection
regarding banking products and services.
The legal foundation for recognizing, implementing, over-seeing
and enforcing consumer protection is the primary
prerequisite for any legal rights, including consumer rights
in banking. Similarly, supervision and enforcement of the
protection of consumer affairs in the financial system is
critical for ensuring consumer protection. In this regard,
the assessments carried out so far and the experience of
countries around the world clearly support the view that it
is necessary to have an agency dedicated to overseeing and
enforcing consumer protection.
The right to form voluntary organizations is taken for grant-ed
in many countries. Voluntary consumer associations and
self- regulatory organizations are important pillars in the
consumer protection regime. Their role should be recognized
in the law in order to provide them with legitimacy and
enable them to obtain funding or gather resources. The role
of the private sector is also emphasized to provide legitimacy
to banks so that they can participate in activities that would
otherwise be considered non- banking matters and to enable
them to allocate sufficient funding for financial literacy and
related consumer protection pursuits.
International and national guidelines have been con-sulted
for the development of this Good Practice. They in-clude:
EU Directive on Credit Agreements for Consumers,
2008/48/EC, repealing Directive 87/102/EEC; EU Di-rective
on Consumer Protection in the Indication of the
Prices of Products offered to Consumers, 1998/6/EC; EU
Directive on the Distance Marketing of Consumer Finan-cial
Services, 2002/65/EC; the US Truth in Lending and
Truth in Savings Acts; and the UK Financial Services and
Markets Act of 2000 (which set up the Financial Services
Authority).28
Code of Conduct for Banks
a. There should be a principles-based code of conduct
for banks that is devised by all banks or the bank-ing
association in consultation with the financial
supervisory agency and consumer associations, if
possible. Monitored by a statutory agency or an ef-fective
self-regulatory agency, this code should be
formally adhered to by all sector-specific institu-tions.
b. If a principles-based code of conduct exists, it should
be publicized and disseminated to the general public.
c. The principles-based code should be augmented by
voluntary codes of conduct for banks on such mat-ters
as facilitating the easy switching of consumers’
current accounts and establishing a common termi-nology
in the banking industry for the description
of banks’ charges, services and products.
d. Every such voluntary code should likewise be pub-licized
and disseminated.
Many banking associations around the world adopt codes
of conduct to inform the public of the services and standard
of services to be expected from the industry. In most cases,
the associations adopt lists of grand statements that are not
relevant to the average customer, whereas specific princi-ples-
based voluntary codes of conduct generally have a posi-tive
impact on consumer protection. These codes use plain
language and provide commitments that are clear to the
average customer. The codes should be widely disseminated
and published on the websites of banks, clearly indicating
banks’ commitments to comply with them.
Most banking associations operating in the EU have not
adopted principles-based codes of banking practices. The
reason may be that the EU directives on credit and provi-sion
of other financial services are detailed enough to en-sure
Good Practices. However, codes of banking practices
have been adopted and enforced by many developed coun-tries,
such as Australia, Canada, New Zealand and the
United Kingdom, as well as by the Special Administra-tive
Region of China known as Hong Kong, and by some
middle-income countries such as South Africa. These codes
are principles-based and their compliance is monitored by
the regulatory authority in the case of Hong Kong or subject
to the jurisdiction of the ombudsman, in the case of South
Africa and Australia.29
The codes generally comprise the following:
• Governing principles and objectives of the code
• The banking ombudsman scheme and mechanisms
to deal with complaints

13
Good Practices for Financial Consumer Protection by Financial Service
• Good business conduct relating to communication,
privacy and disclosure
• Product and services
• Issues relating to checks
• Issues on provision of credit
• PINs and passwords
• Cards, liability and merchant card services
• Internet banking
• Other services such as foreign exchange services
• Statements and account information
Appropriate Allocation between Prudential Su-pervision
and Consumer Protection
Whether prudential supervision of banks and consumer
protection regarding banking products and services are
the responsibility of one organization or two institutions,
the allocation of resources to these functions should be
adequate to enable their effective implementation.
The oversight of a code of conduct or consumer protection
is not generally seen as being part of the responsibilities of
banking supervisors. The laws of central banks or bank-ing
supervisory agencies typically contain no reference to
“consumer protection” as a function of the banking super-visor
or to the concepts of “fairness” and “transparency”.
However, consumer protection issues should not be ignored
by regulators. If a bank provides an unsuitable or unfair
service, this may damage its reputation, as well as customer
loyalty and confidence. This may also indicate weaknesses
in management and internal controls and expose the bank
to financial loss, e.g. as a result of “mis-selling” of invest-ment
products. Thus, a banking regulator does have an in-terest
in encouraging standards of good banking practice,
whereby banks act fairly and reasonably in relation to their
customers. The regulator, however, has to determine where
to draw the line and, in particular, has to be careful about
intervening in matters that are best dealt with through
competitive market forces or resolved through courts. Bank-ing
regulators are very often better placed than a third par-ty
to strike the balance and avoid undue regulatory burden
on the industry.
Other Institutional Arrangements
a. The judicial system should ensure that the ultimate
resolution of any dispute regarding a consumer
protection matter in respect of a banking product
or service is affordable, timely and professionally
delivered.
b. The media and consumer associations should play
an active role in promoting banking consumer
protection.
As the ultimate bastion of justice, the judiciary should be an
effective final arbiter. For any consumer complaint about
a banking product or service, the courts should be widely
recognized as capable of rendering a final and binding de-cision
in a professional, timely and cost effective manner.
Media and consumer associations play an active role in pro-moting
financial consumer protection in many countries.
Proper media coverage of consumer mistreatment by finan-cial
institutions is an effective tool in promoting consumer
protection through “naming and shaming”. However, it is
important that journalists be educated to understand and
transmit information on financial issues accurately and
adequately. In most European countries, there are con-sumer
associations that deal with financial services.30 If,
as in Article 7 of Decision No. 20/2004/EC, specific crite-ria
are fulfilled, the organization might be even supported
financially by the EU. Furthermore, the EC has created
several consultative bodies, such as the Financial Services
Consumer Group; and its permanent committees include
representatives of consumer organizations from each of the
EU Member States. They are specifically asked to ensure
that consumer interests are properly taken into account in
the formulation of EU financial services policy.
Licensing
All banking institutions that provide financial services
to consumers should be subject to a licensing and regu-latory
regime to ensure their financial safety and sound-ness
and effective delivery of financial services.
This good practice forms the basis and foundation for the
enforcement of consumer protection in the banking sys-tem
(see Basel Core Principle 3). The licensing authority
should have the power to set criteria and reject applica-tions
for establishments that do not meet the standards set.
Apart from licensing, ongoing regulation and supervision
of the activities of the banking institution and its manner
of delivering its services need also to be regulated. In most
countries, banking services are regarded as essential and, as
such, appropriate regulatory and supervisory arrangements
should be in place.

14
II. Disclosure and Sales Practices
Information on Customers
a. When making a recommendation to a consumer,
a bank should gather, file and record sufficient in-formation
from the consumer to enable the bank
to render an appropriate product or service to that
consumer.
b. The extent of information the bank gathers regard-ing
a consumer should:
i. be commensurate with the nature and com-plexity
of the product or service either being
proposed to or sought by the consumer; and
ii. enable the bank to provide a professional ser-vice
to the consumer in accordance with that
consumer’s capacity.
This is a basic requirement not only for the delivery of ser-vices
but also for the purposes of complying with the Basel
Core Principle 1831 issued by the Bank for International
Settlements (BIS) and with the standards issued by the Fi-nancial
Action Task Force (FATF). The FATF is an inter-governmental
body created for the purpose of combating
money laundering and terrorism financing. The FATF
Standards comprise Forty Recommendations on Money
Laundering and Nine Special Recommendations on Ter-rorist
Financing.32
Accurate and reliable customer identification is important
for more than FATF-related issues but can present a spe-cial
challenge for low-income countries where national ID
cards have not yet been issued. Some banks, for example
in India and Malawi, use biometric measures to identify
customers. In the case of banking transactions conducted
through mobile telephones create their own rules regarding
reliable customer identification.
Affordability
a. When a bank makes a recommendation regarding
a product or service to a consumer, the product or
service it offers to that consumer should be in line
with the need of the consumer.
b. The consumer should be given a range of options
to choose from to meet his or her requirements.
c. Sufficient information on the product or service
should be provided to the consumer to enable him
or her to select the most suitable and affordable
product or service.
d. When offering a new credit product or service sig-nificantly
increasing the amount of debt assumed
by the consumer, the consumer’s credit worthiness
should be properly assessed.
This good practice aims to avoid consumer over-indebt-edness
and to help consumers make appropriate decisions
on their financial needs. It is not uncommon for consumer
protection agencies to call on financial service providers to
treat customers fairly, make sure that consumers can afford
the credit they receive and, if not, ensure that they contact
their lender or a free independent advice agency immedi-ately.
33 The EU Directive on Unfair Terms in Consumer
Contracts 1993/13/EEC and EU Directive on Credit
Agreements for Consumers, 2008/48/EC provide guidance
regarding this Good Practice.
Particularly in low-income countries, affordability may
also be related to concerns over possible over-indebtedness.
In some countries, lenders such as microfinance institutions
are not required to ask borrowers about other outstanding
debts—or such debts may not be registered in the credit bu-reau
system. The result may be consumers who become over-indebted,
relying on one loan to pay off another. In Peru,
the regulator has issued Regulation 6941-2008 (Rules for
administration of over-indebtedness risk of retail debtors)
to ensure that consumers do not use easy access to credit
cards or other forms of credit to become over-indebted.
Cooling-off Period
a. For financial products or services with a long-term
savings component, or those subject to high-pres-sure
sales contracts, (unless explicitly waived in
advance by a consumer in writing), a bank should
provide the consumer a cooling-off period of a rea-sonable
number of days (at least 3-5 business days)
immediately following the signing of any agree-ment
between the bank and the consumer.
b. On his or her written notice to the bank during the
cooling-off period, the consumer should be per-mitted
to cancel or treat the agreement as null and
void without penalty to the consumer of any kind.

15
This important safeguard enables an individual to with-draw
from an arrangement with impunity. This is par-ticularly
important for financial products or services with
a long-term savings component—or those subject to high-pressure
sales practices. Borrowers tend to rush into finan-cial
arrangements with their banks that provide seemingly
attractive terms or returns without the benefit of shopping
around. This is especially serious in countries where the
terms of services and products are not readily available or
cannot be compared. Thus, the cooling-off period provides
relief similar to a “no-questions-asked” return policy for
goods. However, for banking products and services that in-volve
market risk, a consumer who cancels his or her con-tract
during the cooling-off period should be required to
compensate the bank for any processing fees. For a descrip-tion
of cooling-off periods in several EU Member States, see
the EC’s Discussion Paper for the amendment of the Direc-tive
87/102/EEC concerning consumer credit.34
Bundling and Tying Clauses
a. As much as possible, banks should avoid bundling
services and products and the use of tying clauses
in contracts that restrict the choice of consumers.
b. In particular, whenever a borrower is obliged by
a bank to purchase any product, including an in-surance
policy, as a pre-condition for receiving a
loan from the bank, the borrower should be free to
choose the provider of the product and this infor-mation
should be made known to the borrower.
Tying occurs when two or more products are sold together
in a package and at least one of these products is not sold
separately. Market surveys suggest that in most EU Mem-ber
States, the majority of banks tie a current account to
mortgages, personal loans and SME loans35. Product ty-ing
in retail banking may weaken competition. First, ty-ing
raises costs and therefore is likely to reduce customer
mobility. Second, by binding customers into buying several
products from the same bank, tying is likely to discourage
the entry of new players and growth of smaller players.
Third, by introducing additional and perhaps unnecessary
products into the transaction, tying reduces price transpar-ency
and comparability among providers. Product tying
by one or more undertakings in a particular EU Member
State may constitute an exclusionary abuse of dominance
under Article 102 of the Treaty establishing the European
Community (EC Treaty), where such undertakings have a
dominant position.
Bundling occurs when two or more products are sold to-gether
in a package, although each of the products can also
be purchased separately on the market. Firms bundle for
several reasons (including economies of scope, price dis-crimination,
demand management or leverage of market
power into other market segments). Bundling is not per se
anti-competitive and it can even have positive effects on the
consumer (if the price of bundled services is lower than for
unbundled ones, and if convenience is increased). How-ever,
bundling also has the potential to render price com-parisons
impossible, thus hindering competition. Also cus-tomers
might be forced to accept services and products that
they do not need and thus they would have to incur in fees
and other costs associated with maintaining the bundled
product or service.
Preservation of Rights
Except where permitted by applicable legislation, in
any communication or agreement with a consumer, a
bank should not exclude or restrict, or seek to exclude
or restrict:
i. any duty to act with skill, care and diligence
toward the consumer in connection with the
provision by the bank of any financial service
or product; or
ii. any liability arising from the bank’s failure
to exercise its duty to act with skill, care and
diligence in the provision of any financial
service or product to the consumer.
This good practice concerns the obligation to deal fairly and
honestly with customers, and the right of privacy and data
protection of consumers. This standard requires that con-sumers
cannot be forced to accept contractual clauses that
would reduce their rights. This is reflected in the Account-ability
Principle of the OECD Guidelines on the Protec-tion
of Privacy and Transborder Flows of Personal Data’s
(Paragraph 14), and the APEC Privacy Framework’s Ac-countability
Principle IX, which state that the data con-troller
should be accountable for complying with the mea-sures
stated in the OECD and APEC guidelines.
The EU Directive on Unfair Business-to-Consumer Com-mercial
Practices states that a commercial practice shall

16
be deemed unfair if it is contrary to the requirements of
professional diligence (Article 5). The Directive also indi-cates
that a commercial practice is regarded as misleading
if it omits material information that the average consumer
needs in order to take a decision. One of several kinds of
material information described in the Directive are “the
arrangements for payment, delivery, performance and the
complaint handling policy, if they depart from the require-ments
of professional diligence” (Article 7).
Regulatory Status Disclosure
In all of its advertising, whether by print, television, ra-dio
or otherwise, a bank should disclose the fact that it
is a regulated entity and the name and contact details of
the regulator.
This is in line with responsible and fair advertisement
practices. The consumer should be able to verify the claims
made by the advertiser. For example, see the UK Finan-cial
Services and Markets Act 2000 or the UK Consumer
Credit Act 1974.
Terms and Conditions
a. Before a consumer opens a deposit, current (check-ing)
or loan account at a bank, the bank should
make available to the consumer a written copy
of its general terms and conditions, as well as all
terms and conditions that apply to the account to
be opened. Collectively, these Terms and Condi-tions
should include:
i. disclosure of details of the bank’s general
charges;
ii. a summary of the bank’s complaints
procedures;
iii. a statement regarding the existence of the
office of banking ombudsman or equivalent
institution and basic information relating to
its process and procedures;
iv. information about any compensation scheme
that the bank is a member of;
v. an outline of the action and remedies which
the bank may take in the event of a default by
the consumer;
vi. the principles-based code of conduct, if any,
referred to in A.2 above;
vii. information on the methods of computing
interest rates paid by or charged to the con-sumer,
any relevant non-interest charges or
fees related to the product offered to the con-sumer;
viii. any service charges to be paid by the con-sumer,
restrictions, if any, on account trans-fers
by the consumer, and the procedures for
closing an account; and
ix. clear rules on the reporting procedures that
the consumer should follow in the case of
unauthorized transactions in general, and
stolen cards in particular, as well as the bank’s
liability in such cases.
b. The Terms and Conditions should be written in
plain language and in a font size and spacing that
facilitates the reader’s comprehension.
A number of international guidelines provide the back-ground
for this Good Practice, including the EU Direc-tive
on Credit Agreements for Consumers 2008/48/EC; the
EU Directive on Consumer Credit 87/102/EEC; the EU
Directive concerning Unfair Business-to-Consumer Com-mercial
Practices in the Internal Market 2005/29/EC; the
EU Directive on Misleading and Comparative Advertis-ing
2006/114/EEC; the EU Directive on the Distance
Marketing of Consumer Financial Services 2002/65/EC;
the EU Directive on Protection of Consumers in Respect of
Distance Contracts 1997/7/EEC; as well as the US Truth
in Lending Act (TILA) and the Truth in Savings Act.
The purpose of TILA is to promote the informed use of con-sumer
credit by requiring disclosures about its terms and by
standardizing the manner in which costs associated with
borrowing are calculated and disclosed. TILA also gives
US consumers the right to cancel certain credit transactions
that involve a lien on a consumer’s principal dwelling, reg-ulates
certain credit card practices, and provides a means
for fair and timely resolution of credit billing disputes.
The US Truth in Savings Act requires clear and uniform
disclosure of the rate of interest (annual percentage yield or
APY) and fees that are associated with a savings account, so
that the consumer is able to make a meaningful compari-son
between potential accounts. For example, a customer

17
opening a certificate of deposit account should be provided
with information about ladder rates (smaller interest rates
with smaller deposits) and penalty fees for early withdrawal
of a portion or all of the funds.
Key Facts Statement
a. A bank should have a summary statement, such as a
Key Facts Statement, for each of its accounts, types
of loans or other products or services and provide
these to its customers and potential customers.
b. The summary statement should be written in plain
language and summarize in a page or two the key
terms and conditions of the specific banking prod-uct
or service.
c. Prior to a consumer opening any account at, or
signing any loan agreement with, the bank, the
consumer should have delivered a signed state-ment
to the bank to the effect that he or she has
duly received, read and understood the relevant
summary statement from the bank.
d. Summary statements throughout the banking sec-tor
should be written in such a way as to allow con-sumers
the possibility of easily comparing products
that are being offered by a range of banks.
A summary statement, such as a Key Facts Statement, pro-vides
consumers with simple and standard disclosure of key
contractual information of a banking product or service,
contributing to the consumers’ better understanding of the
product or service. Key Facts Statements also allow con-sumers
to easily compare offers provided by different banks
before they purchase a banking product or service. Such
statements also provide a useful summary for later refer-ence
during the life of the financial product or service. For
credit products, Key Facts Statements constitute an efficient
way to inform consumers about their basic rights, the credit
reporting systems and the existing possibilities for disputing
information. This is of special importance in countries with
new financial consumers who are inexperienced.
Several countries provide formats on Key Facts Statements.
The UK FSA has developed mandatory key facts statements
in the form of initial disclosure documents (or IDDs) ap-plicable
to housing credit products, including residential
mortgage credit. IDDs are supported by a regulation on
Mortgage: Conduct of Business (MCOB). The regulation
provides recommendations for wording pre-disclosure and
offering documents. In the European Union, the Direc-tive
on Credit Agreements for Consumers (2008/48/EC)
includes a recommended format, namely the Standard Eu-ropean
Consumer Credit Information (SECCI) form. Also
the European Associations of Consumers and the European
Credit Sector Associations have developed the European
Standardized Information Sheet (ESIS) which provides a
recommended format for pre-contractual information on
home loans. In the US, the Truth in Lending Act (Appen-dix
G-10) includes models for the “Schumer Box” for credit
cards.36 Peru has developed the “Hoja Resumen” (Summary
Sheet)37 and Ghana the “Pre-Agreement Truth in Lending
Disclosure Statement”38 following similar key-fact-state-ment
principles.
Of special concern in some countries is the need to provide
basic information to consumers in a language that is widely
used by local populations. For example, one of the largest
banks in South Africa provides consumer information at
its ATMs in six of the country’s 11 official languages-- but
not in Afrikaans which is the third most common language
spoken in the country.39 Similarly, in the Andean Region
of Bolivia, Colombia, Ecuador and Peru, Quechua—not
Spanish—is the language of many households. Likewise, in
Malawi, although Chichewa is spoken by a majority of the
population, little written banking information is available
other than in English.
It may also be helpful to test consumer understanding of
mandatory disclosure statements. In the US, the Federal
Reserve Board has conducted extensive consumer testing of
credit card disclosure information in order to develop an
easily understood format.40
Advertising and Sales Materials
a. Banks should ensure that their advertising and sales
materials and procedures do not mislead customers.
b. All advertising and sales materials of banks should
be easily readable and understandable by the gen-eral
public.
c. Banks should be legally responsible for all state-ments
made in their advertising and sales materials
(i.e. be subject to the penalties under the law for
making any false or misleading statements).

18
For disclosure and sales practices, one of the main policy issues
relates to misleading and comparative advertisement. Several
directives in Europe hold financial institutions responsible
for the content of their public announcements. These include
the EU Directive on the Distance Marketing of Financial
Services 2002/65/EC, the EU Directive on Misleading and
Comparative Advertising 2006/114/EEC and the Unfair
Commercial Practices Directive 2005/29/EEC.
Increasingly, in many developed and middle-income coun-tries,
banks use agents to market their products such as unit
trusts and credit cards. These solicitations take place outside
the bank premises- including at supermarkets and fairs.
Thus, ensuring that banks are liable for the acts of their
agents is critical.
Third-Party Guarantees
A bank should not advertise either an actual or future
deposit or interest rate payable on a deposit as being
guaranteed or partially guaranteed unless there is a le-gally
enforceable agreement between the bank and a
third party who or which has provided such a guaran-tee.
In the event such an agreement exists, the advertise-ment
should state:
i. the extent of the guarantee;
ii. the name and contact details of the party
providing the guarantee; and
iii. in the event the party providing the guaran-tee
is in any way connected to the bank, the
precise nature of that relationship.
The word “guarantee” can be a persuasive element when
it comes to “returns” on investment. There is a tendency,
however, for the term to be used loosely. Furthermore, the
actual terms of a guarantee can be difficult for the aver-age
customer to understand. Thus, advertisements should
ensure that the fact of the third-party guarantee is clearly
disclosed to the public so as to enable the consumer to make
an informed decision about the usefulness or relevance of
the guarantee.
Professional Competence
a. In order to avoid any misrepresentation of fact
to a consumer, any bank staff member who deals
directly with consumers, or who prepares bank
advertisements (or other materials of the bank for
external distribution), or who markets any service
or product of the bank should be familiar with the
legislative, regulatory and code of conduct guid-ance
requirements relevant to his or her work, as
well as with the details of any product or service of
the bank which he or she sells or promotes.
b. Regulators and associations of banks should col-laborate
to establish and administer minimum
competency requirements for any bank staff mem-ber
who: (i) deals directly with consumers, (ii)
prepares any Key Facts Statement or any adver-tisement
for the bank, or (iii) markets the bank’s
services and products.
The standard of professional delivery depends not only on
the product or service but also on the knowledge and tech-nical
know-how of the individual delivering the product
or service. Financial products are increasingly complicated,
products overlap, and the delineation between banking
and non-banking products is no longer clear. Thus, it is
important that consumers fully understand any product,
let alone a complex product before buying it. Typically, the
banking industry is expected to ensure that its employees
who deliver products and services are fully knowledgeable
about these products and services and are able to explain
the nuances to the consumer. In most cases, the industry sets
competency standards through certification processes.
III. Customer Account Handling
and Maintenance
Statements
a. Unless a bank receives a customer’s prior signed
authorization to the contrary, the bank should
issue, and provide the customer free of charge, a
monthly statement of every account the bank op-erates
for the customer.
b. Each such statement should: (i) set out all trans-actions
concerning the account during the period
covered by the statement; and (ii) provide details
of the interest rate(s) applied to the account dur-ing
the period covered by the statement
c. Each credit card statement should set out the min-imum
payment required and the total interest cost

19
that will accrue, if the cardholder makes only the
required minimum payment.
d. Each mortgage or other loan account statement
should clearly indicate the amount paid during
the period covered by the statement, the total
outstanding amount still owing, the allocation of
payment to the principal and interest and, if ap-plicable,
the up-to-date accrual of taxes paid.
e. A bank should notify a customer of long periods of
inactivity of any account of the customer and pro-vide
a reasonable final notice in writing to the cus-tomer
if the funds are to be treated as unclaimed
money.
f. When a customer signs up for paperless state-ments,
such statements should be in an easy-to-read
and readily understandable format.
Statements from a bank can be regarded as the most valid
record and evidence of a transaction for a customer. Thus,
statements need to be self-explanatory and clear. They
should allow the customer to comprehend the financial
consequences of the “number” in the statement and take
necessary action based on the statement. This is particularly
important in the case of credit card statements and loan ac-counts
statements that carry finance charges, penalty inter-est
and serious consequences of default or delayed payment.
Banks should be obligated to provide monthly statements.
However, with access to the internet and telephone bank-ing,
some customers may opt to receive statements on a
quarterly basis. The choice should be left to the customers.
Also, when customers choose paperless statements, the access
to the statements, their format and details should be a fair
substitute to paper statements.
Notification of Changes in Interest Rates and
Non-interest Charges
a. A customer of a bank should be notified in writing
by the bank of any change in:
i. the interest rate to be paid or charged on any
account of the customer as soon as possible;
and
ii. a non-interest charge on any account of the
customer a reasonable period in advance of
the effective date of the change.
b. If the revised terms are not acceptable to the cus-tomer,
he or she should have the right to exit the
contract without penalty, provided such right is
exercised within a reasonable period.
c. The bank should inform the customer of the fore-going
right whenever a notice of change under
paragraph a. is made by the bank.
Banks in many countries provide at least 1 to 3 months
of notice depending on the agreement. In most countries,
banks indicate in their offer documents and loan agreements
whether the interest rate is fixed or variable and whether it
is linked to a daily reference rate that is widely published
such as LIBOR, etc. In such cases, the minimum notice that
should be given in the event of a change in the interest rate
should be agreed upfront. Interest rate increases that do not
comply with the contractually stipulated notice are, there-fore,
invalid and will not be binding on the consumer. The
code of conduct should include this requirement. A consum-er’s
right to exit a contract is taken from Guidelines 17 and
19 of the UN Guidelines for Consumer Protection.
Customer Records
a. A bank should maintain up-to-date records in re-spect
of each customer of the bank that contain
the following:
i. a copy of all documents required to identify the
customer and provide the customer’s profile;
ii. the customer’s address, telephone number
and all other customer contact details;
iii. any information or document in connection
with the customer that has been prepared in
compliance with any statute, regulation or
code of conduct;
iv. details of all products and services provided
by the bank to the customer;
v. a copy of correspondence from the customer
to the bank and vice-versa and details of any
other information provided to the customer
in relation to any product or service offered
or provided to the customer;
vi. all documents and applications of the bank
completed, signed and submitted to the
bank by the customer;

20
vii. a copy of all original documents submitted
by the customer in support of an application
by the customer for the provision of a prod-uct
or service by the bank; and
viii. any other relevant information concerning
the customer.
b. A law or regulation should provide the minimum
permissible period for retaining all such records
and, throughout this period, the customer should
be provided ready access to all such records free of
charge or for a reasonable fee.
While the above can be assumed in many countries, rudi-mentary
banking systems often do not keep comprehensive in-formation
regarding customers and their transactions. The list
may seem prescriptive but its requirements should be regarded
as the minimum in order to ensure that sufficient information
is kept for the purpose of providing customer protection. For
more information, see annotation on Notification of Changes
in Interest Rates and Non-interest Charges.
Paper and Electronic Checks
a. The law and code of conduct should provide for
clear rules on the issuance and clearing of paper
checks that include, among other things, rules on:
i. checks drawn on an account that has insuf-ficient
funds;
ii. the consequences of issuing a check without
sufficient funds;
iii. the duration within which funds of a cleared
check should be credited into the customer’s
account;
iv. the procedures on countermanding or stop-ping
payment on a check by a customer;
v. charges by a bank on the issuance and clear-ance
of checks;
vi. liability of the parties in the case of check
fraud; and
vii. error resolution.
b. A customer should be told of the consequences of
issuing a paper check without sufficient funds at
the time the customer opens a checking account.
c. A bank should provide the customer with clear,
easily accessible and understandable information
regarding electronic checks, as well the cost of
using them.
d. In respect of electronic or credit card checks , a
bank should inform each customer in particular:
i. how the use of a credit card check differs
from the use of a credit card;
ii. of the interest rate that applies and whether
this differs from the rate charged for credit
card purchases;
iii. when interest is charged and whether there is
an interest free period, and if so, for how long;
iv. whether additional fees or charges apply and,
if so, on what basis and to what extent; and
v. whether the protection afforded to the cus-tomer
making a purchase using a credit card
check differs from that afforded when using a
credit card and, if so, the specific differences.
e. Credit card checks should not be sent to a consum-er
without the consumer’s prior written consent.
f. There should be clear rules on procedures for deal-ing
with authentication, error resolution and cases
of fraud.
A number of international and national guidelines have
been consulted regarding this Good Practice. These include
the US Check Clearing for the 21st Century Act and im-portant
Codes of Banking Practices in Australia and South
Africa.41 The check clearing house rules provide guidelines
on this Good Practice. However, these rules are designed to
guide banks and are not disclosed to the public. Thus, it is
important that basic principles for bankers, such as the ones
stated above, are followed by banks and customers are told
of their rights and liabilities in these respects.42
The background for this Good Practice is provided by the
EU Directive on Payment Services in the Internal Mar-ket
2007/64/EC, the US Regulation E and the BIS-World
Bank’s General Principles for International Remittance
Services. However, the Good Practices do not cover the full
range of payment/remittance services and providers. For
completeness, see the full text of the General Principles.43
Equally relevant for an understanding of all the underlying
payment system aspects are the CPSS-IOSCO Principles
for Financial Market Infrastructures (2012)44, the CPSS

21
General Guidance for National Payment System Develop-ment
(2006)45, and the World Bank General Guidelines
for the Development of Government Payment Programs
(consultative report, 2012).46
Credit Cards
a. There should be legal rules on the issuance of
credit cards and related customer disclosure
requirements.
b. Banks, as credit card issuers, should ensure that
personalized disclosure requirements are made in
all credit card offers, including the fees and charges
(including finance charges), credit limit, penalty
interest rates and method of calculating the mini-mum
monthly payment.
c. Banks should not be permitted to impose charges
or fees on pre-approved credit cards that have not
been accepted by the customer.
d. Consumers should be given personalized mini-mum
payment warnings on each monthly state-ment
and the total interest costs that will accrue
if the cardholder makes only the requested mini-mum
payment.
e. Among other things, the legal rules should also:
i. restrict or impose conditions on the issuance
and marketing of credit cards to young adults
who have no independent means of income;
ii. require reasonable notice of changes in fees
and interest rates increase;
iii. prevent the application of new higher penal-ty
interest rates to the entire existing balance,
including past purchases made at a lower in-terest
rate;
iv. limit fees that can be imposed, such as those
charged when consumers exceed their credit
limits;
v. prohibit a practice called “double-cycle bill-ing”
by which card issuers charge interest
over two billing cycles rather than one;
vi. prevent credit card issuers from allocating
monthly payments in ways that maximize
interest charges to consumers; and
vii. limit up-front fees charged on sub-prime
credit cards issued to individuals with bad
credit.
f. There should be clear rules on error resolution, re-porting
of unauthorized transactions and of stolen
cards, with the ensuing liability of the customer
being made clear to the customer prior to his or
her acceptance of the credit card.
g. Banks and issuers should conduct consumer
awareness programs on the misuse of credit cards,
credit card over- indebtedness and prevention of
fraud.
Credit cards have become the common payment mecha-nism
and are replacing hard currency in many countries.
The credit card industry has also been in the limelight for
its harmful practices, lack of transparency and of disclo-sure
of terms and conditions of credit card accounts. This
is particular problem in countries with low rates of savings
and high consumer spending. The recent measures taken by
many countries47 to update the rules applicable to credit
cards clearly indicate the importance of consumer protec-tion
in these respects.
Consumers should get key information about credit card
terms in a clear and conspicuous format and at a time
when it is most useful to them. Anyone under 21 should
get an adult to co-sign on the account if he or she wants to
open his or her own credit card account or show proof that
he or she has his or her own independent means to repay the
card debt. Billing methods and information disclosed in
the monthly statement should be clear and help customers
to make informed choices on their indebtedness.
The increasing use of credit cards over the internet and out-side
the issuers’ jurisdiction increases the incidence of stolen
cards and fraud. Thus, improving consumer awareness and
knowledge of these problems is important.
See also annotation on good practice C.4.
Internet Banking and Mobile Phone Banking
a. The provision of internet banking and mobile
phone banking (m-banking) should be supported
by a sound legal and regulatory framework.

22
b. Regulators should ensure that banks or financial
service providers providing internet and m-bank-ing
have in place a security program that ensures:
i. data privacy, confidentiality and data
integrity;
ii. authentication, identification of counterpar-ties
and access control;
iii. non-repudiation of transactions;
iv. a business continuity plan; and
v. the provision of sufficient notice when ser-vices
are not available.
c. Banks should also implement an oversight pro-gram
to monitor third-party control conditions
and performance, especially when agents are used
for carrying out m-banking.
d. A customer should be informed by the bank
whether fees or charges apply for internet or m-banking
and, if so, on what basis and how much.
e. There should be clear rules on the procedures for
error resolution and fraud.
f. Authorities should encourage banks and service
providers to undertake measures to increase con-sumer
awareness regarding internet and m-bank-ing
transactions.
Internet and mobile phone banking improve a bank’s ef-ficiency
and competitiveness in the provision of services and
products. They allow existing and potential customers an
increased degree of convenience in effecting banking and
payment transactions. A bank may be faced with different
levels of risks and expectations arising from internet and
mobile phone banking as opposed to traditional banking.
Furthermore, customers who rely on internet and mobile
phone banking services may have greater intolerance for a
system that is unreliable or one that does not provide ac-curate
and current information.
Consumer protection should be ensured through rules that
among other things: (i) limit systemic and other risks that
could threaten the stability of financial markets or un-dermine
confidence in the payment system; (ii) encourage
institutions to educate customers about their rights and re-sponsibilities
and how to protect their own privacy on the
Internet and when using mobile phones; and (iii) encour-age
the development of effective, low risk, low cost and con-venient
payment and financial services to customers and
businesses through the Internet and by utilizing mobile
phone banking.
See also annotation on good practice C.4.
Electronic Fund Transfers and Remittances
a. There should be clear rules on the rights, liabilities
and responsibilities of the parties involved in any
electronic fund transfer.
b. Banks should provide information to consumers
on prices and service features of electronic fund
transfers and remittances in easily accessible and
understandable forms. As far as possible, this in-formation
should include:
i. the total price (e.g. fees for the sender and
the receiver, foreign exchange rates and other
costs);
ii. the time it will take the funds to reach the
receiver;
iii. the locations of the access points for sender
and receiver; and
iv. the terms and conditions of electronic fund
transfer services that apply to the customer.
c. To ensure transparency, it should be made clear to
the sender if the price or other aspects of the ser-vice
vary according to different circumstances, and
the bank should disclose this information without
imposing any requirements on the consumer.
d. A bank that sends or receives an electronic fund
transfer or remittance should document all essen-tial
information regarding the transfer and make
this available to the customer who sends or re-ceives
the transfer or remittance without charge
and on demand.
e. There should be clear, publicly available and easily
applicable procedures in cases of errors and frauds in
respect of electronic fund transfers and remittances.
f. A customer should be informed of the terms and
condition of the use of credit/debit cards outside

23
the country including the foreign transaction fees
and foreign exchange rates that may be applicable.
The rise in international and domestic remittance calls for
greater protection in this area. The fees to be charged, the
time taken for the funds to reach the beneficiary, and recourse
mechanism procedures are some of the key issues that need to
be reviewed. See also annotation on good practice C.4.
Debt Recovery
a. A bank, agent of a bank and any third party should
be prohibited from employing any abusive debt
collection practice against any customer of the
bank, including the use of any false statement, any
unfair practice or the giving of false credit infor-mation
to others.
b. The type of debt that can be collected on behalf
of a bank, the person who can collect any such
debt and the manner in which that debt can be
collected should be indicated to the customer of
the bank when the credit agreement giving rise to
the debt is entered into between the bank and the
customer.
c. A debt collector should not contact any third party
about a bank customer’s debt without informing
that party of the debt collector’s right to do so; and
the type of information that the debt collector is
seeking.
d. Where sale or transfer of debt without borrower
consent is allowed by law, the borrower should be:
i. notified of the sale or transfer within a rea-sonable
number of days;
ii. informed that the borrower remains obligat-ed
on the debt; and
iii. provided with information as to where to
make payment, as well as the purchaser’s or
transferee’s contact information.
In a number of countries, weak safeguards against abusive
debt collection: (i) strengthens the call for a more cumber-some
recovery process; (ii) leads to moratoriums on collec-tion;
and (iii) earns the sympathy of courts. As a result,
debt collection becomes a prolonged process that increases
the cost of financing in the long-run. Sound rules on debt
collection are required so as to help ensure that consumers
are not subject to abusive and illegal collection practices.
While some countries rely on the sanctity of the contract
and on the courts to uphold the right of borrower and to
prevent abuses by lenders, other countries deal with this is-sue
through the law, a directive of a regulator, or guidance
provided by a consumer protection agency (see: the US Fair
Debt Collection Practices Act, as well as the US Federal
Trade Commission (FTC) and the UK Financial Services
Authority (FSA) websites).48
Foreclosure of mortgaged or charged property
a. In the event that a bank exercises its right to fore-close
on a property that serves as collateral for a
loan, the bank should inform the consumer in
writing in advance of the procedures involved, and
the process to be employed by the bank to fore-close
on the property it holds as collateral and the
consequences thereof to the consumer.
b. At the same time, the bank should inform the
consumer of the legal remedies and options
available to him or her in respect of the foreclosure
process.
c. If applicable, the bank should draw the consumer’s
attention to the fact that the bank has a legal right
to recover the balance of the debt due in the event
the proceeds from the sale of the foreclosed prop-erty
are not sufficient to fully discharge the out-standing
amount.
d. In the event the mortgage contract or charge agree-ment
permits the bank to enforce the contract
without court assistance, the bank should ensure
that it employs professional and legal means to en-force
the contract, including regarding the sale of
the property.
The financial crisis of 2007-09 and its impact on Unites
States’ homeowners highlight the importance of ensuring a
fair and adequate process in the foreclosure of mortgages.
The subsequent legislative measures taken by the US gov-ernment
also underscore the dangers of inadequate safe-guards
in the foreclosure process. Many countries struggle to
balance the rights of homeowners to keep their homes and
the rights of banks to collect on defaulted loans. As a result,

24
the pendulum swings between permitting out-of-court en-forcement
favoring banks and court foreclosures that favor
borrowers. Regardless of the popular sentiment, it is impor-tant
to have rules and procedures that ensure safeguards
and due process in the enforcement of the rights of the party
in a mortgage. Some of the key elements include sufficient
notice and a fair and cost-effective process.
Bankruptcy of Individuals49
a. A bank should inform its individual customers
in a timely manner and in writing on what basis
the bank will seek to render a customer bankrupt,
the steps it will take in this respect and the conse-quences
of any individual’s bankruptcy.
b. Every individual customer should be given ad-equate
notice and information by his or her bank
to enable the customer to avoid bankruptcy.
c. Either directly or through its association of banks,
every bank should make counseling services avail-able
to customers who are bankrupt or likely to
become bankrupt.
d. The law should enable an individual to:
i. declare his or her intention to present a debt-or’s
petition for a declaration of bankruptcy;
ii. propose a debt agreement;
iii. propose a personal bankruptcy agreement; or
iv. enter into voluntary bankruptcy.
e. Any institution acting as the bankruptcy office or
trustee responsible for the administration and reg-ulation
of the personal bankruptcy system should
provide adequate information to consumers on
their options to deal with their own debt and reha-bilitation
process in the event of bankruptcy.
Bankruptcy carries serious implications for an individual
and can have a significant negative impact on his or her
social and economic standing. In many countries, being
declared bankrupt also entails travel restrictions and a pro-hibition
on being named to official positions and partici-pating
in certain economic activities.
In some countries, customers of banks who default on their
loans have little knowledge of the likelihood of being de-clared
bankrupt and its consequences to their lives. In many
countries, the process lacks transparency and a consumer
may not even know that he or she has been declared bank-rupt
until his or her subsequent application for a credit has
been turned down. By making counseling available to those
who are likely to become bankrupt, consumers may be able
to avoid bankruptcy or at least manage the process better.
The law ought to also provide for rehabilitation process for
bankrupt persons, if possible.50
IV. Privacy and Data Protection
Confidentiality and Security
of Customers’ Information
a. The banking transactions of any bank customer
should be kept confidential by his or her bank.
b. The law should require a bank to ensure that it pro-tects
the confidentiality and security of the personal
data of its customers against any anticipated threats
or hazards to the security or integrity of such infor-mation,
as well as against unauthorized access.
The confidentiality of identifiable personal information is
protected under several international guidelines and direc-tives.
These include the OECD Guidelines on the Protec-tion
of Privacy and Transborder Flows of Personal Data
(Article 2 Scope of Guidelines), the EU Directive on the
Protection of Individuals with regard to the Processing
of Personal Data 1995/46/EC, and the APEC Privacy
Framework (Part ii, Scope).
Sharing Customer Information
a. A bank should inform its customers in writing:
i. of any third-party dealing for which the bank
is obliged to share information regarding any
account of the customer, such as any legal
enquiry by a credit bureau; and
ii. as to how it will use and share the customer’s
personal information.
b. Without the customer’s prior written consent, a
bank should not sell or share account or personal
information regarding a customer of the bank to or
with any party not affiliated with the bank for the
purpose of telemarketing or direct mail marketing.

25
c. The law should allow a customer of a bank to stop
or “opt out” of the sharing by the bank of certain in-formation
regarding the customer and, prior to any
such sharing of information for the first time, every
bank should be required to inform each of its cus-tomers
in writing of his or her rights in this respect.
d. The law should prohibit the disclosure by a third
party of any banking-specific information regard-ing
a customer of a bank.
The EC creates legal security by publishing standardized
clauses and model contracts (see Commission Staff Work-ing
Document on the Implementation of the Commission
Decisions on Standard Contractual Clauses for the Transfer
of Personal Data to Third Countries 2001/497/EC and
2002/16/EC). For information processing and sharing,
this could serve as an example for a personal data protec-tion
agency.
Permitted Disclosures
The law should provide for:
i. the specific rules and procedures concerning
the release to any government authority of
the records of any customer of a bank;
ii. rules on what the government authority may
and may not do with any such records;
iii. the exceptions, if any, that apply to these
rules and procedures; and
iv. the penalties for the bank and any govern-ment
authority for any breach of these rules
and procedures.
Each consumer should be informed in plain and under-standable
language about what can be disclosed by his or
her bank before concluding any contract with the bank.
This holds as well for all co-borrowers and personal guaran-tors.
Again, the personal data protection agency should play
an important role in educating the public about credit in-formation
sharing. Examples can be derived from the FTC
and the UK Information Commissioner’s Office (ICO).
Credit Reporting
a. Credit reporting should be subject to appropriate
oversight, with sufficient enforcement authority.
b. The credit reporting system should have accurate,
timely and sufficient data. The system should also
maintain rigorous standards of security and reli-ability.
c. The overall legal and regulatory framework for the
credit reporting system should be: (i) clear, pre-dictable,
non-discriminatory, proportionate and
supportive of consumer rights; and (ii) supported
by effective judicial or extrajudicial dispute resolu-tion
mechanisms.
d. In facilitating cross-border transfer of credit data,
the credit reporting system should provide appro-priate
levels of protection.
e. Proportionate and supportive consumer rights
should include the right of the consumer:
i. to consent to information-sharing based
upon the knowledge of the institution’s in-formation-
sharing practices;
ii. to access his or her credit report free of charge
(at least once a year), subject to proper iden-tification;
iii. to know about adverse action in credit deci-sions
or less-than-optimal conditions/prices
due to credit report information;
iv. to be informed about all inquiries within a
period of time, such as six months;
v. to correct factually incorrect information or
to have it deleted and to mark (flag) informa-tion
that is in dispute;
vi. to reasonable retention periods of credit his-tory,
for instance two years for positive infor-mation
and 5-7 years for negative informa-tion;
and
vii. to have information kept confidential and
with sufficient security measures in place to
prevent unauthorized access, misuse of data,
or loss or destruction of data.
f. The credit registries, regulators and associations of
banks should undertake campaigns to inform and
educate the public on the rights of consumers in
the above respects, as well as the consequences of a
negative personal credit history.

26
Credit reporting systems are designed to reduce credit risk
and improve access to credit by keeping record of consumers’
credit behavior. Transparency of credit reporting systems is
important for good governance of these systems. At the same
time, controls should exist to protect personal data. Credit
reporting is becoming an ever more pervasive activity that
affects a consumer’s economic life by determining the extent
of his or her access, if any, to finance and the terms of any
eventual loan agreement that he or she may receive.
Public policy should find the right balance between con-sumer
data protection and the economic rationale of pro-cessing
personal information. The Good Practice incorpo-rates
the General Principles for Credit Reporting, developed
by the Credit Reporting Standards Setting Task Force, coor-dinated
by the World Bank.
V. Dispute Resolution Mechanisms
Internal Complaints Procedure
a. Every bank should have in place a written com-plaints
procedure and a designated contact point
for the proper handling of any complaint from
a customer, with a summary of this procedure
forming part of the bank’s Terms and Conditions
referred to in B.7 above and an indication in the
same Terms and Conditions of how a consumer
can easily obtain the complete statement of the
procedure.
b. Within a short period of time following the date a
bank receives a complaint, it should:
i. acknowledge in writing to the customer/
complainant the fact of its receipt of the
complaint; and
ii. provide the complainant with the name of
one or more individuals appointed by the
bank to deal with the complaint until either
the complaint is resolved or cannot be pro-cessed
further within the bank.
c. The bank should provide the complainant with a
regular written update on the progress of the in-vestigation
of the complaint at reasonable intervals
of time.
d. Within a few business days of its completion of the
investigation of the complaint, the bank should
inform the customer/complainant in writing of
the outcome of the investigation and, where appli-cable,
explain the terms of any offer or settlement
being made to the customer/complainant.
e. The bank should also inform the customer/com-plainant
of the availability of the services of a fi-nancial
ombuds service or other form of alterna-tive
dispute resolution.
f. When a bank receives a verbal complaint, it should
offer the customer/complainant the opportunity
to have the complaint treated by the bank as a
written complaint in accordance with the above.
A bank should not require, however, that a com-plaint
be in writing.
g. A bank should maintain an up-to-date record of
all complaints it has received and the action it has
taken in dealing with them.
h. The record should contain the details of the com-plainant,
the nature of the complaint, a copy of
the bank’s response(s), a copy of all other relevant
correspondence or records, the action taken to re-solve
the complaint and whether resolution was
achieved and, if so, on what basis.
i. The bank should make these records available
for review by the banking supervisor or regulator
when requested.
Internal complaints procedures act as the first line of pos-sible
relief for any aggrieved customer and ensure that
disputes are resolved in-house as much as possible. Robust
in-house complaints procedures improve customer relation-ships,
increase trust in the banking system and reduce the
cost of adjudication. Thus, they are important components
of consumer protection.
Many banking supervisors deal with customer complaints
based upon the code of conduct, if any, or through their
general supervisory power. For instance, banking super-visors
in Asia leave complaint forms in bank branches so
that consumers will send their complaints directly to them.
Some supervisors have a special unit dedicated to deal with
consumer complaints against supervised banks, even if
the objectives of the banking supervisor do not explicitly
mention consumer protection as a mandate. Guidance on

27
this Good Practice derives from the European Commission
Recommendation on the principles for out-of-court bodies
involved in the consensual resolution of consumer disputes,
2001/310/EC.
Formal Dispute Settlement Mechanisms
a. A system should be in place that allows customers
of a bank to seek affordable and efficient recourse
to a third-party banking ombudsman or equiva-lent
institution, in the event the complaint of one
or more of customers is not resolved in accordance
with the procedures outlined in E.1 above.
b. The existence of the banking ombudsman or
equivalent institution and basic information relat-ing
to the process and procedures should be made
known in every bank’s Terms and Conditions re-ferred
to in B.7 above.
c. Upon the request of any customer of a bank, the
bank should make available to the customer the
details of the banking ombudsman or equivalent
institution, and its applicable processes and pro-cedures,
including the binding nature of decisions
and the mechanisms to ensure the enforcement of
decisions.
d. The banking ombudsman or equivalent institution
should be appropriately resourced and discharge
its function impartially.
e. The decision of the banking ombudsman or equiv-alent
institution should be binding upon the bank
against which the complaint has been lodged.
Few customers have the knowledge to realize that their
rights have been infringed and, even if they are aware of
the infringement, they typically have very few avenues to
pursue their claims. Thus, as indicated in E.1 above, banks
should be mandated to have an internal dispute resolution
or complaint handling mechanism. Unless there are volun-tary
consumer associations that have the resources and skills
to assist individuals with their complaints or legal actions
against their banks, consumers do not have many venues to
seek redress. The absence of small claims courts, as is the case
in many countries, prevents an affordable means for the
average customer to bring action against banks.
Thus, more and more banking systems around the world
are seeking to establish an adequately resourced office of
Ombudsman to deal expeditiously, independently, profes-sionally
and inexpensively with consumer disputes that do
not get resolved internally by banks. The establishment and
sustainability of such offices are now generally regarded as
fundamental requirements for sound consumer protection.
An Ombudsman can also identify complaints that are few
in number but high in importance for consumer confidence
in the financial system, thereby enabling the relevant au-thorities
to take effective action to remedy the situation.
Without clear codes of conduct and standardized contracts,
however, it becomes difficult for the Ombudsman’s office
to perform its role effectively. In many countries, the code
of conduct (that is binding on all banks) forms the basis
for the Ombudsman’s jurisdiction and provides guidance
in the resolution of disputes.
Publication of Information on
Consumer Complaints
a. Statistics and data of customer complaints, in-cluding
those related to a breach of any code of
conduct of the banking industry should be peri-odically
compiled and published by the ombuds-man,
financial supervisory authority or consumer
protection agency.
b. Regulatory agencies should publish statistics and
data and analyses related to their activities in re-spect
of consumer protection regarding banking
products and services so as, among other things,
to reduce the sources of systemic consumer com-plaints
and disputes.
c. Banking industry associations should also analyze
the complaint statistics and data and propose mea-sures
to avoid the recurrence of systemic consumer
complaints.
Apart from providing useful quantitative information,
statistics also provide the tools needed for predictions and
forecasting that form essential input for policy decision-making.
However, the collection of statistics and data alone
is not sufficient. Publication of the statistics and data is re-quired
to inform the public of common problems affecting
consumers and to increase the knowledge and awareness of
consumers.

28
By analyzing the statistics and data, regulators and banks
can identify recurring problems and areas of weakness in
banking practices. They can then take steps to deal with the
source of the problems. The analysis is also critical for regu-lators
to identify the correlation between the issues raised in
the consumer complaints and systemic issues or weaknesses
that may affect the soundness of the banking system itself.
VI. Guarantee Schemes and Insolvency
Depositor Protection
a. The law should ensure that the regulator or super-visor
can take necessary measures to protect depos-itors
when a bank is unable to meet its obligations
including the return of deposits.
b. If there is a law on deposit insurance, it should
state clearly:
i. the insurer;
ii. the classes of those depositors who are insured;
iii. the extent of insurance coverage;
iv. the holder of all funds for payout purposes;
v. the contributor(s) to this fund;
vi. each event that will trigger a payout from this
fund to any class of those insured;
vii. the mechanisms to ensure timely payout to
depositors who are insured; and
viii. the circumstances when insured depositors
would be denied payment of their deposits.
c. On an on-going basis, the deposit insurer should
directly or through insured banks or the associa-tion
of insured commercial banks, if any, promote
public awareness of the deposit insurance system,
as well as how the system works, including its ben-efits
and limitations.
d. Public awareness should, among other things,
educate the public on the financial instruments
and institutions covered by deposit insurance, the
coverage and limits of deposit insurance and the
reimbursement process.
e. The deposit insurer should work closely with
member banks and other safety-net participants to
ensure consistency in the information provided to
consumers and to maximize public awareness on
an ongoing basis.
f. The deposit insurer should receive or conduct a
regular evaluation of the effectiveness of its public
awareness program or activities.
Policymakers have choices regarding how they can protect
depositors and contribute to financial system stability. Ex-plicit,
limited-coverage deposit insurance (a deposit insur-ance
system) has become the preferred choice compared to
reliance on implicit protection. A deposit insurance system
clarifies the authority’s obligations to depositors, limits the
scope for discretionary decisions, can promote public confi-dence,
helps to contain the costs of resolving failed institu-tions,
and can provide an orderly process for dealing with
bank failures.
The introduction or the reform of a deposit insurance sys-tem
can be more successful when a country’s banking system
is healthy and its institutional environment is sound. In
order to be credible, a deposit insurance system needs to
be part of a well-constructed financial system safety net,
properly designed and well implemented. It also needs to
be supported by strong prudential regulation and super-vision,
sound accounting and disclosure regimes, and the
enforcement of effective laws. An effective deposit insurance
system should also be supported by a high level of public
awareness about its existence, its benefits and its limita-tions.
A deposit insurance system should be able to deal
with a limited number of simultaneous bank failures, but
the resolution of a systemic banking crisis requires that all
financial system safety-net participants work together ef-fectively.
The BIS Core Principle 23 issued in September
2005, the EU Directive on Deposit Guarantee Schemes
1994/19/EC, and the key conclusions of the APEC Policy
Dialogue on Deposit Insurance in 2005 provide guidance
for this Good Practice.51
Insolvency
a. Depositors should enjoy higher priority than other
unsecured creditors in the liquidation process of
a bank.
b. The law dealing with the insolvency of banks
should provide for expeditious, cost effective and
equitable provisions to enable the maximum time-ly
refund of deposits to depositors.

29
The BIS Supervisory Guidance on Dealing with
Weak Banks and other international guidelines stated in
the annotation of F.1 above provide the background for
this Good Practice.
VII. Consumer Empowerment &
Financial Literacy
Broadly based Financial Literacy Program
a. A broadly based program of financial education
and information should be developed to increase
the financial literacy of the population.
b. A range of organizations, including those of the
government, state agencies and non-government
organizations, should be involved in developing
and implementing the financial literacy program.
c. The government should appoint an institution
such as the central bank or a financial regulator
to lead and coordinate the development and
implementation of the national financial literacy
program.
Financial education, information and guidance can help
consumers to budget and manage their income, to save,
invest and protect themselves against risks, and to avoid
becoming victims of financial fraud and scams. As finan-cial
products and services become more sophisticated and
households assume greater responsibility for their financial
affairs, it becomes increasingly important for individuals
to manage their money well, not only to help secure their
own and their family’s financial well-being, but also to fa-cilitate
the smooth functioning of financial markets and
the economy.
According to OECD analysis, many people have a poor
understanding of the financial issues that affect their lives.
OECD countries have agreed on new Good Practices on
financial education relating to private pensions and insur-ance,
which call on governments and businesses to work
together to improve financial literacy in order to give people
the tools they need to secure their future.52 Important con-ferences
and seminars have been organized to raise aware-ness
on this issue, including the International Conference
on Financial Education (New Delhi, September 2006),
the G8 Conference on Improving Financial Literacy (Mos-cow,
November 2006), the International Seminar on
Risk Awareness and Education on Insurance Issues (Istan-bul,
April 2007), the International Forum on Financial
Consumer Protection and Education (Budapest, October
2007), the OECD-US Treasury International Conference
on Financial Education (Washington, D.C., May 2008),
the OECD-Bank Indonesia International Conference on
Financial Education (Bali, October 2008), the OECD-IEFP
Symposium on Financial Education (May 2009),
the OECD-Brazilian International Conference on Fi-nancial
Education (December 2009), the OECD-Reserve
Bank of India Workshop on Delivering Financial Liter-acy:
Challenges, Approaches and Instruments (Bangalore,
March 2010), the OECD-Bank of Italy Symposium on
Financial Literacy: Improving Financial Education Effi-ciency
(Rome, June 2010), the OECD-Banque du Liban
International Conference on Financial Education: Build-ing
Financially Empowered Individuals (Beirut, October
2010) and the FCAC-OECD Conference on Financial
Literacy: Partnering to Turn Financial Literacy into Ac-tion
(Toronto, May 2011). In order to assist policymakers,
the OECD has established the International Gateway for
Financial Education to describe, analyze and assess the ef-fectiveness
of programs to improve financial literacy.
The EU has also recognized the importance of improving
people’s financial literacy53. The term “financial literacy”
means the ability to manage one’s money, keep track of one’s
finances, plan ahead, choose appropriate financial prod-ucts
and services and stay informed about financial mat-ters54.
Financial literacy initiatives are complementary to,
not a substitute for, consumer protection regulation. The
most effective ways of improving people’s financial literacy
vary according to factors such as their age, income level,
educational attainment and culture. A range of approaches
are needed which reflect the diversity of people’s needs and
aptitudes.
These approaches should focus on people’s attitudes, as well
as on financial education, information and skills. For ex-ample,
it is not sufficient that people know how to save; they
also need to understand the benefits that savings can bring
them and their families, to recognize that it is worth defer-ring
current expenditure, and to be motivated to set aside
money on a regular basis. It is also important to cover basic
issues such as budgeting, saving, planning ahead and choos-ing
products, rather than merely to provide information
about particular types of financial products and services.

30
There are many bodies – from government, state agencies
and non-governmental organizations – which have an in-terest
in improving people’s financial literacy. They should
work together on this issue, so that there is a range of initia-tives
which, over time, will help to improve people’s ability
to manage their personal finances.
The government should appoint a ministry (for example,
the Ministry of Finance), the central bank or a financial
regulator to lead and coordinate the development and im-plementation
of the national financial literacy program.
This organization should provide drive and momentum;
secure the active engagement of a broad range of other or-ganizations;
and ensure that priorities are identified and
that unnecessary duplication is avoided, so that the most
cost-effective use is made of available resources.
Using a Range of Initiatives and Channels,
including the Mass Media
a. A range of initiatives should be undertaken by the
relevant ministry or institution to improve people’s
financial literacy regarding banking products and
services.
b. The mass media should be encouraged by the rel-evant
ministry or institution to provide financial
education, information and guidance to the public
regarding banking products and services.
c. The government should provide appropriate in-centives
and encourage collaboration between
governmental agencies, banking regulators, the
banking industry and consumer associations in the
provision of financial education, information and
guidance regarding banking products and services.
A range of financial literacy initiatives should be developed.
These can include: (i) financial education programs for
schoolchildren;(ii) programs aimed at young people, such
as university and college students;(iii) financial education
presentations and other facilitated learning in workplaces
and local communities (supported by “train the trainer”
programs);(iv) publications and websites; and (v) televi-sion,
radio and dramatic productions.
Financial education can be provided in schools so that
schoolchildren gain the understanding, skills and confi-dence
to manage their money as they take on responsibility
for managing their own financial affairs. There is unlikely
to be room in the curriculum for financial education to be
included as a separate subject. However, financial educa-tion
can be incorporated into other subjects, such as math-ematics,
life skills and citizenship curriculum.
Young people are more likely to find financial education
engaging where it is interactive (for example, by involv-ing
research and problem-solving) and where it relates to
issues they regard as relevant to their lives in the reason-ably
foreseeable future55. So, for example, older students are
more likely to react positively to issues regarding saving for
a holiday or for a car or to pay for their education, than
issues relating to pensions or mortgages.
The media –particularly television and radio– can play
an important role in providing financial education and
information. Regulators and/or industry associations can
support initiatives by providing the media with informa-tion
about current concerns and about different types of
financial services and products.
Unbiased Information for Consumers
a. Regulators and consumer associations should pro-vide,
via the internet and printed publications,
independent information on the key features, ben-efits
and risks –and where practicable the costs– of
the main types of banking products and services.
b. The relevant authority or institution should en-courage
efforts to enable consumers to better un-derstand
the products and services being offered
to consumers by banking institutions, such as pro-viding
comparative price information and under-taking
educational campaigns.
c. The relevant authority or institution should adopt
policies that encourage non-governmental organi-zations
to provide consumer awareness programs to
the public regarding banking products and services.
Consumers and potential consumers are more likely to have
the confidence to purchase financial products and services
which are suitable for them if they have access to informa-tion
which is reliable and objective. Financial regulators
are well-placed to provide this. For example, the UK Fi-nancial
Services Authority’s consumer website Money Made
Clear includes information on a range of products56; pro-

31
vides a facility to download or order leaflets (which can also
be ordered by telephone)57; and includes impartial tables58
which people can use to compare the costs and some other
features of similar financial products from different compa-nies.
In addition, global, regional and national data-bases
of remittance prices provide valuable comparable informa-tion
to consumers on the costs of sending remittances.59
Consulting Consumers and the Financial
Services Industry
a. The relevant authority or institution should con-sult
consumers, banking associations and banking
institutions to help them develop financial literacy
programs that meet banking consumers’ needs and
expectations.
b. The relevant authority or institution should also
undertake consumer testing with a view to ensur-ing
that proposed initiatives have their intended
outcomes.
In developing financial literacy programs, consultations
will be helpful in order to take into account the perspec-tives
of consumers, as well as those of financial services firms
and/or their trade associations. In countries where there are
informed and effective consumer organizations, those orga-nizations
will naturally need also to be consulted.
To ensure that consumers are actively involved in the policy
development process, it is recommended that the govern-ment
or private sector organizations or both provide ap-propriate
funding to non-governmental organizations for
this purpose and create a special entity to lobby on behalf of
consumers in the policy-making process.
It can also be very beneficial to test proposed initiatives with
end-users (that is, a sample of the type of person that the
initiative in question is intended to reach) to try to ensure
that the initiative will have the intended impact. Among
the techniques for doing so are the use of focus groups and
pilot studies.
Measuring the Impact of
Financial Literacy Initiatives
a. The financial literacy of consumers should be mea-sured,
amongst other things, by broadly-based
household surveys and mystery shopping trips that
are repeated from time to time.
b. The effectiveness of key financial literacy initiatives
should be evaluated by the relevant authorities or
institutions from time to time.
In order to measure the impact of financial education and
information, the financial literacy of a sample of the popu-lation
should be measured by means of large-scale market
research that gets repeated from time to time. Initiatives
will take some time to have a measurable impact on the
financial literacy of a population, so it is likely to be suf-ficient
to repeat the survey every four to five years.
In addition, key financial literacy initiatives should be
evaluated to assess their impact on those people they are
intended to reach. This can help policymakers and funders
to decide, on an informed basis, which initiatives should
be continued (and perhaps scaled up) and which should be
modified or discontinued.
VIII. Competition and Consumer Protection
Regulatory Policy and Competition Policy
Regulators and competition authorities should be re-quired
to consult one another for the purpose of ensuring
the establishment, application and enforcement of consis-tent
policies regarding the regulation of financial services.
In many countries, general legislation, including consumer
laws as well as the EU competition policy, requires protec-tion
of the economic interests of consumers. This includes,
for instance, protection from misleading advertising and
unfair contract terms. All business practices that restrict,
prevent or distort competition are subject to scrutiny.60
Review of Competition
Given the significance of retail banking to the economy
as a whole and to the welfare of consumers, competition
authorities should:
i. monitor competition in retail banking;
ii. conduct, and publish for general consump-tion,
periodic assessments of competition in
retail banking (such as the range of interest
rates across banks for specific products); and
iii. make recommendations publicly available
on enhancing competition in retail banking.
See annotation on Regulatory Policy and Competition
Policy above.

32
TABLE 2: Overview of Consumer Protection Regulation for the Banking Sector
International Institution
or National Government
Laws, Regulations, Directives and Guidelines
BIS – Bank for International
Settlements
Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision, September
1997, revised October 2006
Supervisory Guidance on Dealing with Weak Banks, 2002
BIS-World Bank General Principles for International Remittance Services, 2007
United Nations Guidelines for Consumer Protection (as expanded in 1999)
OECD – Organisation for
Economic Cooperation and
Development
Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, 1980
Guiding Principles for Regulatory Quality and Performance, 2005
Best Practices for the Formal Exchange of Information Between Competition Authorities in Hard Core Cartel
Investigations, 2005
Recommendation of the Council concerning Merger Review, 2005
Recommendation of the Council concerning Structural Separation in Regulated Industries, 2001
Recommendation of the Council concerning Effective Action against Hard Core Cartels, 1998
Recommendation of the Council concerning Co-operation between Member Countries on Anticompetitive
Practices affecting International Trade, 1995
APEC – Asia Pacific Economic
Cooperation
APEC Privacy Framework, 2005
APEC Policy Dialogue on Deposit Insurance: Key Policy Conclusions, 2004
EU – European Union Directive on Consumer Credit, 1987/102/EEC, as amended
Directive on Credit Agreements for Consumers, 2008/48/EC, repealing Directive 87/102/EEC
Directive on Consumer Protection in the Indication of the Prices of Products offered to Consumers, 1998/6/EC
Directive on Unfair Terms in Consumer Contracts, 1993/13/EEC
Directive concerning Unfair Business-to-Consumer Commercial Practices in the Internal Market, 2005/29/EC
Directive on Misleading and Comparative Advertising, 2006/114/EEC
Directive on the Distance Marketing of Consumer Financial Services, 2002/65/EC
Directive on Payment Services in the Internal Market, 2007/64/EC
Directive on Deposit Guarantee Schemes, 1994/19/EC
Directive on Protection of Consumers in Respect of Distance Contracts, 1997/7/EC
Directive on the Protection of Individuals with regard to the Processing of Personal Data and on the Free
Movement of such data, 1995/46/EC
Commission Recommendation on the Principles for Out-of-court Bodies involved in the Consensual Resolution
of Consumer Disputes, 2001/310/EC
Communication from the Commission - Sector Inquiry under Art 17 of Regulation 1/2003 on Retail Banking,
COM (2007) 33 final
Recommendation 1998/257/EC: out-of-court settlement of consumer disputes
Directive on Electronic Money 2009/110/EC
Commission Staff Working Document on the Implementation of the Commission Decisions on Standard
Contractual Clauses for the Transfer of Personal Data to Third Countries 2001/497/EC and 2002/16/EC, SEC
(2006) 95
Treaty establishing the European Community (EC Treaty), 1957 as amended
FATF – Financial Action Task
Force
Forty Recommendations on Money Laundering, 2003
Nine Special Recommendations on Terrorism Financing, 2001 as expanded in 2004

33
Many international guidelines provide guidance for the de-velopment
of this Good Practice including, the EC Treaty’s
Article 102; the EC’s Sector Inquiry under Art 17 of Regu-lation
1/2003 on retail banking; the OECD’s non-binding
Recommendations on competition law and policy; as well
as the OECD’s Best Practices on information exchange in
cartel investigations. The OECD’s Recommendations and
Best Practices are often catalysts for major change by gov-ernments
(see Table 2 for an overview of these recommen-dations
and best practices).
Impact of Competition Policy on
Consumer Protection
The competition authority and the regulator should
evaluate the impact of competition policies on con-sumer
welfare, especially regarding any limitations on
customer choice and collusion regarding interest and
other charges and fees.
While competition authorities monitor the compliance of
their policies and enforce them, not many of them carry
out systematic evaluation of the impact of the policies on
consumer welfare or well-being. Availability of choice and
reasonable fees and charges increases the well-being of con-sumers.
Unless the impact evaluation is done, the outcome
of the competition policy cannot be measured.
An overview of the main international and US and UK
consumer protection legislation and regulation for the
banking sector is presented in Table 2.
Securities Sector
Consumer protection in the securities sector has been
recognized as critical to the development of the depth
and integrity of the securities61 markets for many years.
The relationship between an entity providing invest-ment
services and products to customers, such as an in-termediary,
investment adviser or collective investment
undertaking (CIU)62 and its customers is the basis for
the fair, sound and efficient functioning of the securities
markets. The maintenance and enforcement of the in-tegrity
of that relationship has been the subject of gov-ernmental
regulatory action and international coopera-tion
for many years and is the basis for the development
of these Good Practices.
IX. Investor Protection Institutions
The law should provide for clear rules on investor pro-tection
in the area of securities markets products and
services, and there should be adequate institutional ar-
International Institution
or National Government
US – United States of America Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010
Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act of 2009), 2009
Truth in Lending Act (TILA), 1968
Truth in Savings Act, 1991
Check Clearing for the 21st Century Act, 2003
Fair Debt Collection Practices Act, 1977
Regulation E – Electronic Fund Transfers, 1966
Federal Trade Commission Act, 1914
Equal Credit Opportunity Act, 1974
UK – United Kingdom Financial Services and Markets Act, 2000
Consumer Credit Act, 1974
World Bank General Principles for Credit Reporting, 2011
TABLE 2: Overview of Consumer Protection Regulation for the Banking Sector (continued)

34
rangements for the implementation and enforcement of
investor protection rules.
a. There should be specific legal provisions which
create an effective regime for the protection of in-vestors
in securities.
b. There should be a governmental agency respon-sible
for data collection and analysis (including
complaints, disputes and inquiries) and for the
oversight and enforcement of investor protection
laws and regulations.
A general consensus has developed that investor/consumer
protection in the securities markets requires a legal frame-work
and should be regulated by a governmental agency.
Source: IOSCO Principles 1-5.
Code of Conduct for Securities Intermediaries,
Investment Advisers and Collective Investment
Undertakings
a. Securities intermediaries, investment advisers and
CIUs should have a voluntary code of conduct.
b. If such a code of conduct exists, securities inter-mediaries,
investment advisers and CIUs should
publicize the code to the general public through
appropriate means.
c. Securities Intermediaries, Investment Advisers and
CIUs should comply with the code and an appro-priate
mechanism should be in place to provide
incentives to comply with the code.
In addition to the governmental regulation, market profes-sionals
in the securities market should have a code of con-duct
that can provide guidance for market professionals and
a means by which their customers can evaluate them. Sourc-es:
IOSCO Rules 25-29; CESR Standard 10 and Rule 17;
FINRA Manual incorporating NASD Rules Section 2000
Business Conduct and FIMM, Code of Ethics and Stan-dards
of Professional Conduct for the Unit Trust Industry.
a. The judicial system should provide an efficient
and trusted venue for the enforcement of laws and
regulations on investor protection.
b. The media should play an active role in promoting
investor protection.
c. The private sector, including voluntary investor
protection organizations, industry associations
and, where permitted, self-regulatory organiza-tions
should play an active role in promoting in-vestor
protection.
A fair and efficient judicial system is critical for the func-tioning
of any regulatory system. An open and free dis-cussion
regarding the financial system in the information
media is also critical for a full evaluation of the extent to
which a financial system provides protection for investors.
In addition, private sector organizations are an important
means of disseminating information to consumers in a cost
effective manner and should be encouraged within the con-text
of the legal system. Sources: FINRA Manual incorpo-rating
NASD Rules Sections 2000 and 3000, and SEC
Securities and Exchange Act of 1934 Section 15A.
Licensing
a. All legal entities or physical persons that, for the
purpose of investment in financial instruments,
solicit funds from the public should be obliged to
obtain a license from the supervisory authority.
b. Legal entities or physical persons that give invest-ment
advice and hold customer assets should be
licensed by the securities supervisory authority.
c. If a jurisdiction does not require licensing for legal
entities or physical persons that give only invest-ment
advice, such persons should be supervised by
an industry association or self-regulatory organiza-tion
and the anti-fraud provisions of the securities
laws or other consumer laws should apply to the
activity of such persons.
A key measure in preventing the emergence of financial
pyramids is the requirement for licensing of all entities that
contact the public and solicit funds for investment or spec-ulation.
However, a distinction should be made between
private solicitations of friends and family versus a public
solicitation to an indeterminate number of investors. For
the latter, different jurisdictions use different thresholds
to identify what is an “indeterminate number”, but the
threshold is generally between 15 and 50 investors. All per-

35
sons, legal and physical, that solicit funds from more than
50 investors should be required to be registered with the
financial supervisory agency and be obliged to obtain a li-cense
for their activities.
Legal entities and physical persons that provide investment
advice but don’t intermediate securities have become a seri-ous
issue for the protection of investors. If such persons hold
customer assets, they should be licensed by the securities au-thority.
If they only give advice, the oversight of such persons
varies greatly between jurisdictions. A consensus has devel-oped
that there should be oversight and ethical standards
for these persons. This can be done by securities authori-ties,
self-regulatory organizations, or industry associations.
In order for this oversight to be effective, at the least, such
persons should be subject to the anti-fraud provisions of the
securities and consumer protection laws.
X. Disclosure and Sales Practices
General Practices
There should be disclosure principles that cover an in-vestor’s
relationship with a person offering to buy or sell
securities, buying or selling securities, or providing in-vestment
advice, in all three stages of such relationship:
pre-sale, point of sale, and post-sale.
a. The information available and provided to an in-vestor
should inform the investor of:
i. the choice of accounts, products and services;
ii. the characteristics of each type of account,
product or service;
iii. the risks and consequences of purchasing
each type of account, product or service;
iv. the risks and consequences of using leverage,
often called margin, in purchasing or selling
securities or other financial products; and
v. the specific risks of investing in derivative
products, such as options and futures.
b. A securities intermediary, investment adviser or
CIU should be legally responsible for all state-ments
made in marketing and sales materials re-lated
to its products.
c. A natural or legal person acting as the represen-tative
or tied-agent of a securities intermediary,
investment adviser or CIU should disclose to an
investor whether the person is licensed to act as
such a representative and who licenses the person.
d. If a securities intermediary, investment adviser or
CIU delegates or outsources any of its functions or
activities to another legal entity or physical person,
such delegation or outsourcing should be fully dis-closed
to the investor, including whether the per-son
to whom such function or activity is delegated
is licensed to act in such capacity and who licenses
the person.
Disclosure of all relevant information to a customer of a
securities intermediary, investment adviser or CIU is one
of the most important aspects of consumer protection in the
securities sector. Full information about the services pro-vided
to the customer is critical in giving the customer the
ability to make an informed decision as to which interme-diary,
adviser or CIU to use. Sources: (a) IOSCO Principle
23 and Guidelines on Standards of Conduct for Financial
Advisers and Representatives, Monetary Authority of Sin-gapore;
CESR Standards 37-39; (b) IOSCO Principle 1;
(c) CESR Standard 35 and MiFID Article 19; and (d)
SEC Form N-1A Registration of Open-Ended Investment
Management Companies.
Terms and Conditions
a. Before commencing a relationship with an investor,
a securities intermediary, investment adviser or CIU
should provide the investor with a copy of its gen-eral
terms and conditions, as well as any terms and
conditions that apply to the particular account.
b. The terms and conditions should always be in a
font size and spacing that facilitates easy reading.
c. The terms and conditions should disclose:
i. details of the general charges;
ii. the complaints procedure;
iii. information about any compensation scheme
that the securities intermediary or CIU is a
member of, and an outline of the action and
remedies which the investor may take in the
event of default by the securities intermedi-ary
or CIU;

36
iv. the methods of computing interest rates paid
or charged;
v. any relevant non-interest charges or fees re-lated
to the product;
vi. any service charges;
vii. the details of the terms of any leverage or
margin being offered to the client and how
the leverage functions;
viii. any restrictions on account transfers; and
ix. the procedures for closing an account.
This sets out the general disclosure requirements of B.1. in
more detail regarding the specific contract that the customer
enters into. The point-of-sale disclosure is recognized as the
critical moment in sales disclosure due to its immediate im-pact
on the customer to make the decision to invest. Sourc-es:
IOSCO Principle 23, CESR Standards 78-79 and Rule
80, and MiFID Article 19.
Regulators should establish and administer minimum
competency requirements for the sales staff of securities
intermediaries, investment advisers and CIUs, and col-laborate
with industry associations where appropriate.
Since the sales person is the direct link between the inter-mediary,
adviser or CIU and the customer, the sales persons
should be properly qualified and knowledgeable about the
products that they are selling. Sources: MiFID Article 9 (only
requires managers of investment firms to be qualified) and
FINRA Manual incorporating NASD Rules 1030-1032.
Know Your Customer63
Before providing a product or service to an investor, a
securities intermediary, adviser or CIU should obtain,
record and retain sufficient information to enable it to
form a professional view of the investor’s background,
financial condition, investment experience and attitude
toward risk in order to enable it to provide a recommen-dation,
product or service appropriate to that investor.
There is a general consensus that a securities intermedi-ary,
investment adviser or CIU should obtain informa-tion
from their customers so that they can deal with them
in a manner appropriate to their circumstances. Sources:
IOSCO Principle 23, CESR Standard 62 and Rules 63-
70, MiFID Article 19 and FINRA Manual incorporating
NASD Rule 2310.
Suitability
A securities intermediary, investment adviser or CIU
should ensure that, taking into account the facts dis-closed
by the investor and other relevant facts about
that investor of which it is aware, any recommendation,
product or service offered to the investor is suitable to
that investor.
There is a general consensus that a securities intermediary
should warn customers that certain types of investments
are not suitable for them based on their financial situa-tion
and investment goals. Sources: IOSCO Principle 23,
CESR Standards 72-74 and Rules 75-77, MiFID Article
19 and FINRA Manual incorporating NASD Rule 2310
provide background for this Good Practice.
Sales Practices
a. Legislation and regulations should contain clear
rules on improper sales practices in the solicita-tion,
sale and purchase of securities. Thus, securi-ties
intermediaries, investment advisers, CIUs and
their sales representatives should:
i. not use high-pressure sales tactics;
ii. not engage in misrepresentations and half-truths
as to products being sold;
iii. fully disclose the risks of investing in a finan-cial
product being sold;
iv. not discount or disparage warnings or cau-tionary
statements in written sales literature;
and
v. not exclude or restrict, or seek to exclude or
restrict, any legal liability or duty of care to
an investor, except where permitted by ap-plicable
legislation.
b. Legislation and regulations should provide sanc-tions
for improper sales practices.
c. The securities supervisory agency should have
broad powers to investigate fraudulent schemes.

37
There is a general consensus that the obligation to deal
fairly and honestly with customers includes the obligation
to use sales practices that do not deceive, defraud or unduly
pressure customers to make investment decisions. This ob-ligation
should be enforced with legal sanctions in order to
make the obligation effective. Source: General duty IOS-CO
Principle 23 and MiFID Article 19. More specifically,
for point (a) above, the following guidelines have been con-sulted:
CESR Standard 18 Rule 23; CESR Standard 29
Rule 31 and FINRA Rule 2020; CESR Standards 51 and
52, Rules 53 and 54; and Code of Conduct for Persons
Licensed by or Registered with the Securities and Futures
Commission of Hong Kong 2010.
The securities supervisory agency should have broad powers
to investigate Ponzi and other pyramid schemes and then
assist the criminal authorities in prosecution. The law needs
to identify a multi-level sales scheme as a pyramid scheme
if: (1) the scheme requires a payment for the right to receive
compensation for recruiting new salespersons into the plan;
(2) there is inventory loading, that is, new salespersons
should purchase an unreasonable quantity of a product or
service; and (3) purchases of services are required as a con-dition
of entry into the scheme. Sources: IOSCO Principles
8 and 12, CESR Standard 35.
a. All marketing and sales materials should be in
plain language and understandable by the average
investor.
b. Securities intermediaries, investment advisers,
CIUs and their sales representatives should ensure
their advertising and sales materials and proce-dures
do not mislead the customers.
c. Securities intermediaries, investment advisers and
CIUs should disclose in all advertising, including
print, television and radio, the fact that they are
regulated and by whom.
Disclosure of adequate information in advertising, mar-keting
and sales materials is another important aspect of
consumer protection in the securities sector. Sources: (a)
CESR Standard 25; (b) CESR Standard 29 and Rule 31,
FINRA Manual incorporating NASD Rule 2210, and Se-curities
Board of India Chapter 13, Master Circular for
Mutual Funds 2011; and (c) CESR Standard 35 and Mi-
FID Article 19.
Relationships and Conflicts
a. A securities intermediary, investment adviser or
CIU should disclose to its clients all relationships
that it has which impact on the client’s account,
such as banks, custodians, advisers or intermedi-aries
which are used to maintain and manage the
account.
b. A securities intermediary, investment adviser or
CIU should disclose all conflicts of interest that it
has with the client and the manner in which the
conflict is being managed.
In order for investors to evaluate the services being offered
to them, there should be full transparency as to the identity
of the market institutions that will have an impact on their
account. To the extent that any of these institutions and le-gal
entities and physical persons associated with them have
conflicts with the investor, such conflicts and the manner in
which they are being dealt with should be disclosed to the
investor. Sources: SEC Investment Advisers Act Rule 204-
3; EU UCITS Directive Article 14; EU MiFID Directive
Article 18
Specific Disclosures by CIUs
a. CIUs should disclose to prospective and existing
investors:
i. the CIU’s policies with regard to frequent
trading and the risks to investors from such
policies;
ii. any inducements that it receives to use par-ticular
intermediaries or other financial firms,
such as “soft-money” arrangements; and
iii. a fair and honest description of the perfor-mance
of the CIU’s investments over several
different periods of time that accurately re-flect
the CIU’s performance.
b. In addition, a CIU should provide a Key Facts
Statement for each fund that it is offering to the
client that succinctly explains the fund in clear
language. Such document is in addition to any
other disclosure documents required by law.
The ability of clients to engage in frequent trading in a
CIU can have an effect on long-term investors. A CIU’s

38
policies regarding such practices and the attendant risks
would have an impact on an investor’s decision to trade
and should be disclosed to the investor. Source: SEC Form
N-1A. (b) Inducements paid to a CIU or adviser to use
market services, such as brokerage services, sometimes re-ferred
to as “soft-money: payments could create a conflict of
interest and affect the ability of the CIU or adviser in giv-ing
impartial investment advice. Such relationships should
be disclosed to investors to enable them to evaluate the
services of the CIU or Adviser properly. Sources: EU Mi-
FID Directive Article 26; SEC Investment Advisers Rule
204-3. (c) To avoid “cherry picking” the best performance
periods for a CIU, performance should be given for several
event-neutral periods of time to give an investor the ability
to evaluate the CIU over short and long holding periods.
Sources: SEC Form N-1A and Rule 482 under the Securi-ties
Act of 1933.
In order to give a clearer picture as to the goals, manage-ment
and performance of a CIU, a general consensus has
developed that a short, clear statement of key information
should be given to an investor before purchasing or selling a
share or unit of a CIU. Sources: EU UCITS Directive Ar-ticle
78; SEC Form N-1A and Hong Kong SFC Handbook
for Unit Trusts and Mutual Funds Chapter 6.
Specific Disclosures by Investment Advisers
a. Investment advisers should disclose to prospective
and existing clients:
i. whether the investment adviser is also reg-istered
in another capacity and whether the
adviser deals with the client’s account in the
second registered capacity; and
ii. whether the financial instruments that the
investment adviser is recommending are held
in the adviser’s own inventory or the inven-tory
of a legal or natural person related to the
adviser--and if they will be bought from, or
sold to, its own inventory or the inventory of
a related party.
b. An investment adviser should provide prospective
and existing clients with a Key Facts Statement for
each product or service that is being offered or sold
to the client that succinctly explains the product or
service in clear language.
Many investment advisers have brokerage licenses in addi-tion
to their adviser’s licenses and will deal with their advi-see
clients while in their capacity as a broker. This dual re-lationship
should be disclosed to the client so that the client
can evaluate the objectiveness of the advice given. Source:
SEC Investment Advisers Act Section 206(3).
In order to provide a clear, concise statement as to the ser-vices
that a provider is offering, a key facts statement as to
the adviser’s services and products should be given to the
client to allow the client to make a well informed decision
as to whether to engage the adviser. Source: MAS, Finan-cial
Advisers Act, Guidelines for Standards of Conduct of
Financial Advisers and Representatives, Section 6.
XI. Customer Account Handling
and Maintenance
Segregation of Funds
Funds of investors should be segregated from the funds
of all other market participants.
In order to protect customer funds in the event of insolvency
of a securities intermediary, investment adviser, CIU or
other market participants, customer funds should be seg-regated
from the assets of the intermediary, adviser or CIU
in a manner to protect the assets from being a part of the
bankruptcy estate of the intermediary, adviser and CIU.
Sources: IOSCO Principle 23; MiFID Article 13 (7) and
(8) that provide arrangements to safeguard client funds, but
no statement of segregation; FINRA Manual incorporating
NASD Rule 2330; and SEC Securities and Exchange Act
of 1934 and Regulation 15c3-3 promulgated thereunder.
Contract Note
a. Investors should receive a detailed contract note
from a securities intermediary or CIU confirming
and containing the characteristics of each trade ex-ecuted
with them, or on their behalf.
b. The contract note should disclose the commission
received by the securities intermediary, CIU and
their sales representatives, as well as the total ex-pense
ratio (expressed as total expenses as a per-centage
of total assets purchased).
c. In addition, the contract note should indicate the
trading venue where the transaction took place

39
and whether (i) the intermediary for the transac-tion
acted as a broker in the trade, (ii) the interme-diary
or CIU acted as the counterparty to its cus-tomer
in the trade, or (iii) the trade was conducted
internally in the intermediary between its clients.
Customers should have immediate information as to any
transactions in their accounts as well as the terms of the
transactions. This enables customers to verify whether the
transaction was executed pursuant to the authorization
given by the customer. Waiting for such information for
a long time period reduces the ability of the customer and
intermediary or CIU to correct any mistakes in the trans-action.
Sources: IOSCO Principle 23, CESR Standard
55 and Rules 58 and 59, FINRA Manual incorporat-ing
NASD Rule 2230, and SEC Investment Adviser Rule
206(3)-2.
Statements
a. An investor should receive periodic, streamlined
statements for each account with a securities inter-mediary
or CIU, providing the complete details of
account activity in an easy-to-read format.
i. Timely delivery of periodic securities and
CIU statements pertaining to the accounts
should be made.
ii. Investors should have a means to dispute the
accuracy of the transactions recorded in the
statement within a stipulated period.
iii. When an investor signs up for paperless
statements, such statements should also be in
an easy-to-read and readily understandable
format.
b. If a legal or natural person who provides only in-vestment
advice to customers also holds client as-sets,
the client statements should be prepared by
and sent from the custodian for the assets and not
from the investment adviser.
Customers need access to the information regarding their
accounts. Providing customers with regular statements on
a periodic basis (depending on the activity in the account)
has been generally accepted as the best means to provide
this information. Sources: IOSCO Principle 23, CESR
Standard 56 and Rule 59; FINRA Manual incorporat-ing
NASD Rule 2340; NASD Notice to Members 98-3
Electronic Delivery of Information between Members and
their Customers.
Customers should have confidence that the information
that an adviser is giving them is accurate. Consequently,
the account statements for the customer accounts should be
sent directly from the custodian of the funds to the clients to
avoid the possibility of incorrect information being given to
clients. Source: SEC Investment Advisers Act Rule 206(4)-2.
Prompt Payment and Transfer of Funds
When an investor requests the payment of funds in
his or her account, or the transfer of funds and assets
to another securities intermediary or CIU, the pay-ment
or transfer should be made promptly.
Investors may need immediate access to their funds in order
to meet other financial and personal obligations. The delay
in payment of account balances or the closing of accounts
reduces confidence and the perception of the integrity of
the securities markets. Sources: IOSCO Principle 23 and
FINRA Manual incorporating NASD Rule 11870.
Investor Records
a. A securities intermediary, investment adviser or
CIU should maintain up-to-date investor records
containing at least the following:
i. a copy of all documents required for investor
identification and profile;
ii. the investor’s contact details;
iii. all contract notices and periodic statements
provided to the investor;
iv. details of advice, products and services pro-vided
to the investor;
v. details of all information provided to the in-vestor
in relation to the advice, products and
services provided to the investor;
vi. all correspondence with the investor;
vii. all documents or applications completed or
signed by the investor;
viii. copies of all original documents submitted by
the investor in support of an application for
the provision of advice, products or services;

40
ix. all other information concerning the investor
which the securities intermediary or CIU is
required to keep by law;
x. all other information which the securities
intermediary or CIU obtains regarding the
investor.
b. Details of individual transactions should be re-tained
for a reasonable number of years after the
date of the transaction. All other records required
under a. to j. above should be retained for a rea-sonable
number of years from the date the rela-tionship
with the investor ends. Investor records
should be complete and readily accessible.
The maintenance of books and records is vital to the proper
regulation of intermediaries, CIUs and other market par-ticipants,
as well as the review of the events in individual
customer accounts. Without the maintenance of these re-cords,
the regulatory system would be ineffective and cus-tomer
protection would be minimized. Sources: IOSCO
Principle 23; CESR Standard 10 Rule 15, requiring the
retention of the details of transactions for 5 years after the
date of the transaction; SEC Securities and Exchange Act
of 1934, and Regulation 17a-3 thereunder; and FINRA
Manual incorporating NASD Rule 3110.
XII. Privacy and Data Protection
Confidentiality and Security of
Customer’s Information
Investors of a securities intermediary, investment adviser
or CIU have a right to expect that their financial activi-ties
will remain private and not subject to unwarranted
private and governmental scrutiny. The law should re-quire
that securities intermediaries, investment advisers
and CIUs take sufficient steps to protect the confiden-tiality
and security of a customer’s information against
any anticipated threats or hazards to the security or in-tegrity
of such information, and against unauthorized
access to, or use of, customer information.
A consensus has developed that customers have a right to fi-nancial
privacy and to be free from unwarranted intrusions
into their privacy. Because of the requirement for intermedi-aries
and CIUs to know their customers, securities markets
professionals often have some of the largest sources of infor-mation
regarding the financial situation of their customers.
Therefore, it is very important that the intermediaries and
CIUs have an obligation to keep the financial information
of their clients secure from unwarranted access by internal
persons in the intermediary and CIU and from external
persons. Sources: EU Directive Concerning Processing Per-sonal
Data and Protection of Privacy in the Electronic
Communication Sector 2002/58/EC, and SEC Securities
and Exchange Act of 1934 and Regulation S-P thereunder.
Sharing Customer’s Information
Securities intermediaries, investment advisers and CIUs
should:
i. inform an investor of third-party dealings in
which they are required to share information
regarding the investor’s account, such as legal
enquiries by a credit bureau, unless the law
provides otherwise;
ii. explain how they use and share an investor’s
personal information;
iii. allow an investor to stop or “opt out” of cer-tain
information sharing, such as selling or
sharing account or personal information to
outside companies that are not affiliated with
them, for the purpose of telemarketing or di-rect
mail marketing, and inform the investor
of this option.
Customers should be aware of how information can be
shared with third parties and within the various units or
subsidiaries of a financial conglomerate. Many of these
shared uses can be beneficial for a customer, but a customer
should have the right to stop or prohibit such information
sharing if the customer does not find such information
sharing to be useful or beneficial to him or her. Sources:
EU Directive Concerning Processing Personal Data and
Protection of Privacy in the Electronic Communication
Sector 2002/58/EC, and SEC Securities and Exchange Act
of 1934 and Regulation S-P thereunder.
a. If there are to be any specific procedures and ex-ceptions
concerning the release of customer finan-cial
records to government authorities, these pro-cedures
and exceptions should be stated in the law.

41
b. The law should provide for penalties for breach of
investor confidentiality.
Governmental regulatory authorities have the need to ob-tain
customer information for regulatory purposes and law
enforcement purposes. The instances where this is permitted
should be clearly stated in the law, as well as procedures
for notification or situations where notification is not re-quired.
Enforcement for violation of the privacy rules has
to be made effective by civil, administrative and criminal
penalties, for violations of the law. Sources: EU Directive
Concerning Processing Personal Data and Protection of
Privacy in the Electronic Communication Sector 2002/58/
EC, and SEC Securities and Exchange Act of 1934 and
Regulation S-P thereunder.
XIII. Dispute Resolution Mechanisms
Internal Dispute Settlement
a. An internal avenue for claim and dispute resolu-tion
practices within a securities intermediary, in-vestment
adviser or CIU should be required by the
securities supervisory agency.
b. Securities intermediaries, investment advisers and
CIUs should provide designated employees avail-able
to investors for inquiries and complaints.
c. Securities intermediaries, investment advisers and
CIUs should inform their investors of the internal
procedures on dispute resolution.
d. The securities supervisory agency should provide
oversight on whether securities intermediaries,
registered investment advisers and CIUs comply
with their internal procedures on investor protec-tion
rules.
Many customer complaints come from misunderstandings
or lack of information about their accounts, which can be
cleared up internally with the intermediary, adviser and
CIU. Efficient internal procedures should be in place to
handle customer complaints fairly and quickly. Sources:
IOSCO Principle 23; CESR Standard 78 Rule 80 where
a procedure exists, such as arbitration; and IOSCO Prin-ciples
1-5.
There should be an independent dispute resolution sys-tem
for resolving disputes that investors have with their
securities intermediaries, investment advisers and CIUs.
a. A system should be in place to allow investors to
seek third-party recourse, such as an ombudsman
or arbitration court, in the event the complaint
with their securities intermediary, investment ad-viser
or CIU is not resolved to their satisfaction in
accordance with internal procedure, and it should
be made known to the public.
b. The independent dispute resolution system should
be impartial and independent from the appointing
authority and the industry.
c. The decisions of the independent dispute resolu-tion
system should be binding on the securities
intermediaries and CIUs. The mechanisms to en-sure
the enforcement of these decisions should be
established and publicized.
Retail investors frequently invest small sums and the ex-pense
of judicial processes can render any successful claim
regarding those sums meaningless. Consequently, it is im-portant
for retail investors to have an alternate method of
dispute resolution that is quick, efficient and inexpensive so
that their rights can be enforced. Sources: MiFID Article
53 and FINRA Rule 12000 Code of Arbitration Procedure
for Customer Disputes.
XIV. Guarantee Schemes and Insolvency
Investor Protection
a. There should be clear provisions in the law to en-sure
that the regulatory authority can take prompt
corrective action on a timely basis in the event of
distress at a securities intermediary, investment ad-viser
or CIU.
b. The law on the investors’ guarantee fund, if there
is one, should be clear on the funds and financial
instruments that are covered under the law.
c. There should be an effective mechanism in place
for the pay-out of funds and transfer of financial

42
instruments by the guarantee fund or insolvency
trustee in a timely manner.
d. The legal provisions on the insolvency of securi-ties
intermediaries, investment advisers and CIUs
should provide for expeditious, cost-effective and
equitable provisions to enable the timely payment
of funds and transfer of financial instruments to
investors by the insolvency trustee of a securities
intermediary or CIU.
Customer funds should be protected in the event of the in-solvency
of intermediaries and CIUs where their funds are
placed. The insolvency proceedings should provide for a fair
and rapid mechanism for the pay out of customer funds.
Where permitted by law, an investor guarantee fund can
provide an independent, effective mechanism for ensur-ing
that investor funds are protected and returned to them
promptly. Sources: IOSCO Principle 24, EU Directive on
Investor-Compensation Schemes, and SEC Securities In-vestor
Protection Act of 1970.
XV. Consumer Empowerment &
Financial Literacy
Broadly based Financial literacy Program
b. A range of organizations–including government,
state agencies and non-governmental organiza-tions–
should be involved in developing and im-plementing
the financial literacy program.
c. The government should appoint an institution
such as the central bank or a financial regulator
to lead and coordinate the development and
implementation of the national financial literacy
program.
the economy.
Many organizations in both the public and private sec-tor
have an interest in improving people’s financial literacy.
They should work together on this issue, so that there is a
range of initiatives which, over time, will help to drive up
people’s ability to manage their personal finances.
Using a Range of Initiatives and Channels, in-cluding
the Mass Media
a. A range of initiatives should be undertaken to im-prove
people’s financial literacy.
b. This should include encouraging the mass media
to provide financial education, information and
guidance.
People learn in different ways. The approaches and chan-nels
likely to be most effective will vary according to (among
other things) people’s age, income level, culture and the style
of learning with which they are most comfortable. They are
unlikely to absorb all relevant information and guidance
the first time they see or hear it: providing the information
a number of times, and in a variety of different ways, can
help to reinforce key messages.
The media is one of the most efficient means of providing
education and ongoing information to customers regarding
the state of the securities markets and market participants.
The regulator should view the media as an effective means
of communicating its regulatory activity to a broad cross-section
of investors and should provide the media with open
access to public, non-confidential information for dissemi-nation
to the investing public.
Unbiased Information for Investors
a. Financial regulators should provide, via the inter-net
and printed publications, independent infor-mation
on the key features, benefits and risks—
and where practicable the costs— of the main
types of financial products and services.
b. Non-governmental organizations should be en-couraged
to provide consumer awareness pro-

43
grams to the public regarding financial products
and services.
The regulator should take an active role in consumer edu-cation
as part of its role to protect consumers. Consumers
are better able to protect their interests and investments
by making informed decisions prior to their investments,
rather than engaging in litigation after an investment has
gone awry. Source: IOSCO Principle 4.
Measuring the Impact of Financial literacy
Initiatives
a. The financial literacy of consumers should be mea-sured
through a broad-based household survey
that is repeated from time to time.
b. The effectiveness of key financial literacy initiatives
should be evaluated.
TABLE 3: Overview of Consumer Protection Regulation for the Securities Sector
Institution Laws, Regulations, Directives and Guidelines 64
IOSCO – International Organization of
Securities Commissions
Objectives and Principles of Securities Regulation, September 1998 updated as of February 2008
Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities
Regulation, October 2003 updated as of February 2008
EU
Directive Concerning Processing Personal Data and Protection of Privacy in the Electronic
Communication Sector, 2002/58/EC
Directive on Protection of Consumers in Respect of Distance Contracts, 1997/7/EEC
Directive on Markets in Financial Instruments, 2004/39/EC (MiFID) (currently under revision)
Directive on Investor-Compensation Schemes, 1997/9/EC
Directive on Undertakings in Collective Investments in Transferrable Securities, 2009/65/EC, recasting
1985/611/EEC (UCITS)
European Securities and Markets
Authority (formerly CESR)
CESR, A Proposal for a European Regime of Investor Protection: The Harmonization of Conduct of
Business Rules, April 2002
FINRA – US Financial Industry
Regulatory Authority
FINRA Manual: FINRA Rules, including NASD Rules and NYSE Rules being incorporated into the FINRA
Manual
SEC – US Securities and Exchange
Commission
Securities Act of 1933, and regulations promulgated thereunder
Securities Exchange Act of 1934, and regulations promulgated thereunder
Investment Company Act of 1940, and regulations promulgated thereunder
Investment Advisers Act of 1940, and regulations promulgated thereunder
Securities Investors Protection Act of 1970, as amended, which created Securities Investors Protection
Corporation
CFTC – US Commodity Futures
Trading Commission
Commodity Exchange Act
SEBI - Securities Board of India Master Circular for Mutual Funds 2011
FIMM – Federation of Investment
Managers Malaysia
Code of Ethics and Standards of Professional Conduct for the Unit Trust Industry
MAS – Monetary Authority of
Singapore
Guidelines on Standards of Conduct for Financial Advisors and Representatives
SFC – Securities and Futures
Commission of Hong Kong
Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission 2010

44
The financial literacy of a sample of the population should
be measured by means of a nationwide household survey
that gets repeated from time to time (every four to five
years), in order to measure the impact of financial literacy
programs. Key financial literacy initiatives should also be
be continued or scaled up and which should be modified
or discontinued.
An overview of the main international consumer pro-tection
legislation and regulation for the securities sec-tor
is presented in Table 3.
Insurance Sector
While insurance penetration (i.e. premium as a per-centage
of GDP) is largely dependent on income levels,
insurance markets in many emerging and developing
countries now have rapidly growing consumer compo-nents,
driven by the introduction of compulsory motor
and health insurance, links with credit provision and the
growth of micro-insurance technology. Due to a history
of weak regulation and misuse for taxation and capital
transfer purposes, or even direct fraud, the insurance
sector has also sometimes attracted less than desirable
proprietors. These developments inevitably lead to the
introduction of specific insurance consumer protection
laws and systems (although this step sometimes follows
rather than precedes politically sensitive scandals).
There are a number of common undesirable industry
practices that can be avoided through strengthening con-sumer
rights. These are unrealistic benefit illustrations,
poor disclosure of the real costs of products, misleading
advertisements, unfair claims settlement practices and
not selling to identified needs. Insurance is an industry
where agency incentives can be the main driver of the
kind of product and quantity sold. Further, multi-level
sales through family and friends and tying and bundling
(especially if adhesion principles apply under the law),
can limit a consumer’s choice and mobility.
Insurance market conduct legislation is most developed
in the English speaking world, largely reflecting activist
media and an enormous and dynamic case law inven-tory
including a number of high profile cases such as
Equitable in the UK. The EU has more recently become
engaged in this area with the passage of the Directive on
Certain Aspects of Mediation in Civil and Commer-cial
Matters 2008/52/EC and an ongoing dialogue on
the broader consumer protection agenda. In developing
and emerging markets, consumer protection tends to
be secondary to sectoral development and prudential
oversight.
The rapid development of microinsurance is forcing a
review of the applicability of the emerging mainstream
consumer protection regulatory model for low income
individuals and families, who often have had little or
no prior exposure to the insurance concept. Innovative
work has recently been carried out by a range of super-visors,
NGOs and institutions including in Peru, South
Africa, Brazil and India, through SEEP, CGAP, the
Finmark Trust and the Microinsurance Network (the
latter working with IAIS). In broad terms, microinsur-ance
regulation contemplates a more relaxed approach
to product design, distribution, bundling and branding
while requiring higher standards of disclosure (ideally
including some prior involvement of the target markets
in product design) and strong recourse mechanisms. Ta-ble
4 presents a list of key readings related to consumer
protection for the insurance sector.
TABLE 4: Selected Key Readings on Consumer
Protection for the Insurance Sector
US National Association of Insurance Commissioners (NAIC), Personal
Lines Regulatory Framework, September 2006
Monti, Alberto, “The Law of Insurance Contracts in the People’s
Republic of China: A Comparative Analysis of Policyholder’s Rights”,
Global Jurists Topics, Volume 1, Edition 3, 2001
UK Parliamentary and Health Services Ombudsman, Equitable Life: A
Decade of Regulatory Failure, July 2008
English and Scottish Law Commissions – Insurance Contract Law:
A Joint Scoping Paper, 2005 (http://www.scotlawcom.gov.uk/
downloads/cp_insurance.pdf)
Australian Law Reform Commission, Submissions to the Department
of Treasury Review of the Insurance Contracts Act 1984 (Cth), 2003
and 2004
Tarr, A A., Insurance Law and the Consumer, Bond University Law
Review, Volume 1, 1989

45
XVI. Consumer Protection Institutions
The law should provide for clear rules on consumer
protection in all matters of insurance and there should
be adequate institutional arrangements for implementa-tion
and enforcement of consumer protection rules.
a. There should be specific provisions in the law,
which create an effective regime for the protection
of retail consumers of insurance.
b. The rules should prioritize a role for the private
sector, including voluntary consumer organiza-tions
and self-regulatory organizations.
Good practices demand that insurers offering retail
products and services are under supervision for
consumer protection purposes because of the essentially
opaque nature of insurance contracts (they offer a contin-gent
intangible service delivered sometimes well after the
contract is entered into), the enforced use of standard con-tracts
(sometimes subject to adhesion rules), and the com-plexity
of the relevant law (whether civil code or common
law based). The 2003 version of the International Associa-tion
of Insurance Supervisors (IAIS) Core Principles and
Methodology (ICP 25 – Consumer Protection) expresses
this as follows:
“The supervisory authority sets minimum requirements for
insurers and intermediaries in dealing with consumers in
its jurisdiction, including foreign insurers selling products
on a cross-border basis. The requirements include provision
of timely, complete and relevant information to consumers
both before a contract is entered into through to the point at
which all obligations under a contract have been satisfied.”
Contracts
There should be a specialized insurance contracts
section in the general insurance or contracts law, or
ideally a separate Insurance Contracts Act. This should
specify the information exchange and disclosure
requirements specific to the insurance sector, the basic
rights and obligations of the insurer and the retail poli-cyholder
and allow for any asymmetries of negotiating
power or access to information.
Because of its highly specialized nature and very long his-tory,
insurance remains largely subject to a separate spe-cialized
body of law. In Civil Code countries, insurance
contracts are typically covered by a separate section of the
Civil Code, which will often refer to relevant sections else-where
in that code. The Civil Code may be supplemented
by more specific sections in the insurance law dealing with
supervisory and prudential matters. Some common law
countries have separate insurance contracts laws, and these
may supplement a Civil Code in mixed law jurisdictions
(e.g. Czech Republic).
Because commercial and industrial insurance usually pre-cedes
the development of consumer (retail) insurance mar-kets,
the corpus of the insurance law in most developing and
many transition markets does not adequately cover B2C
situations and such countries often eventually draw on in-dustrial
country models. Aside from specifying the minimal
contents of an insurance contract (ideally differentiated by
the fundamental nature of the coverage – long term, liabil-ity,
property, etc.), helpful B2C contract regulations differ-entiate
between material and non-material non-disclosure,
and specify clearly: when the contract goes into force (in-cluding
cover note situations); when underinsurance jus-tifies
the application of average; notification requirements
when an insurer wishes to cancel or alter a contract; how
contracts will be interpreted in the event of dispute; mini-mum
requirements regarding use of plain words, typeface,
etc.; and what clauses may not be included (e.g. warranty
clauses, compulsory arbitration on the insurer’s terms, etc.).
Possible approaches are shown below:
• Eastern European Countries with separate contracts
law – Germany, Czech Republic, Austria, Latvia;
• Major other countries with separate insurance con-tracts
law – UK, Australia;
• Major countries with Insurance Contracts section in
Insurance Law –China, India, US, Brazil, Russia,
Canada;
• Civil Code/ Law of Obligations only – Italy, Turkey.
Code of Conduct for Insurers
a. There should be a principles-based code of conduct
for insurers that is devised in consultation with the
insurance industry and with relevant consumer as-sociations,
and that is monitored and enforced by
a statutory agency or an effective self-regulatory
agency.

46
b. If a principles-based code of conduct exists, insur-ers
should publicize and disseminate it to the gen-eral
public through appropriate means.
c. The principles-based code should be augmented
where appropriate by voluntary codes for insurers on
matters specific to insurance products or channels.
d. Every such voluntary code should likewise be pub-licized
and disseminated.
In European legislation, there is no specific demand for es-tablishing
codes of conduct in the insurance sector, nor are
there provisions that demand the cooperation of the industry
and consumer associations. Codes are acknowledged by su-pervisors
and statutory consumer bodies in some other juris-dictions,
such as Australia and Malaysia. A selection of codes
of conduct for the insurance sector is presented in Table 5.
The exact institutional arrangement depends on legislation
(for instance, whether there is provision for the legal insti-tution
of a code of conduct). In some European legislation,
the existence of codes alone is not sufficient for full compli-ance
(COE Convention).
a. Prudential supervision and consumer protection
can be placed in separate agencies or lodged in a
single institution, but allocation of resources be-tween
prudential supervision and consumer pro-tection
should be adequate to enable the effective
implementation of consumer protection rules.
b. The judicial system should provide credibility to
the enforcement of the rules on financial consum-er
protection.
c. The media and consumer associations should play
an active role in promoting consumer protection
in the area of insurance.
In countries where insurers fall under the supervision of a
body with both market conduct and prudential responsi-bilities,
a balance needs to be found. For instance, in the
UK, the FSA was responsible for capital requirements and
consumer matters before its recent restructuring.64 Similar
duties are held by the National Association of Insurance
Commissioners’ (NAIC) certified state insurance depart-ments
in the US. On-site inspectors are required to exam-ine
both prudential and market conduct aspects of their
charges. Both the FSA and many state supervisors in the
US provide web-based support to insurance consumers.65
Theoretically it is better to separate these roles (e.g. the Wal-lis
Inquiry – Australia), but institutional reality in many
countries means that the prudential supervisor becomes the
default recourse for consumers until financial markets have
TABLE 5: Selected Codes of Conduct for the Insurance Sector
Country Institution Code of Conduct
Australia National Insurance Brokers’ Association
Insurance Council of Australia
Financial Planning Association
General Insurance Brokers’ Code of Practice
General Insurance Code of Practice
Financial Planners’ Code of Ethics and Rules of Professional Conduct
India Life Insurance Council of India Code of Best Practice for Indian Life insurers
Malaysia Life Insurance Association of Malaysia Code of Ethics and Conduct (approved by Bank Nagara)
Russia Russian Association of Motor Insurers Various codes, including developing a register of insurance agents and insurance
brokers against whom complaints have been made; rules of professional conduct
entitled “Improving the level of service in the MTPL market”; rules covering the
review of claims made by victims and the payment of compensation.
South Africa Life Offices’ Association of South Africa Code of Conduct - 24 chapters covering a range of products and activities.
UK Association of British Insurers Various codes and guidance notes, including Statement of Best Practice for Long-term
Care Insurance, Code of Practice for Endowment Policy Reviews, Statement of
Best Practice for Critical Illness Insurance, Best Practice Guide on With-Profit Bonds.
Source: World Bank research and Financial System Assessment Programs (FSAPs)

47
relatively deep penetration into the household sector and
formal ombudsmen or equivalents are established (e.g. the
UK and Australia66).
Media and consumer associations often play an active role
in promoting financial consumer protection in industrial
countries. In all European countries, there are consumer
associations that also deal with financial services, and an
overview is provided by the European Commission.7 If, as
under Article 7 of Decision No. 20/2004/EC, specific cri-teria
are fulfilled, an organization might even be supported
financially by the EU (this holds for two organizations as
of August 2008, the European Consumers’ Organization
(BEUC) and the European Association for the Co-ordi-nation
of Consumer Representation in Standardization
(ANEC)).
Further, the EC has created several consultative bodies, such
as the Financial Services Consumer Group, a sub-group
of the already existing European Consumer Consultative
Group.68 These are permanent committees that encompass
representatives of consumer organizations from each of the
Member States. They are particularly asked to ensure that
consumer interests are properly taken into account in EU
financial services policy. Worldwide addresses of consumer
associations can be found on the website of Consumers In-ternational.
69
Whenever an insurer contracts with a merchant or
credit grantor (including banks and leasing companies)
as a distribution channel for its contracts, no bundling
(including enforcing adhesion to what is legally a single
contract), tying or other exclusionary dealings should
take place without the consumer being advised and able
to opt out.
Consumer protection can be used to avoid market power
abuse by the dominant players.70 Vertical restraints between
companies of different industries include anti-competitive
tying and bundling. Cross-selling that constitutes bundling
or tying can have positive demand and supply-side effects,
but may also hamper competition and customer mobil-ity.
Bundling is the sale of two goods together in a bundle.
Firms bundle for several reasons (including economies of
scope, price discrimination, demand management or lever-age
of market power into other market segments). Bundling
of faux insurance products has also been used to disguise the
real price of associated credit or goods, particularly in Civil
Code countries where the doctrine of adhesion applies.
Bundling and tying that limits consumer choice is wide-spread
in markets with weak competition enforcement and
should therefore be one of the components to be evaluated
when conducting diagnostic reviews of consumer protec-tion.
Bundling further has the potential to render price
comparisons impossible. Bundling is not per se anti-com-petitive,
but can reduce competition and limit consumer
choice, especially if there is a condition to purchase good B
together with good A (for instance, a mortgage contract to-gether
with unemployment and/or life payment insurance).
Two results of bundling are particularly important for
competition policy: (i) the limitation of consumer choice,
and (ii) whether other competitors are hindered. For details
of the EU approach to bundling and tying practices under
competition policy refer to Article 102 of the EC Treaty.
Positive effects on the demand side can exist, when the price
of bundled/tied services is lower for consumers than for un-bundled
goods and if convenience is increased. Supply-side
effects may result from reduced costs of providing bundled
services.
XVII. Disclosure and Sales Practices
Sales Practices
a. Insurers should be held responsible for product-related
information provided to consumers by
their agents (i.e. those intermediaries acting for
the insurer).
b. Consumers should be informed whether the in-termediary
selling them an insurance contract
(known as a policy) is acting for them or for the
insurer (i.e. in the latter case the intermediary has
an agency agreement with the insurer).
c. If the intermediary is a broker (i.e. acting on be-half
of the consumer) then the consumer should
be advised at the time of initial contact with the
intermediary if a commission will be paid to the
intermediary by the underwriting insurer. The
consumer should have the right to require disclo-sure
of the commission and other costs paid to an

48
intermediary for long-term savings contracts. The
consumer should always be advised of the amount
of any commission and other expenses paid on any
single premium investment contract.
d. An intermediary should be prohibited from iden-tically
filling broking and agency roles for a given
general class of insurance (i.e. life and disability,
health, general insurance, credit insurance).
e. When a bank is the intermediary, the sales process
should ensure that the consumer understands at
all times that he or she is not purchasing a bank
product or a product guaranteed by the bank.
f. Sanctions, including meaningful fines and, in the
case of intermediaries, loss of license, should apply
for breach of any of the above provisions.
The main sources of guidance on insurance sales practic-es
in the EU are the consolidated Life Assurance Direc-tive
(Chapter 4 and Annex III), the numerous directives
covering non-life insurance and motor insurance and the
Mediation Directive. Annex III of the Life Assurance Di-rective
in particular requires that life insurance consum-ers
are advised of recourse mechanisms at the time of sale.
Some EU members, such as the UK, have disclosure and
sales practices that are substantially stronger than those of
the Life Assurance Directive and the Mediation Directive,
including requiring that full records (sometimes including
recordings) of sales transactions are maintained.
Other important directives include: EU Directive on the
Distance Marketing of Financial Services, 2002/65/EC;
EU Directive on Comparative Advertising, 1997/55/
EE; and EU Directive on Unfair Commercial Practices,
2005/29/EC, which sets out misleading practices (Articles
6 and 7) with 23 examples in the Annex, and aggressive
practices (Articles 8 and 9) with 8 examples. In Article 10,
it is explicitly stated that unfair commercial practices may
be controlled through codes of conduct. Further, there can
be recourse to out-of-court settlement, but the latter is not
equivalent to judicial or administrative recourse.
Outside the EU and its affiliates, the main sources of regu-lation
are, again, the common law industrial countries,
and the US and Australia in particular, although there ap-pear
to be issues in the US for “force-placed insurance” (i.e.
where a lending institution is the policyholder and benefi-ciary
and passes on the cost to its customer). Canada has re-lied
to a greater extent on widely publicized and accessible
industry codes of ethics and a long established consumer
inquiries center.71 China has made consumer protection a
core element of its recently updated insurance regulatory
model and is pioneering some cutting edge requirements
for certain distribution (including certain types of agents,
including bank branches) and policy type combinations
(including investment linked and participating contracts
where benefit illustrations are provided). Innovations in-clude
requiring new policyholders to write in their own
hand that they understand the terms of the contract they
are entering into and requiring insurers to follow up after
a short period to verify this.
Bancassurance is becoming a major source of new business
growth in many countries, particularly for life insurance
and the required rules of operation are still being devel-oped,
often on a reactionary basis. The key issue appears to
be ensuring that consumers understand that they are not
buying a product issued or guaranteed by the bank. Meth-ods
of achieving this include requiring that insurance staff,
or staff of a bank-owned broker, do the selling (ideally in a
different location to deposit and loan counters), requiring
higher levels of training for staff selling investment-linked
and long-term savings contracts and ensuring that the
name of the insurer is clearly disclosed in the sales material
and policy document.
a. Insurers should ensure their advertising and
sales materials and procedures do not mislead
customers. Regulatory limits should be placed on
investment returns used in life insurance value
projections.
b. Insurers should be legally responsible for all state-ments
made in marketing and sales materials they
produce related to their products.
c. All marketing and sales materials should be easily
readable and understandable by the general public.
Several directives in Europe hold financial institutions re-sponsible
for the content of their public announcements.
These are the Directive on the Distance Marketing of Fi-nancial
Services 2002/65/EC and the Directive on Com-parative
Advertising 1997/55/EEC.

49
The treatment of wordings in insurance sales material and
contracts is most developed in common law countries, where
case law has supported the introduction of such concepts as
plain meaning interpretations (consensus ad idem), viola-tion
of good faith and fair dealing (mala gestio), and bans
on warranty clauses that could otherwise enable insurers
to avoid claims. Common law countries have considerable
scope to deal with the enormous range of potential transac-tion
types that can arise under property, liability (tort) and
credit-related insurance arrangements. Civil code countries
tend to rely on specific sections of their Civil Codes or sepa-rate
Contracts Law (Law of Obligations) and sometimes
on strict regulatory/supervisory oversight of transaction and
sales material.
Understanding Customers’ Needs
The sales intermediary or officer should be required to
obtain sufficient information about the consumer to
ensure an appropriate product is offered. Formal “fact
finds” should be specified for long-term savings and in-vestment
products and they should be retained and be
available for inspection for a reasonable number of years.
The FSA has pioneered these concepts in the insurance sec-tor.
72 It uses the term know your customer, KYC, (in the
consumer protection as opposed to the money laundering
sense) as follows: “Know your customer (KYC). In the con-text
of advising customers, this is also known as ‘factfind-ing’.
It refers to obtaining sufficient information about a
customer’s personal and financial situation before giving
the advice.”73
KYC standards in the money laundering sense should
be implemented by the national supervisory authorities,
whereby financial institutions have different degrees of free-dom
to design their own customer acceptance policies. The
key elements of the policy as it relates to the insurance sector
can be found in IAIS ICP 28 – Anti Money Laundering,
Combating the Financing of Terrorism, which specifically
acknowledges the role of the FATF. In practice, and despite
the huge international financial flows the insurance sector
generates (part of which is known to involve funds trans-fer),
this sector has been relatively untouched by the AML/
CFT community.
Cooling-off Period
There should be a reasonable cooling-off period
associated with any traditional investment or long-term
life savings contract, after the policy information is
delivered, to deal with possible high pressure selling and
mis-selling.
Cooling-off periods (also known as free look periods) are
seen primarily as a consumer protection mechanism, al-though
it has been argued that they are also economically
efficient.74
The right of withdrawal is enshrined in the Article 6 of
the EU Distance Marketing of Consumer Financial Ser-vices
Directive. According to its provisions, the consumer
has the right to withdraw from a contract without pen-alty
and without giving any reasons. The periods vary with
product and are longer for insurance contracts and pension
products. The period of withdrawal typically begins with
the conclusion of the contract and typically is in the range
of two weeks (14 calendar days as stated in the aforemen-tioned
directive). The EU Life Assurance Directive specifies
a cooling off period of between 14 and 30 days after the
“contract has been concluded”.
Cooling-off periods are not uncommon for long-term insur-ance
products (i.e. life insurance) in industrial countries
and some emerging markets, such as Singapore, and cover
a relatively wide range of insurance products in others, such
as Australia.75 Typically, cooling-off periods for long-term
insurance products are longer than cooling-off periods for
securities (including investment-linked life contracts) be-cause
of the onerous early termination penalties that ap-ply
to many traditional life insurance savings contracts. In
other countries, such as Japan, certain products, such as
variable annuities, have cooling-off periods incorporated
into their design.
Key Facts Statement
A Key Facts Statement should be attached to all sales
and contractual documents, disclosing the key factors
of the insurance product or service in large print.
The key facts (and features if intermediary and product
are differentiated) requirements are most developed in the
UK and reflect the political response to a number of very
public scandals, including Equitable.76 Key facts statements

50
are also known as initial disclosure documents or IDDs77.
In other countries (e.g. Australia), standardized B2C in-surance
contracts are established by law, with the right of
derogation provided that this is fully disclosed. Some states
in the US specifically ban certain wordings (such as war-ranty
clauses) that would enable an insurer to avoid an
otherwise legitimate claim. Some US states also lead the
way in applying fair dealing concepts.
a. Sales personnel and intermediaries selling and
advising on insurance contracts should have suf-ficient
qualifications, depending on the complexi-ties
of the products they sell.
b. Educational requirements for intermediaries sell-ing
long-term savings and investment insurance
products should be specified, or at least approved,
by the regulator or supervisor.
The standard of service delivery depends not only on the
product but also on the knowledge and technical know-how
of the individual delivering the service. Since the sales per-son
is the direct link between the intermediary or the insur-er
and the customer, the sales personnel should be properly
qualified and knowledgeable about the products that they
are selling. Financial products are becoming increasingly
complicated. Thus, it is important that consumers fully un-derstand
these complex products before buying them.
Regulatory Status Disclosure
a. In all of its advertising, whether by print, televi-sion,
radio or otherwise, an insurer should dis-close:
(i) that it is regulated, and (ii) the name and
address of the regulator.
b. All insurance intermediaries should be licensed and
proof of licensing should be readily available to the
general public, including through the internet.
This is in line with responsible and fair commercial prac-tices.
The status disclosure is important to signal the trust-worthiness
of the company and indicate the authority that
regulates it.
Disclosure of Financial Situation
a. The regulator or supervisor should publish an-nual
public reports on the development, health,
strength and penetration of the insurance sector
either as a special report or as part of the disclosure
and accountability requirements under the law
governing it.
b. Insurers should be required to disclose their fi-nancial
information to enable the general public
to form an opinion with regards to the financial
viability of the institution.
c. If credible claims paying ability ratings are not
available, the regulator or supervisor should peri-odically
publish sufficient information on each in-surer
for an informed commentator or intermedi-ary
to form a view of the insurer’s relative financial
strength.
IAIS ICP 26 (Information, Disclosure and Transparency
towards the Market) covers disclosure and is summarized
as follows:
“The supervisory authority requires insurers to disclose rel-evant
information on a timely basis in order to give stake-holders
a clear view of their business activities and finan-cial
position and to facilitate the understanding of the risks
to which they are exposed.”
Virtually every country requires insurers to publish
their annual financial statements (or more often sum-maries
thereof ) in the print media at least annually. In
most industrial and emerging markets, the leading insur-ers
already have websites that include their product offer-ings
and periodic financial statements, including annual
reports. Unfortunately, accounting and actuarial standards
are still not at international levels in the majority of emerg-ing
and developing countries. In industrial countries, the
relevant IFRS remains mired in controversy, particularly
in accounting for the fair value of liabilities. Regardless of
context, a high degree of sophistication is required to in-terpret
the financial information provided. As a fallback,
some countries (e.g. Pakistan) require that claims paying
ability be rated for all insurers, although the relevant rules
do not always specify that international rating agencies
should be employed.

51
Detailed technical data are available in some industri-al
countries, most notably in the US, although in other
countries (e.g. Australia) certain information such
as claims run-off triangles78 has been withdrawn under in-dustry
pressure.
XVIII. Customer Account Handling
and Maintenance
Customer Account Handling
a. Customers should receive periodic statements of
the value of their policy in the case of insurance
savings and investment contracts. For traditional
savings contracts, this should be provided at least
yearly, however more frequent statements should
be produced for investment-linked contracts.
b. Customers should have a means to dispute the
accuracy of the transactions recorded in the state-ment
within a stipulated period.
c. Insurers should be required to disclose the cash
value of a traditional savings or investment con-tract
upon demand and within a reasonable time.
In addition, a table showing projected cash values
should be provided at the time of delivery of the
initial contract and at the time of any subsequent
adjustments.
d. Customers should be provided with renewal notic-es
a reasonable number of days before the renewal
date for non-life policies. If an insurer does not
wish to renew a contract it should also provide a
reasonable notice period.
e. Claims should not be deniable or adjustable if
non-disclosure is discovered at the time of the
claim but is immaterial to the proximate cause of
the claim. In such cases, the claim may be adjusted
for any premium shortfall or inability to recover
reinsurance.
f. Insurers should have the right to cancel a policy
at any time (other than after a claim has occurred
– see above) if material non-disclosure can be
established.
Insurance law rarely deals with customer account handling
in any detail – partly reflecting the huge variation in in-surance
arrangements that are possible. The EU Life Assur-ance
Directive does require that policyholders are advised
of bonus developments, but this does not appear to mean
that individual policyholders are regularly advised of the
cash value of their contracts. The heavy selling costs associ-ated
with traditional life insurance products often means
that a contract has no value for some years and there are
strong incentives for the life insurance sector to resist cash
value disclosure for the first 5 or more years a contract is in
force. As markets develop, insurers tend to unbundle the
pure risk, and savings/investment components of long-term
contracts and disclosure standards often improve.
XIX. Privacy and Data Protection
Customers have a right to expect that their financial
transactions are kept confidential. Insurers should pro-tect
the confidentiality and security of personal data,
against any anticipated threats, or hazards to the secu-rity
or integrity of such information, and against unau-thorized
access.
The confidentiality of personally identifiable information,
that is any information about an identified or identifiable
individual, is protected under several international stat-utes,
such as the OECD Guidelines governing the Protec-tion
(Article 2 Scope of Guidelines) and the UN Guidelines for
the regulation of computerized personal data files, adopted
by the General Assembly on 14 December 1990 (Section A
Principles concerning the minimum guarantees that should
be provided in national legislations).
Further, important statutes are the EU Directive on the
Protection of Individuals with regard to the Processing of
Personal Data 1995/46/EC (Chapter 1, Articles 1-3), the
COE Convention for the Protection of Individuals with
regard to Automatic Processing of Personal Data (ETS No.
108, 28 January 1981, Chapter 1 General Provisions)
and the APEC Privacy Framework (Part ii, Scope).
Technical security is also demanded under the above guide-lines
and directives. A more detailed guideline on such se-curity
has been provided by the OECD Guidelines for the
Security of Information Systems and Networks: Towards a
Culture of Security.

52
In the US, the FTC has established guidelines in the form
of Standards for Safeguarding Customer Information,
which obligates financial institutions to hold customer in-formation
secure and confidential.79
The use of medical and genetic (biometric) information
for the acceptance/ decline and rating of life-related risks is
now a major area of debate, but is not within the scope of
the Good Practices.
XX. Dispute Resolution Mechanisms
a. Insurers should provide an internal avenue for
claim and dispute resolution to policyholders.
b. Insurers should designate employees to handle re-tail
policyholder complaints.
c. Insurers should inform their customers of the in-ternal
procedures on dispute resolution.
d. The regulator or supervisor should investigate
whether insurers comply with their internal proce-dures
regarding consumer protection.
rights have been infringed and, even if they become aware of
this, they typically have few avenues to pursue their claims.
Thus, insurers should be mandated to have an internal dis-pute
resolution or complaint handling mechanism, which
provides a first level of dispute resolution. Unless there are
voluntary consumer associations that have the resources
and skills to assist customers with their complaints or legal
actions against insurers, consumers do not have many ways
in which to seek redress.
Insurers need to have written policies in place for dispute
settlement. A written policy should hold the insurer liable
for the policy publicly announced by the insurer. This policy
should offer contact points for the consumer that are acces-sible
during business hours without undue waiting time
(ideally through a dedicated call center), state in plain lan-guage
the main steps of customer dispute resolution, provide
firm and reasonable timelines, guarantee fairness in han-dling
a customer dispute, state the coordination with any
ombudsman and/or supervisory authority, and explain in
plain language the consumer’s rights in the process. Con-sumer
dispute settlement should not lead to unreasonable
costs in terms of time and money for the consumer.
The EU Life Assurance Directive requires that policyhold-ers
are advised of their right of recourse; however specific
provisions of this type are uncommon in insurance law.
Consumer protection law sometimes does provide for noti-fication
of rights, although insurance transactions may be
excluded in certain circumstances (e.g. the latest version of
the Croatian Consumer Protection Act, Official Gazette
125/2007).
a. A system should be in place that allows consum-ers
to seek affordable and efficient third-party re-course,
which could be an ombudsman or tribu-nal,
in the event the complaint with the insurer
cannot be resolved to the consumer’s satisfaction
in accordance with internal procedures.
b. The role of an ombudsman or equivalent institu-tion
vis-à-vis consumer disputes should be made
known to the public.
c. The ombudsman or equivalent institution should
be impartial and act independently from the ap-pointing
authority and the industry.
d. The decisions of the ombudsman or equivalent in-stitution
should be binding upon the insurers. The
mechanisms to ensure the enforcement of these
decisions should be established and publicized.
A specialized insurance Ombudsman or insurance claims
and inquiries service (sometimes as part of an omnibus
Ombudsman service as in the UK) is increasingly re-garded
as a fundamental requirement for sound consumer
protection. Twenty eight countries are currently members
of the International Network of Financial Ombudsman
Schemes80. However, it can be difficult for an Ombudsman
to mediate and ameliorate the problems faced by policy-holders
effectively without clear codes of insurance practice
and standardized contracts. One of the most advanced
systems is to be found in Australia, where an SRO-based
insurance inquiries and complaints resolution system has
evolved into a fully-fledged financial system ombudsman.81
Some countries also use small claims courts to provide an
affordable means for the average customer to bring action

53
against sellers, service providers and corporations. However
such courts often lack sufficient transparency or specialized
expertise in insurance issues.
XXI. Guarantee Schemes and Insolvency
Guarantee Schemes and Insolvency
a. With the exception of schemes covering manda-tory
insurance (and possibly long-term insurance),
insolvency guarantee schemes are not to be en-couraged
for insurance because of the opaque na-ture
of the industry, the resulting fiscal risk to tax-payers
where supervision and governance are not
adequate, and the scope for moral hazard. Strong
governance and prudential supervision are better
alternatives.
b. Nominal defendant arrangements should be in
place for mandatory insurances such as motor
third party liability insurance to cover situations
where there is no insured guilty party.
c. Assets covering life insurance mathematical reserves
and investment contract policy liabilities should be
segregated or at the very least earmarked, and long-term
policyholders should have preferential access
to such assets in the event of a winding-up.
Non-life insurance is typically subjected to normal commer-cial
wind-up rules in the event of insurer insolvency, and
the subsequent claims settlement process is usually handled
by specialist run-off companies. Policyholders normally ar-range
new coverage with the remaining solvent insurers in
the market concerned. However, most countries do have
claims guarantee arrangements for mandatory consumer
classes, such as motor third party insurance. These cover
claims that cannot be settled due to insurer bankruptcy or
because the guilty driver/ vehicle cannot be identified (i.e.
the guarantee fund acts as “nominal defendant”).
Life insurance is also often deemed to require supplementary
arrangements because it can represent a significant asset for
the individual or household and may also serve as loan col-lateral.
In this case the usual protection is primarily afforded
through separation of life and non-life insurers and strong
prudential oversight. However, composites (insurers writing
both life and non-life policies) have been grandfathered in
numerous countries and special additional arrangements
are required in this situation. This may range from the rela-tively
weak EU Directive on Reorganization and Winding-up
of Insurance Undertakings, which requires that the assets
covering defined life insurance liabilities are earmarked, to
the requirement that completely separate statutory funds are
maintained, as in South Africa, Pakistan and Australia.
In addition, life policyholders normally rank very high in
terms of creditor priority. Most countries also either specify
investment limits for the assets covering life insurance math-ematical
reserves or, where risk-based supervision already
operates, require that capital allocated reflects the risk char-acteristics
of the asset portfolio.
XXII. Consumer Empowerment &
Financial Literacy
c. The government should appoint an institution such
as the central bank or a financial regulator to lead
and coordinate the development and implementa-tion
the economy.

54
TABLE 6: Overview of Consumer Protection Regulation for the Insurance Sector
Institution Laws, Regulations, Directives and Guidelines
UN-United Nations UN Guidelines for the Regulation of Computerized Personal Data Files, adopted by the General Assembly
Resolution 45/95 of 14 December 1990
IAIS-International Association
of Insurance Supervisors
Insurance Core Principles and Methodology, October 2003
Guidance Paper No. 4 on Public Disclosure by Insurers, January 2002
OECD Good Practices for Enhanced Risk Awareness and Education in Insurance Issues, 2008
Guidelines for the Security of Information Systems and Networks: Towards a Culture of Security, 2002
Guidelines for Good Practices for Insurance Claims Management, November 2004
APEC APEC Privacy Framework, 2005
EU Directive concerning Life Assurance, 2002/83/EC
Directives on Non Life Insurance and Motor Insurance
Directive on Insurance Agents and Brokers, 1977/92/EC
Directive on Insurance Mediation, 2002/92/EC
Directive on Reorganization and Winding-up of Insurance Undertakings, 2001/17/EC
Directive Concerning Processing Personal Data and Protection of Privacy in the Electronic Communication
Sector, 2002/58/EC
Directive on the Protection of Individuals with regard to the Processing of Personal Data and on the Free
Movement of such data, 1995/46/EC
Recommendation on the Principles applicable to the Bodies responsible for Out–of-court Settlement of Consumer
Disputes, 98/257/EC
Recommendation on the Principles for Out-of-court Bodies involved in the Consensual Resolution of Consumer
Disputes, 2001/310/EC
Green Paper on Retail Financial Services in the EU: Com (2007) 226 Final
Policy statement: Nature and consequences of pyramid activities in life and accident insurance: Commission on
Financial Services and Insurance, 30 May 1997
The Project Group - Restatement of European Insurance Contract Law submission to the European Commission
- Draft Common Frame of Reference (CFR): “Insurance Contract”: http://www.restatement.info/
COE - Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (ETS No. 108
of 28 January 1981, entered into force on 01 October 1985) and Explanatory Report
Other leading jurisdictions US National Association of Insurance Commissioners (NAIC) – Market Conduct Surveillance Model Law, 2004
FTC – Standards for Safeguarding Customer Information, 2002
Australia – Insurance Contracts Act, 1984 as amended
Alberta, Canada – Fair Practices Regulation under Insurance Act, 128/ 2001
FDIC (US) Laws and Regulations - Part 343—consumer protection in sales of insurance
Latvia – Insurance Contracts Law, September 1998 as amended
Czech Republic – The Insurance Contract Act, December 2003
Czech Republic – Act on Insurance Intermediaries and Loss Adjusters, December 2003

55
a. Consumers, especially the most vulnerable, should
have access to sufficient resources to enable them
to understand financial products and services
available to them.
b. Financial regulators should provide, via the inter-net
and printed publications, independent infor-mation
on the key features, benefits and risks—
and where practicable the costs–of the main types
of financial products and services.
c. Non-governmental organizations should be en-couraged
to provide consumer awareness pro-grams
to the public regarding financial products
and services.
Financial regulators should take an active role in consumer
education as part of its role to protect consumers. Consum-ers
are more likely to have the confidence to purchase in-surance
products which are suitable for them if they have
access to information which is reliable and objective.
Measuring the Impact of Financial
Literacy Initiatives
a. Policymakers, industry and advocates should un-derstand
the financial literacy of various market
segments, particularly those most vulnerable to
abuse.
b. The financial literacy of consumers should be mea-sured
through a broad-based household survey
that is repeated from time to time.
c. The effectiveness of key financial literacy initiatives
should be evaluated.
The financial literacy of a sample of the population should
be measured by means of a nationwide household survey
that gets repeated from time to time (every four to five
years), in order to measure the impact of financial literacy
programs. Key financial literacy initiatives should also be
be continued or scaled up and which should be modified
or discontinued.
Table 6 gives key insurance laws and regulations
worldwide.
Non-Bank Credit Institutions
Consumer finance provided by non-bank credit institu-tions
is an ever more important segment of the credit
market. Countries follow different approaches in the
regulation of non-bank credit institutions. Some fall
under the supervision of the central bank or banking
supervisory agency. Others are under the general con-sumer
protection agency or the economic development
ministry or local government authorities. Non-bank
credit institutions conduct consumer lending in most
cases without taking cash deposits from the public.
Thus, they fall outside the scope of prudential regula-tion.
The range of legal forms of the non-bank credit
institutions varies, but typically they encompass mi-crofinance
institutions, consumer finance companies
(including credit card companies), leasing firms,82
mortgage lenders, pawn shops and credit cooperatives.
Depending on the country, there may be difficulties in
identifying non-bank credit institutions. Government
authorities should establish mechanisms that ensure the
identification of all non-bank credit institutions.
A number of undesirable industry practices by non-bank
credit institutions can be avoided by strengthen-ing
consumer rights. These practices include predatory
lending, discriminatory pricing, poor disclosure of costs
of products and misleading advertisement. Further,
tying and bundling practices can limit a consumer’s
choice and mobility.
Legislation regarding non-bank credit institutions is es-pecially
developed in Europe and in the US. Thus, the
examples and background for the Good Practices are
primarily drawn from European and US legislation. In
addition, they also rely on guidelines and guidance from
international institutions such as the BIS (see Table 8).
XIII. Consumer Protection Institutions
The law should provide clear consumer protection rules
in the area of non-bank credit institutions, and there
should be adequate institutional arrangements to ensure

56
the thorough, objective, timely and fair implementation
and enforcement of all such rules, as well as of sanctions
that effectively deter violations of these rules.
a. There should be specific statutory provisions,
which create an effective regime for the protection
of consumers of non-bank credit institutions.
b. There should be a government authority respon-sible
for implementing, overseeing and enforcing
consumer protection in the area of non-bank cred-it
institutions.
c. The supervisory authority for non-bank credit
institutions should have a register which lists the
names of non-bank credit institutions.
d. There should be coordination and cooperation
among the various institutions mandated to im-plement,
oversee and enforce consumer protection
and financial sector regulation and supervision.
e. The law should provide for, or at least not pro-hibit,
a role for the private sector, including vol-untary
consumer associations and self-regulatory
organizations, in respect of consumer protection
in the area of non-bank credit institutions.
It differs from country to country whether non-bank credit
institutions are under the supervision of a financial super-visory
agency. In some countries, lending to consumers is
considered a banking activity and a license from the bank-ing
regulator is needed to conduct such activities. In other
countries, non-bank credit institutions are only required
to be registered, and are lightly supervised by a consumer
protection agency or a department within a ministry.
Good practices demand that non-bank credit institutions
be supervised for consumer protection purposes in order to
avoid eroding existing rules in banking by taking advan-tage
of weaker or non-existent rules regarding the provision
of financial products and services by reason simply of being
established under a different institutional category.
Non-bank credit institutions in Europe are not exempt
from consumer protection provisions, which exist especially
in the EU Directive 2008/48/EC on Credit Agreements for
Consumers, repealing Directive 87/102/EEC. However,
the enforcement of the law differs from country to country
and depends on national institutional arrangements.
In general, the industry is free to create its own codes of
conduct, which are not specifically demanded by the above
quoted directives.
Code of Conduct for Non-Bank Credit Institutions
a. There should be a principles-based code of con-duct
for non-bank credit institutions that is de-vised
in consultation with the non-bank credit
industry and with relevant consumer associations,
and that is monitored by a statutory agency or an
effective self-regulatory agency.
b. If a principles-based code of conduct exists,
it should be publicized and disseminated to the
general public.
c. The principles-based code should be augmented
by voluntary codes on matters specific to the in-dustry
(credit unions, credit cooperatives, other
non-bank credit institutions).
d. Every such voluntary code should likewise be
publicized and disseminated.
In European legislation, there is neither a specific require-ment
to establish codes of conduct on lending, nor are there
provisions that demand the cooperation of the industry and
consumer associations. However, there are principles-based
codes, such as from the Finance & Leasing Association in
the UK. This code, which applies to a number of products
(e.g. loans, store cards, credit cards, personal loans), cov-ers
lending and information and marketing practices. The
institutional arrangements depend on legislation (for in-stance,
whether it provides for the legal institution in terms
of a code of conduct). However, the COE Convention on
the protection of personal data notes that the existence of
codes alone is not sufficient for full compliance. Table 7 lists
selected lending codes of conduct in Europe.
a. Whether non-bank credit institutions are super-vised
by a financial supervisory agency, the allo-cation
of resources between financial supervision
and consumer protection should be adequate to
enable their effective implementation.
b. The judicial system should ensure that the ultimate
resolution of any dispute regarding a consumer pro-

57
tection matter with a non-bank credit institution is
affordable, timely and professionally delivered.
c. The supervisory authority for non-bank credit in-stitutions
should encourage media and consumer
associations to play an active role in promoting
consumer protection regarding non-bank credit
institutions.
Media and consumer associations play a very active role in
promoting financial consumer protection in many coun-tries,
including with regards to non-bank credit and mi-crofinance
institutions. In all European countries, there are
consumer associations that deal with financial services.83
Organizations might even be supported financially by the
EU if specific criteria are fulfilled (e.g. Article 7 of the EU
Decision No. 20/2004/EC establishing a General Frame-work
for Financing Community Actions in support of
Consumer Policy for the Years 2004 to 2007 and Article
5 of the EU Decision No. 1926/2006/EC establishing a
Programme of Community Action in the field of Consumer
Policy 2007-2013).
Furthermore, the EC has created several consultative bodies,
such as the Financial Services Consumer Group, a sub-group
of the already existing European Consumer Consultative
Group.84 Permanent committees encompass representatives
of consumer organizations from each of the EU Member
States. They are specifically asked to ensure that consumer
interests are properly taken into account in the EU financial
services policy. Another group is the European Consumer
Debt Network, a network of debt counselors in different
countries. Addresses of worldwide consumer associations can
be found on the website of Consumers International.85
TABLE 7: Selected Codes of Conduct for Lending in Europe
Country Original Title
Belgium Code of Conduct
Comment changer de banque facilement
Bulgaria Ethical Code
Cyprus Code of Banking Conduct
Code for Conduct between Banks and Small and Medium-sized Enterprises
Czech Republic Code of Conduct on Relations Between Banks and Clients
Ethical Code of the Czech Banking Association
Finland Good Banking Practice
Hungary Code of Ethics
Ireland Business Account Switching Code
Code of Practice on Switching Accounts
Code of Practice on Mortgage Arrears
Luxembourg Consumer Protection Code
Netherlands Code of Conduct for the Processing of Personal Data by Financial Institutions
Code of Conduct on Mortgage Credit
Switch Support Service
UK Lending Code
Code of Conduct for the Advertising of Interest Bearing Accounts
Code of Conduct of the Finance & Leasing Association
Europe European Agreement on a Voluntary code of conduct Pre-contractual Information for Home Loans
Source: European Credit Research Institute

58
Licensing of Non-Bank Credit Institutions
All financial institutions that extend any type of credit
to households should be licensed by a financial supervi-sory
authority.
The authority should have the power to set criteria and
reject applications for establishments that do not meet the
standards set. The authority should verify that the signifi-cant
owners (and those who control ownership), as well
as the senior managers of the financial institutions, satisfy
minimal fit and proper requirements, including no history
of bankruptcy or criminal conviction.
XXIV. Disclosure and Sales Practices
Information on Customers
a. When making a recommendation to a consumer, a
non-bank credit institution should gather, file and
record sufficient information from the consumer
to enable the institution to render an appropriate
product or service to that consumer.
b. The extent of information the non-bank credit in-stitution
gathers regarding a consumer should:
i. be commensurate with the nature and com-plexity
of the product or service either being
proposed to or sought by the consumer; and
ii. enable the institution to provide a profes-sional
service to the consumer in accordance
with that consumer’s capacity.
This good practice is a basic requirement for the delivery of
services as well as to ensure compliance with the FATF Rec-ommendations
on Customer Due Diligence and Record-keeping.
According to Recommendation 5, financial insti-tutions
should undertake customer due diligence measures,
including identifying and verifying the identity of their
customers and of the beneficial owners, as well as obtain-ing
information on the purpose and intended nature of the
business relationship.86 Typically, the degree of due diligence
depends on the risks associated with the transaction and the
particular client. Although non-bank financial institutions
that are not deposit-taking cannot be used for money laun-dering,
identification of customers is in their interest due to
high fraud risk.
Although accurate and reliable customer identification is
important to fight against frauds, it can present a special
challenge for low-income countries where national ID
cards have not yet been issued. Some credit institutions,
for example in India and Malawi, use biometric measures
to identify customers. In addition, transactions conducted
through mobile telephones create their own issues regard-ing
reliable customer identification. In some developing
countries, regulators have started to experiment with a de-crease
in KYC requirements for small transaction accounts
(e.g. in India, Maldives and South Africa, among others).
However, there are no international guidelines about how
this is best conducted.
Affordability
a. When a non-bank credit institution makes a rec-ommendation
regarding a product or service to a
consumer, the product or service it offers to that
consumer should be in line with the need of the
consumer.
b. Sufficient information on the product or service
should be provided to the consumer to enable him
or her to select the most suitable and affordable
product or service.
c. When a non-bank credit institution offers a
new credit product or service that significantly
increases the amount of debt assumed by the
consumer, the consumer’s credit worthiness should
be properly assessed.
Affordability looks at whether a consumer can afford ad-ditional
debt obligations once the monthly income net of
financial and living expenses (including rent or mortgage
payments) is considered. Households might have different
tolerances with respect to the share of current income they
want to devote to debt-servicing. Creditworthiness involves
estimating default or delinquency risks and is a compo-nent
of responsible lending. The EU Directive on Credit
Agreements for Consumers (Article 8) requires a creditor
to assess the consumer’s creditworthiness based on informa-tion
obtained from the consumer as well as from a relevant
database, such as a credit bureau. The provisions of this
Directive hold for all lenders, including non-bank credit
institutions. Products covered include all credit contracts
between €200- €75,000.87 The provisions only apply to

59
contracts in which the consumer has to pay interest. De-ferred
payment cards and mortgage credit are not included.
In the US, a number of consumer protection provisions
have been introduced as amendments to Regulation AA on
Unfair or Deceptive Acts or Practices, the Truth in Lending
Act (TILA) and the Truth in Savings Act. For example,
the Federal Reserve Board has approved an amendment to
TILA that aims to ensure responsible lending in mortgage
markets. One of the key provisions is a lender’s responsibil-ity
to assess the repayment ability of a borrower by checking
income and other assets, excluding the value of the property
being mortgaged.
Affordability may also be related to concerns over possible
over-indebtedness. In some countries, non-bank credit and
microfinance institutions are not required to ask borrow-ers
about other outstanding debts—or such debts may not
be registered in the credit reporting system. The result may
be consumers who become over-indebted, relying on one
loan to pay off another. In Peru, the regulator has issued
Regulation 6941-2008 (Rules for administration of over-indebtedness
risk of retail debtors) to ensure that consumers
do not use easy access to credit cards or other forms of credit
to become over-indebted. In South Africa, over-indebted-ness,
reckless lending and debt counseling are regulated in
Chapter 3 Part D of the National Credit Act Regulations
of May 31, 2006. This legislation regulates what informa-tion
should be sent to the National Credit Register as well
as what information should be submitted to debt counsel-ors.
Under Part D, 24 (7), a consumer is considered to be
over-indebted if his or her total monthly debt payments
exceed the balance derived by deducting minimum living
expenses from net income.
Cooling-off Period
a. For financial products or services with a long-term
savings component, or those subject to high-pres-sure
sales contracts, (unless explicitly waived by the
consumer in writing), a non-bank credit institution
should provide the consumer a cooling-off period of
a reasonable number of days (at least 3-5 business
days) immediately following the signing of an agree-ment
between the institution and the consumer.
b. On his or her written notice to the non-bank cred-it
institution during the cooling- off period, the
consumer should be permitted to cancel or treat
the agreement as null and void without penalty to
the consumer of any kind.
In many cases, borrowers rush into financial arrangements
with non-bank credit institutions that provide seemingly
attractive terms or returns without the benefit of shopping
around, reading thoroughly over the financial contract or
asking for advice. This is especially serious in countries where
the terms of services and products are not readily available
or cannot be compared. Thus, the cooling-off period provides
relief similar to a “no-questions-asked” return policy for
goods. However, for products and services that involve mar-ket
risk, a consumer who cancels his or her contract during
the cooling-off period should be required to compensate the
non-bank credit institution for any losses. For a description
of cooling-off periods in several EU Member States, see the
EC’s Discussion Paper for the amendment of the Directive
87/102/EEC concerning consumer credit.
The right of withdrawal is enshrined in Article 6 of the
EU Distance Marketing of Financial Services Directive,
which states that the consumer has the right to withdraw
from a contract without penalty and without giving any
reasons. The period of withdrawal typically begins with the
conclusion of the contract and is usually in the range of two
weeks (14 calendar days as stated in the EU Directive).The
length of the cooling-off period should depend on the type
of financial product being sold. The period should be longer
for products which involve long-term savings and may be
subject to distribution systems such as “multi-level selling”,
which are often associated with high pressure sales tactics.
a. As much as possible, non-bank credit institutions
should avoid the use of tying clauses in contracts
that restrict the choice of consumers.
b. In particular, whenever a borrower is required by a
non-bank credit institution to purchase any prod-uct,
including an insurance policy, as a pre-condi-tion
for receiving a loan, the borrower should be free
to choose the provider of the product and this infor-mation
should be made known to the borrower.
c. Also, whenever a non-bank credit institution con-tracts
with a merchant as a distribution channel
for its credit contracts, no exclusionary dealings
should be permitted.

60
Cross-selling that constitutes bundling or tying can have
positive demand and supply-side effects. However, it may
also hamper competition and customer mobility. Bundling
occurs when two or more products are sold together, al-though
each product can also be purchased separately in the
market. Firms bundle for several reasons, such as econo-mies
of scope, price discrimination, demand management
or leverage of market power into other market segments.
Positive effects on demand exist when the price of bundled
products or services is lower for consumers than for unbun-dled
goods and if convenience is increased. Bundling is not
per se anti-competitive –it only becomes anti-competitive if
market power is leveraged to the detriment of competitors.
Tying occurs when two or more products are sold together
in a package and at least one of these products is not sold
separately. Tying can be used by financial institutions to
reduce competition and limit consumer choice, especially if
there is a condition to purchase good B together with good
A (for instance, a mortgage contract together with payment
insurance). Furthermore tying can increase pricing by ob-scuring
costs for consumers and rendering price compari-sons
impossible. However, consumer protection can be used
to avoid market power abuse by dominant players.88
Tying and bundling practices that limit consumer choice
is often widespread in markets with weak competition
enforcement and should therefore be evaluated when con-ducting
diagnostic reviews of consumer protection. Two
criteria are important for consideration: (i) the limitation
of consumer choice and (ii) whether other competitors are
hindered. In the EU, bundling and tying practices may
constitute an exclusionary abuse of dominance under Ar-ticle
102 of the EC Treaty.
Key Facts Statement
a. Non-bank credit institutions should have a Key
Facts Statement for each type of account, loan or
other products or services.
b. The Key Facts Statement should be written in
plain language, summarizing in a page or two the
key terms and conditions of the specific financial
product or service, and allowing consumers the
possibility of easily comparing products offered by
different institutions.
A Key Facts Statement provides consumers with simple and
standard disclosure of key contractual information of a fi-nancial
product or service, contributing to the consumers’
better understanding of the product or service. Key Facts
Statements also allow consumers to compare offers provided
by different financial institutions before they purchase a fi-nancial
product or service and provide a useful summary
for later reference during the life of the financial product
or service. For credit products, Key Facts Statements con-stitute
an efficient way to inform consumers about their
basic rights, the credit reporting systems and the existing
possibilities for disputing information. This is of special im-portance
in countries with new financial consumers who
are inexperienced.
There are several examples of Key Facts Statements world-wide,
such as the SECCI form for consumer credits in the
European Union, the ESIS format for pre-contractual in-formation
on home loans developed by the European As-sociations
of Consumers and the European Credit Sector
Associations, the “Schumer Box” for credit cards in the US,
the “Hoja Resumen” for consumer credits in Peru
Of special concern in some countries is the need to provide
basic information to consumers in a language that is widely
used by local populations. It may also be helpful to test con-sumer
understanding of mandatory disclosure statements.
For further information, see annotation on Preservation of
Rights in the banking section.
a. Non-bank credit institutions should ensure that
do not mislead customers.
b. All advertising and sales materials should be easily
readable and understandable by the general public.
c. Non-bank credit institutions should be legally re-sponsible
for all statements made in advertising
and sales materials (i.e. be subject to the penalties
under the law for making any false or misleading
statements).
For disclosure and sales practices, one of the main policy
issues relates to misleading and comparative advertisement.
Several directives in Europe hold financial institutions re-sponsible
for the content of their public announcements.
These include the EU Directive on the Distance Market-ing
of Consumer Financial Services 2002/65/EC, the EU

61
Directive on Misleading and Comparative Advertising
2006/114/EEC and the Unfair Commercial Practices Di-rective
2005/29/EC.
In some countries non-bank credit institutions use agents
to market and distribute their products, such as credit or
pre-paid cards. These solicitations take place outside the in-stitutions’
premises –including at supermarkets, drugstores
and fairs. Thus, ensuring that non-bank credit institutions
are liable for the acts of their agents is critical.
General Practices
Specific rules on disclosure and sales practices should
be included in the non-bank credit institutions’ code
of conduct and monitored by the relevant supervisory
authority.
The EU Directive on Credit Agreements for Consumers
2008/48/EC mandates what information has to be includ-ed
in contracts with consumers (Article 9 on pre-contrac-tual
information). In the US, provisions can be found in
the TILA of 1968 and the Federal Trade Commission Act
(Section 5). The EU Unfair Commercial Practices Direc-tive
defines misleading practices (Articles 6-7) and aggres-sive
practices (Articles 8-9), and presents several examples
that illustrate such practices (Annex). This Directive also
explicitly states that unfair commercial practices may be
controlled through codes of conduct (Article 10). Once a
code of conduct exists, non-bank credit institutions should
bind themselves to fair disclosure and sales practices.
a. The relevant supervisory authority should publish
annual public reports on the development, health,
strength and penetration of the non-bank credit
institutions, either as a special report or as part of
the disclosure and accountability requirements un-der
the law that governs these.
b. Non-bank credit institutions should be required to
disclose their financial information to enable the
general public to form an opinion regarding the
financial viability of the institution.
In several countries, non-bank credit institutions are re-quired
to report their financial situation periodically.
However, a common problem is that the financial state-ments
prepared by non-bank credit institutions often do
not provide enough information to enable a consumer to
form an opinion about an institution’s portfolio quality or
level of sustainability. This is particularly true for microfi-nance
institutions that pursue a social mission that is often
supported by grants or soft loans. It is also true, in general,
for financial institutions that use loan methods different
from those of banks. Thus, it is important that non-bank
credit institutions present information that is meaningful,
clear and comparable. For example, CGAP has developed a
useful set of guidelines for the content of financial reporting
for microfinance institutions.89
XXV. Customer Account Handling
and Maintenance
Statements
a. Unless a non-bank credit institution receives a cus-tomer’s
prior signed authorization to the contrary,
the non-bank credit institution should issue, and
provide the customer with, a monthly statement
regarding every account the non-bank credit insti-tution
operates for the customer.
b. Each such statement should: (i) set out all trans-actions
concerning the account during the period
covered by the statement; and (ii) provide details
of the interest rate(s) applied to the account dur-ing
the period covered by the statement.
c. Each credit card statement should set out the min-imum
payment required and the total interest cost
that will accrue, if the cardholder makes only the
required minimum payment.
d. Each mortgage or other loan account statement
should clearly indicate the amount paid during
the period covered by the statement, the total
outstanding amount still owing, the allocation of
payment to the principal and interest and, if ap-plicable,
the up-to-date accrual of taxes paid.
e. A non-bank credit institution should notify a cus-tomer
of long periods of inactivity of any account
of the customer and provide reasonable final no-tice
in writing to the customer if the funds are to
be transferred to the government.

62
f. When a customer signs up for paperless state-ments,
such statements should be in an easy-to-read
and readily understandable format.
Statements can be regarded as the most valid record and
evidence of a transaction for a customer. Thus, statements
need to be self-explanatory and clear. This is particularly
important in the case of credit card statements and loan
accounts statements that carry finance charges, penalty in-terest
and serious consequences of default or delayed pay-ment.
With increased use of internet and mobile banking,
some customers may opt to receive statements on a quarterly
rather than monthly basis. The choice should be left to cus-tomers.
Also, when customers choose paperless statements,
the access to the statements, their format and details should
be a fair substitute to paper statements.
Notification of Changes in Interest Rates and
Non-interest Charges
a. A customer of a non-bank credit institution should
be notified in writing by the non-bank credit insti-tution
of any change in:
i. the interest rate to be paid or charged on any
account of the customer as soon as possible;
and
ii. a non-interest charge on any account of the
customer a reasonable period in advance of
the effective date of the change.
b. If the revised terms are not acceptable to the
customer, he or she should have the right to exit
the contract without penalty, provided such right
is exercised within a reasonable period.
c. The non-bank credit institution should inform
the customer of the foregoing right whenever a
notice of change under paragraph a. is made by the
institution.
Credit institutions in several countries provide from 1 to
3 months of notice, depending on the agreement. In cases
where the interest rate is variable and linked to a daily ref-erence
rate that is widely published (e.g. LIBOR), the min-imum
notice to be given of a change in the rate should be
stated in the loan agreement. Interest rate increases that do
not comply with the contractually stipulated notice must,
therefore be, invalid and not binding on the consumer. The
code of conduct should include this requirement. A con-sumer’s
right to exit a contract is taken from Guidelines 17
and 19 of the UN Guidelines for Consumer Protection.
Customer Records
a. A non-bank credit institution should maintain
up-to-date records in respect of each customer of
the non-bank credit institution that contain the
following:
i. a copy of all documents required to identi-fy
the customer and provide the customer’s
profile;
ii. the customer’s address, telephone number
and all other customer contact details;
iii. any information or document in connection
with the customer that has been prepared in
compliance with any statute, regulation or
code of conduct;
iv. details of all products and services provided
by the non-bank credit institution to the
customer;
v. a copy of all correspondence from the cus-tomer
to the non-bank credit institution and
vice-versa and details of any other informa-tion
provided to the customer in relation to
any product or service offered or provided to
the customer;
vi. all documents and applications of the non-bank
credit institution completed, signed
and submitted to the non-bank credit insti-tution
by the customer;
vii. a copy of all original documents submitted
by the customer in support of an application
by the customer for the provision of a prod-uct
or service by the non-bank credit institu-tion;
and
viii. any other relevant information concerning
the customer.
b. A law or regulation should provide the minimum
permissible period for retaining all such records
and, throughout this period, the customer should
be provided ready free access to all such records.

63
The list above may seem prescriptive, but the requirements
should be regarded as the minimum in order to ensure that
sufficient information is kept for the purpose of providing
customer protection. For more information, see annota-tion
on Notification of Changes in Interest Ratesand Non-interest
Charges.
Credit Cards
a. There should be clear rules on the issuance of credit
cards and related customer disclosure requirements.
b. Non-bank credit institutions, as credit card issuers,
should ensure that personalized disclosure require-ments
are made in all credit card offers, including
fees and charges (including finance charges), credit
limit, penalty interest rates and method of calcu-lating
the minimum monthly payment.
c. Non-bank credit institutions should not be per-mitted
to impose charges or fees on pre-approved
credit cards that have not been accepted by the
customer.
d. Consumers should be given personalized mini-mum
payment warnings on each monthly state-ment
and the total interest costs that will accrue
if the cardholder makes only the requested mini-mum
payment.
e. Among other things, the rules should also:
i. restrict or impose conditions on the issuance
and marketing of credit cards to young adults
who have no independent means of income;
ii. require reasonable notice of changes in fees
and interest rates increase;
iii. prevent the application of new higher penal-ty
interest rates to the entire existing balance,
including past purchases made at a lower in-terest
rate;
iv. limit fees that can be imposed, such as those
charged when consumers exceed their credit
limits;
v. prohibit a practice called “double-cycle bill-ing”
by which card issuers charge interest
over two billing cycles rather than one;
vi. prevent credit card issuers from allocating
monthly payments in ways that maximize
interest charges to consumers; and
vii. limit up-front fees charged on sub-prime
credit cards issued to individuals with bad
credit.
f. There should be clear rules on error resolution, re-porting
of unauthorized transactions and of stolen
cards, with the ensuing liability of the customer
being made clear to the customer prior to his or
her acceptance of the credit card.
g. Non-bank credit institutions and issuers should
conduct consumer awareness programs on the
misuse of credit cards, credit card over-indebted-ness
and prevention of fraud.
Credit cards are progressively replacing hard currency in
many countries. The credit card industry has also been in
the limelight for its harmful practices, lack of transparency
and inadequate disclosure of terms and conditions of credit
card accounts. This is a particular problem in countries
with low rates of savings and high consumer spending,
as well as in countries where low-income consumers have
easier access to finance by acquiring credit cards offered by
retailers, consumer finance companies, microfinance pro-viders
and other non-bank credit institutions. The recent
measures taken by many countries90 to update the rules ap-plicable
to credit cards clearly indicate the importance of
consumer protection in these respects.
Consumers should get key information about credit card
terms in a clear and conspicuous format and at a time
when it is most useful to them. Anyone under 21 should
get an adult to co-sign on the account if he or she wants to
open his or her own credit card account or show proof that
he or she has his or her own independent means to repay the
card debt. Billing methods and information disclosed in
the monthly statement should be clear and help customers
to make informed choices on their indebtedness.
The increasing use of credit cards over the internet and out-side
the issuers’ jurisdiction increases the incidence of stolen
cards and fraud. Thus, improving consumer awareness and
knowledge of these problems is important.

64
Debt Recovery
a. All non-bank credit institutions, agents of a non-bank
credit institutions and third parties should be
prohibited from employing any abusive debt col-lection
practice against any customer of the non-bank
credit institution, including the use of any
false statement, any unfair practice or the giving of
false credit information to others.
b. The type of debt that can be collected on behalf
of a non-bank credit institution, the person who
can collect any such debt and the manner in which
that debt can be collected should be indicated to
the customer of the non-bank credit institution
when the credit agreement giving rise to the debt
is entered into between the non-bank credit insti-tution
and the customer.
c. A debt collector should not contact any third par-ty
about a non-bank credit institution customer’s
debt without informing that party of: (i) the debt
collector’s right to do so, and (ii) the type of infor-mation
that the debt collector is seeking.
d. Where sale or transfer of debt without borrower
consent is allowed by law, the borrower should be:
i. notified of the sale or transfer within a rea-sonable
number of days;
ii. informed that the borrower remains obligat-ed
on the debt; and
iii. provided with information as to where to
make payment, as well as the purchaser’s or
transferee’s contact information.
In a number of countries, weak safeguards against abusive
debt collection: (i) strengthens the call for a more cumber-some
recovery process, (ii) leads to moratoriums on collec-tion,
and (iii) earns the sympathy of courts. As a result,
debt collection becomes a prolonged process that increases
the cost of financing in the long run. Sound rules on debt
collection are required so as to help ensure that consumers
are not subject to abusive and illegal collection practices.
While some countries rely on the sanctity of the contract
and on the courts to uphold the right of borrower and to
prevent abuses by lenders, other countries deal with this is-sue
through the law, a directive of a regulator, or guidance
provided by a consumer protection agency (see: the US Fair
Debt Collection Practices Act, as well as the US Federal
Trade Commission (FTC) and the UK Financial Services
Authority (FSA) websites).
XXVI. Privacy and Data Protection
a. The financial transactions of any customer of a
non-bank credit institution should be kept confi-dential
by the institution.
b. The law should require non-bank credit institu-tions
to ensure that they protect the confidential-ity
and security of personal data of their customers
against any anticipated threats or hazards to the se-curity
or integrity of such information, and against
unauthorized access.
The confidentiality of personally identifiable information,
that is, any information about an identified or identifiable
individual, is protected under several international stat-utes.
These include the OECD Guidelines on the Protec-tion
(Article 2 Scope of Guidelines) and the UN Guidelines for
the regulation of computerized personal data files adopted
by the General Assembly on 14 December 1990 (Section A,
Principles concerning the minimum guarantees that should
be provided in national legislations).
Other important statutes are included in the EU Direc-tive
on the Protection of Individuals with regard to the
Processing of Personal Data and on the Free Movement of
such data 1995/46/EC (Chapter 1, Articles 1-3); the COE
Convention for the Protection of Individuals with regard
to Automatic Processing of Personal Data (ETS No.108,
28 January 1981, Chapter 1 General Provisions); and the
APEC Privacy Framework (Part ii, Scope).
Technical security is also demanded under the above guide-lines
and directives. The OECD Guidelines for the Security
of Information Systems and Networks: Towards a Culture of
Security offer a more detailed guideline on technical security.
In the US, the FTC has issued the Standards for Safe-guarding
Customer Information (2002), which obligates
financial institutions to hold customer information secure
and confidential.91

65
Credit Reporting
a. Credit reporting should be subject to appropriate
oversight, with sufficient enforcement authority.
b. The credit reporting system should have accurate,
timely and sufficient data. The system should
also maintain rigorous standards of security and
reliability.
c. The overall legal and regulatory framework for the
credit reporting system should be: (i) clear, pre-dictable,
non-discriminatory, proportionate and
supportive of consumer rights; and (ii) supported
by effective judicial or extrajudicial dispute resolu-tion
mechanisms.
d. Proportionate and supportive consumer rights
should include the right of the consumer:
i. to consent to information-sharing based
upon the knowledge of the institution’s
information-sharing practices;
ii. to access his or her credit report free of charge
(at least once a year), subject to proper iden-tification;
iii. to know about adverse action in credit deci-sions
or less-than-optimal conditions/prices
due to credit report information;
iv. to be informed about all inquiries within a
period of time, such as six months;
v. to correct factually incorrect information or
to have it deleted and to mark (flag) informa-tion
that is in dispute;
vi. to reasonable retention periods of credit
history; and
vii. to have information kept confidential and
with sufficient security measures in place to
prevent unauthorized access, misuse of data,
or loss or destruction of data.
e. The credit registers, regulator and associa-tions
of non-bank credit institutions should
undertake campaigns to inform and educate
the public on the rights of consumers in the
above respects, as well as the consequences of
a negative personal credit history.
Credit reporting systems are designed to reduce credit risk
and improve access to credit by keeping a detailed record
of each consumer’s credit behavior. Transparency of credit
reporting systems is important for good governance of these
systems. At the same time, controls should exist to protect
personal data. Credit reporting is becoming an ever more
pervasive activity affecting every consumer’s economic life
by determining the extent of his or her access, if any, to fi-nance
and the terms of any eventual loan agreement that he
or she may receive. It is critically important that non-bank
credit institutions participate in the credit reporting system
so that the credit reports of consumers include information
of all their credit transactions in the financial system. The
Good Practice incorporates the General Principles for Cred-it
Reporting, developed by the Credit Reporting Standards
Setting Task Force, coordinated by the World Bank.
XXVII. Dispute Resolution Mechanisms
Internal Complaints Procedure
Complaint resolution procedures should be included in
the non-bank credit institutions’ code of conduct and
monitored by the supervisory authority.
Non-bank credit institutions should have written policies
in place for the proper handling and resolution of any cus-tomer
complaint. A written policy will hold the non-bank
credit institution liable for the announced policy. This policy
should offer contact points for the consumer that are acces-sible
during business hours without undue waiting times,
state in plain language the main steps of customer dispute
resolution, provide firm and reasonable timelines, guarantee
fairness in handling the customer dispute, state the coor-dination
with any ombudsman and/or supervisory author-ity,
and explain in plain language the consumer’s rights in
the process. Consumer dispute settlement should not lead
to unreasonable costs in terms of time and money for the
consumer. Robust internal complaints procedures improve
customer relationships, increase trust in the non-bank credit
institutions and reduce the cost of adjudication.
a. A system should be in place that allows consum-ers
to seek affordable and efficient third-party re-course,
such as an ombudsman, in the event the
complaint with the non-bank credit institution

66
is not resolved to the consumer’s satisfaction in
accordance with internal procedures.
b. The role of an ombudsman or equivalent institu-tion
in dealing with consumer disputes should be
made known to the public.
c. The ombudsman or equivalent institution should
be impartial and act independently from the ap-pointing
authority, the industry and the parties to
the dispute.
d. The decisions of the ombudsman or equivalent in-stitution
should be binding upon non-bank credit
institutions. The mechanisms to ensure the en-forcement
of these decisions should be established
and publicized.
rights have been infringed and, even if they are aware of
the infringement, they typically have very few avenues to
pursue their claims. If the consumer raises a complaint with
the non-bank credit institution and it is not resolved to
the consumer’s satisfaction, consumers usually do not have
many venues to seek fast and inexpensive redress. Thus,
several non-bank credit institutions around the world are
seeking to participate in ombudsman schemes to deal ex-peditiously,
independently, professionally and inexpensively
with consumer disputes that do not get resolved internally
by the institutions. The establishment and sustainability of
such schemes are regarded as fundamental requirements for
sound consumer protection. Ombudsman schemes can also
identify complaints that are few in number but high in
importance for consumer confidence in the financial sector,
thereby enabling the relevant authorities to take effective
action to remedy the situation.
XXVIII. Consumer Empowerment &
Financial Literacy
c. The government should appoint an institution such
as the central bank or a financial regulator to lead
and coordinate the development and implementa-tion
the economy.
a. A range of initiatives should be undertaken by the
relevant authority to improve the financial literacy
of the population, and especially from low-income
communities.
authority to provide financial education, in-formation
and guidance to the public, including
on non-bank credit institutions and the products
and services they offer.
governmental agencies, the supervisory authority
for non-bank credit institutions, the associations
of non-bank credit institutions and consumer as-sociations
in the provision of financial education,
information and guidance to consumers.
A range of financial literacy initiatives should be devel-oped,
including targeted programs aimed at young people,
entrepreneurs, farmers, local community chiefs, employees,
as well as using several delivery channels including Inter-net,
radio, television, publications, etc.

67
The media – especially television and radio– can play an
important role in providing financial education and infor-mation.
This is particularly true in low-income commu-nities,
where radio is generally more widely accessed than
television or internet, and in many cases sections of news-papers
are entirely read in radio programs. Regulators and
industry associations can support initiatives by providing
the media with information about current concerns and
about different types of financial services and products.
a. Consumers, especially the most vulnerable, should
have access to sufficient resources to enable them
to understand financial products and services
available to them.
b. Supervisory authorities and consumer associations
should provide, via the internet and printed pub-lications,
independent information on the key fea-tures,
benefits and risks – and, where practicable,
the costs – of the main types of financial products
and services, including those offered by non-bank
credit institutions.
c. The relevant authority should adopt policies that
encourage non-government organizations to pro-vide
consumer awareness programs to the public
regarding financial products and services, includ-ing
those offered by non-bank credit institutions.
Consumers and potential consumers are more likely to have
the confidence to purchase financial products and services
which are suitable for them if they have access to informa-tion
which is reliable and objective. The authorities super-vising
non-bank credit institutions have a role to play in
this area, either directly providing unbiased information
about the sector, or coordinating with other financial regu-lators
and non-government organizations, to make sure
that information of the non-bank credit sector is included
in consumer awareness programs as well as printed and
online publications.
Consulting Consumers and
the Financial Services Industry
The relevant authority should consult consumer asso-ciations
and associations of non-bank credit institutions
to help the authority develop financial literacy pro-grams
that meet the needs and expectations of financial
consumers, especially those served by non-bank credit
institutions.
In developing financial literacy programs, consultations
will be helpful in order to take into account the perspec-tives
of consumers, particularly those from non-bank credit
institutions, as well as the perspectives of financial institu-tions
and their trade associations. In countries where there
are informed and effective consumer associations, they will
also need to be consulted.
To ensure that consumers are actively involved in the
policy development process, it is recommended that the
government or private sector organizations or both provide
appropriate funding to non-government organizations for
this purpose.
Measuring the Impact
of Financial Literacy Initiatives
a. Policymakers, industry and consumer advocates
should understand the financial literacy of various
market segments, particularly those most vulner-able
to abuse.
b. The financial literacy of consumers should be mea-sured,
amongst other things, by broadly based
household surveys that are repeated from time to
time.
c. The effectiveness of key financial literacy initiatives
should be evaluated by the relevant authority from
time to time.
In order to measure the impact of financial education and
information initiatives, the financial literacy of a sample
of the population should be measured by means of large-scale
market research that gets repeated from time to time.
Initiatives will take some time to have a measurable impact
on the financial literacy of a population, so it is likely to be
sufficient to repeat the survey every four to five years.
In addition, key financial literacy initiatives should be
be continued (and perhaps scaled up) and which should be
modified or discontinued.
Table 8 provides a summary of key regulation for non-bank
credit institutions.

68
TABLE 8: Overview of Consumer Protection Regulation for Non-Bank Credit Institutions
Institution or
Government
UN UN Guidelines for the Regulation of Computerized Personal Data Files adopted by the General Assembly Resolution 45/95
of 14 December 1990
OECD
Guidelines for the Security of Information Systems and Networks: Towards a Culture of Security, 2002
BIS Basel Committee on Banking Supervision, Consolidated KYC Risk Management, October 2004
Basel Committee on Banking Supervision, Customer Due Diligence for Banks, October 2001
EU Directive on Consumer Credit, 1998/7/EC, amending Directive 87/102/EEC
Directive on Consumer Credit, 2008/48/EC
Directive on Credit Agreements for Consumers, 2008/48/EC, repealing Directive 87/102/EEC
Directive on Unfair Terms in Consumer Contracts, 1993/13/EEC
Directive concerning Unfair Business-to-Consumer Commercial Practices in the Internal Market, 2005/29/EC
Directive on the Protection of Individuals with regard to the Processing of Personal Data and on the Free Movement of
such data, 1995/46/EC
Directive Concerning Processing Personal Data and Protection of Privacy in the Electronic Communication Sector,
2002/58/EC
Directive on Markets in Financial Instruments, 2004/39/EC (MiFID)
Treaty establishing the European Community (EC Treaty), 1957 as amended
COE Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (ETS No.108 of 28
January 1981, entered into force on 01 October 1985) and Explanatory Report
US Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, July 2010
Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act of 2009), H.R. 627, May 2009
Consumer Credit Protection Act (15 USC, Chapter 41), 1968
Truth In Lending Act (TILA) (15 USC § 1601), 1968
Fair Credit Billing Act (15 USC § 1637), 1968
Fair Credit Reporting Act (15 USC § 1681), 1970
Equal Credit Opportunity Act (15 USC §§ 1691 - 1691e), 1974
Federal Trade Commission Act (15 USC §§ 41-58), 1914
Fair Credit Debt Collection Act (15 USC §§ 1692 - 1692o), 1977
FTC – Standards for Safeguarding Customer Information, 2002

Akerlof, George A., “‘The Market for Lemons’: Qual-ity
Uncertainty and the Market Mechanism” Quarterly
Journal of Economics, 1970.
Alliance for Financial Inclusion, Consumer Protection:
Leveling the playing field in financial inclusion, Policy
Note, 2010
Anagol, Santosh, Shawn Cole, and Shayak Sarkar, Bad
Advice: Explaining the Persistence of Whole Life Insurance,
February 2011
Ardic, Oya Pinar, Joyce Ibrahim and Nataliya Mylenko,
Consumer Protection Laws and Regulations in Deposit
and Loan Services: A Cross-Country Analysis with a New
Data Set, Policy Research Working Paper No. 5536,
World Bank, January 2011
Armstrong, Mark, “Interactions between Competition
and Consumer Policy”, Competition Policy Internation-al,
Volume 4, Number 1, Spring 2008
Asian Development Bank Institute, Hannig, Alfred and
Jansen, Stefan, Financial Inclusion and Financial Stabil-ity:
Current Policy Issues, ADBI Working Paper Series
No. 259, December 2010
Australian Government Publishing Service, The Fi-nancial
System Inquiry Final Report (“Wallis Report”),
March 1997
Bakker, Marie Renée and Alexandra Gross, Development
of Non-bank Financial Institutions and Capital Markets
in European Union Accession Countries, World Bank
Working Paper No. 28, World Bank, February 2004
Bellman, S., E. J. Johnson, G. L. Lohse, “On site: to
opt-in or opt-out?: It depends on the question, Com-munications
of the ACM, Volume 44 , Issue 2 25-27,
February 2001.
Bank for International Settlements, Committee on Pay-ment
and Settlement Systems, Retail Payment Systems
in Selected Countries: a Comparative Study, September
1999
_______, Clearing and Settlement Arrangements for Retail
Payments in Selected Countries, September 2000
_______, Policy Issues for Central Banks in Retail Pay-ments,
March 2003
_______, General Guidance for National Payment System
Development, January 2006
Bank for International Settlements, Committee on
Payment and Settlement Systems, and World Bank,
General Principles for International Remittance Services,
January 2007
Benston, George, “Consumer Protection as Justification
for Regulating Financial Services Firms and Products”,
Journal of Financial Services Research, 17(3): 277-301,
2000
Block-Lieb, Susan, Best Practices in the Insolvency of
Natural Persons, The World Bank Insolvency and Credi-tor/
Debtor Regimes task Force Meetings, Rapporteur’s
Synopsis, January 2011
References

70
Brix, Laura and Katharine McKee, Consumer Protection
Regulation in Low-Access Environments: Opportunities to
Promote Responsible Finance, CGAP Focus Note No. 60,
February 2010.
Brown, Sarah, G. Garino, K. Taylor and S. W. Price,
Debt and financial expectations: An individual and house-hold
level analysis, Working Paper No. 03/05, University
of Leicester, February 2004
California Budget Report, Locked Out 2008: The Hous-ing
Boom and Beyond, February 2008
Centre for European Policy Studies and Van Dijk Man-agement
Consultants, Tying and other potentially unfair
commercial practices in the retail financial service sector,
Final Report submitted to the European Commission,
DG Internal Market and Services, ETD/2008/IM/
H3/78, November 2009
Center for the Study of Financial Innovation, Microfi-nance
Banana Skins 2011: The CSFI survey of microfi-nance
risk: Losing its fairy dust, February 2011
Cirasino, Massimo, “The Committee on Payment and
Settlement Systems and the World Bank General Prin-ciples
on International Remittance Services”, AccessFi-nance,
Issue No. 11, May 2006
Cirasino, Massimo, Jose A. Garcia, Mario Guadamil-las
and Fernando Montes-Negret, Reforming Payments
and Securities Settlement Systems in Latin America and
the Caribbean, World Bank, 2007
Cole, Shawn and Gauri Kartini Shastry, If You Are So
Smart, Why Aren’t You Rich? The Effects of Education, Fi-nancial
Literacy, and Cognitive Ability on Financial Mar-ket
Participation, October 2007
Collins, Daryl, Nicola Jentzsch and Rafael Mazer, In-corporating
Consumer Research into Consumer Protection
Policy Making, CGAP Focus Note No. 74, November
2011
Consultative Group to Assist the Poor, Advancing Fi-nancial
Access for the World’s Poor: Annual Report 2011,
2012
Consultative Group to Assist the Poor/The World Bank
Group, Financial Access 2010: The State of Financial In-clusion
Through the Crisis, September 2010
Consumers International, Safe, fair and competitive
markets in financial services: recommendations for the
G20 on the enhancement of consumer protection in finan-cial
services, March 2011
_______, Financial education counselling – Counsellor’s
handbook, January 2012
Deb, Anamitra and Mike Kubzansky, Bridging the Gap:
The Business Case for Financial Capability, Citi Founda-tion,
March 2012.
Demirguc-Kunt, Asli and Klapper, Leora, Measuring
Financial Inclusion: The Global Findex Database, World
Bank Policy Research Working Paper No. 6025, World
Bank, 2012
European Commission, Communication on Financial
Education COM (2007) 808
_______, Discussion paper for the amendment of Directive
87/102/EEC concerning consumer credit, 2001
_______, EU Consumer Policy strategy 2007-2013 COM
(2007) 99 final, March 2007
_______, Eurobarometer 2003.5, Financial Services and
Consumer Protection, May 2004
_______, Green Paper on Retail Financial Services in the
Single Market, COM (2007) 226 final, April 2007
_______, Special Eurobarometer No. 252, Consumer pro-tection
in the Internal Market, September 2006
_______, Survey of Financial Literacy Schemes in the
EU27, November 2007
_______, Directorate-General for Competition, Report
on the retail banking inquiry, Commission Staff Work-ing
Document, SEC (2007) 106, January 2007
European Parliament, Report on Improving con-sumer
education and awareness on credit and finance
(2007/2288(INI)), 18 November 2008

71
References
Fardoust, Shahrokh, Yongbeom Kim and Claudia
Sepúlveda (eds), Post-Crisis Growth and Development: A
Development Agenda for the G-20, World Bank, Novem-ber
2010
Financial Services Authority, The Turner Review: A regu-latory
response to the global banking crisis, March 2009
Financial Stability Board, Consumer Finance Protection
with particular focus on credit, 26 October 2011
FIN-USE, Response to the Green Paper on Retail Finan-cial
Services in the Single Market, 2007
Grifoni, A. and Messy, F., Current Status of National
Strategies for Financial Education: A Comparative Analy-sis
and Relevant Practices, OECD Working Papers on Fi-nance,
Insurance and Private Pensions, No. 16, OECD
Publishing, 2012
Gross, Karen, “Financial Literacy Education: Panacea,
Palliative, or Something Worse?”, St. Louis University
Public Law Review 24(2): 307-312, 2005
Group of Thirty, Financial Reform: A Framework for Fi-nancial
Stability, January 2009
Hadfield, Gillian K, Robert Howse and Michael J Tre-bilcock,
“Information-Based Principles for Rethinking
Consumer Protection Policy” Journal of Consumer Policy
21: 131-169, 1998
Herring, Richard J. and Anthony M. Santomero, “What
is Optimal Financial Regulation?”, Wharton Financial
Institutions Center Working Paper Series, Working Paper
No/ 00-34, May 1999
Hilgert, Marianne A. and Jeanne M. Hogarth, “House-hold
Financial Management: The Connection between
Knowledge and Behavior”, Federal Reserve Bulletin, July
2003
International Finance Corporation, Credit Bureau
Knowledge Guide, 2006
_______, Global Practices in Responsible and Ethical Col-lections,
IFC Working Paper, August 2009
International Monetary Fund, Independent Evaluation
Office, IMF Performance in the Run-Up to the Finan-cial
and Economic Crisis: IMF Surveillance in 2004-07,
January 2011
Jentzsch, Nicola, Financial Privacy — An International
Comparison of Credit Reporting Systems, October 2007
Joint Forum of Basel Committee on Banking Supervi-sion,
International Organization of Securities Commis-sion
and International Association of Insurance Super-visors,
Customer suitability in the retail sale of financial
products and services, April 2008
Klapper, Leora and Georgios Panos, Financial Literacy
and Retirement Planning: The Russian Case, August 2011
Klapper, Leora, Annamaria Lusardi and Georgios Pa-nos,
Financial Literacy and the Financial Crisis, Evidence
from Russia, March 2011
Llewellyn, David T., “The Economic Rationale for Fi-nancial
Regulation, Financial Services Authority”, FSA
Occasional Papers in Financial Regulation, No. 1:1-57,
April 1999
Loewenstein, George, T. O’Donoghue and M. Rabin,
“Projection Bias in Predicting Future Utility”, Quarterly
Journal of Economics 118 (4): 1209-1248, 2003
Lusardi, Annamaria and Olivia Mitchell, “Financial
Literacy and Retirement Preparedness: Evidence and
Implications for Financial Education”, Business Econom-ics
42 (1): 35-44, January 2007
Mandell, Lewis, Financial Literacy: Are We Improving?
Results of the 2004 National Jump$tart Survey, Jump$tart
Coalition for Personal Financial Literacy, 2004
_______, The Financial Literacy of Young American Adults:
Results of the 2008 National Jump$tart Coalition Survey
of High School Seniors and College Students, Jumpstart
Coalition, 2009
McKay, Claudia and Mark Pickens, Branchless Banking
2010: Who’s Served? At What Price? What’s Next? CGAP
Focus Note No. 66, September 2010

72
Miller, Margaret J. (ed.), Credit Reporting Systems and
the International Economy, Massachusetts Institute of
Technology, 2003
Mundy, Shaun, Financial Education in Schools: Analysis
of Selected Current Programmes and Literature – Draft
Recommendations for Good Practices, in proceedings of
OECD-US Treasury International Conference on Fi-nancial
Education, Washington DC, 7-8 May 2008,
Volume II
Nier, Erlend Walter, Financial Stability Frameworks and
the Role of Central Banks: Lessons from the Crisis, IMF
Working Paper WP/09/70, International Monetary
Fund, April 2009
Organisation for Economic Co-operation and Develop-ment,
Guidelines for Protecting Consumers from Fraudu-lent
and Deceptive Commercial Practices Across Borders,
2003
_______, Improving Financial Literacy: Analysis of Issues
and Policies, 2005
_______, Recommendation of the Council on Principles
and Good Practices for Financial Education and Aware-ness,
2005
_______, Best Practices for Consumer Policy: Report on the
Effectiveness of Enforcement Regimes, 2006
_______, Policy Guidance For Addressing Emerging Con-sumer
Protection And Empowerment Issues In Mobile
Commerce, 2007
_______, Consumer Education, 2007
_______, Financial Literacy and Consumer Protection:
Overlooked Aspects of the Crisis, 2008
_______, Improving Financial Education And Awareness
On Insurance And Private Pensions, 2008
_______, Recommendation of the Council on Good Prac-tices
for Financial Education related to Private Pensions,
2008
for Enhanced Risk Awareness and Education on In-surance
Issues, 2008
_______, Consumer Education: Policy Recommendations of
the OECD’s Committee on Consumer Policy, 2009
_______, Financial Consumer Protection, 2009
_______, Insurance Intermediaries And Financial Educa-tion
And Protection Of Consumers, 2009
_______, Issue Note On Insurance Intermediaries And Con-sumers’
Insurance Education And Protection 2009
_______, OECD Strategic Response To The Global Finan-cial
And Economic Crisis: Consumer Issues, 2009
_______, Preliminary Draft Good Practices on Insurance
Intermediaries and Consumers Insurance Education and
Protection, 2009
on Financial Education and Awareness relating to
Credit, 2009
_______, Addressing Financial Consumer Protection Defi-ciencies
in the Post Crisis Era, 2010
_______, Consumer Protection And Financial Innovation:
A Few Basic Propositions, 2010
_______, Protecting and Empowering Consumers in the In-ternet
Economy Options for Advancing the Review of the
1999 OECD Guidelines, 2010
Rajan, Raghuram G., Has Financial Development Made
the World Riskier? NBER Working Paper No. 11728,
National Bureau of Economic Research, November
2005
_______, Fault Lines: How Hidden Fractures Still Threaten
the World Economy, Princeton University Press, 2010
Rekaiti, Pamaria and Roger Van den Bergh, “Cooling-
Off Periods in the Consumer Laws of the EC Member
States. A Comparative Law and Economics Approach”,
Journal of Consumer Policy 23(4): 371-408, November
2004
Responsible Finance Forum, Advancing Responsible Fi-nance
for Greater Development Impact: A Stock-Taking
of Strategies and Approaches among Development Agen-cies
and Development Finance Institutions, Consultation
Draft, January 27, 2011

73
References
Rutledge, Susan L., Consumer Protection and Finan-cial
Literacy: Lessons from Nine Country Studies, Policy
Research Working Paper No. 5326, World Bank, June
2010
_______, Country Studies Provide Powerful Lessons in Fi-nancial
Consumer Protection, Knowledge Brief No. 26,
World Bank, July 2010
Rutledge, Susan L, N. Annamalai, R. Lester and R. Sy-monds.,
Good Practices for Consumer Protection and Fi-nancial
Literacy in Europe and Central Asia: A Diagnostic
Tool, ECSPF Working Paper 001, World Bank, August
2010
Task Force on Financial Literacy, Report of Recommen-dations
on financial literacy, Canadians and their money:
Building a brighter future, December 2010
Taylor, Curtis R., “Consumer Privacy and the Market
for Customer Information”, RAND Journal of Econom-ics,
35 (4): 631-50, 2004
Thomas, David and Frizon, Francis, Resolving disputes
between consumers and financial businesses: Fundamentals
for a financial ombudsman - A practical guide based on
experience in western Europe, World Bank, 2012
_______, Resolving disputes between consumers and finan-cial
businesses: Current arrangements in central and east-ern
Europe, World Bank, 2012
Tiwari, Akhand, Anvesha Khandelwal and Minakshi
Ramji, How Do Microfinance Clients Understand their
Loans?, Centre for Micro Finance at the Institute for
Financial Management and Research, Chennai, India,
October 2008
UK Financial Services Authority, Reforming Conduct of
Business Regulation, Consultation Paper, October 2006
_______, The Turner Review: A regulatory response to the
global banking crisis, March 2009
US Department of Housing and Urban Development
and Department of Treasury Joint Task Force, Curbing
Predatory Home Mortgage Lending, June 2000
United Nations, Department of Economic and Social
Affairs, United Nations Guidelines for Consumer Protec-tion
(as expanded in 1999), 1999
Weinstein, Neil, “Unrealistic Optimism About Future
Life Events”, Journal of Personality and Social Psychology
39(5): 806-820, 1980
Willis, Lauren E., “Against Financial Literacy Educa-tion”,
University of Pennsylvania Law School, Public Law
and Legal Theory Research Paper Series, Research Paper
No. 08-10, November 2008
World Bank, Finance for All? Policies and Pitfalls in Ex-panding
Access, 2008
_______, General Principles for Credit Reporting, Septem-ber
2011
_______, Migration and Remittances Factbook 2011, No-vember
2010
_______, Principles for Effective Insolvency and Creditor/
Debtor Regimes, January 2011
_______, Report on the Treatment of Insolvency of Natu-ral
Persons - Working Group on the Treatment of the
Insolvency of Natural Persons, World Bank, Nov 2011
(forthcoming)
World Bank Group, Financial and Private Sector De-velopment
Vice Presidency, Payment Systems Develop-ment
Group, Payment Systems Worldwide: a Snapshot.
Outcomes of the Global Payment Systems Survey 2008,
2008

Pensions plans are typically the largest single finan-cial
investment for households and, in the absence
of strong consumer protection, households may
find their plans are inadequate to meet their retirement
income needs. However, work on consumer protection
in private pensions remains at a nascent stage92. What
regulation there is tends to be country-specific and,
following a number of scandals (e.g. Enron) and the
financial crisis of 2007-09, a number of assumptions
underlying the role and structuring of supplementary
pensions need to be reviewed.
The pensions sector has a number of attributes that need
to be considered in designing an appropriate consumer
protection regime. These include the following:
• Pension savings may be compulsory under a 2nd
pillar93 or an equivalent.
• Where the member is fortunate enough to be in one
of the surviving defined benefit arrangements, the
funding level may not be subject to normal actuarial
standards (e.g. public sector arrangements in a num-ber
of countries).
• The member/ affiliate may have little or no say in
how the pension plan is funded, invested, adminis-tered
or governed if the plan is employer-based (i.e.
an occupational arrangement).
• The plan may be governed under a trustee arrange-ment
or governance may be left entirely to the em-ployer
working through the managing institutions.
• The system needs to allow for both accumulation
and decumulation life cycle stages. To date many
countries have focused entirely on the accumulation
stage, partly because a secondary objective in devel-oping
pension systems has been the development of
capital markets.
Based on the lack of an agreed approach, the Good
Practices employed in private pension assessments to
date have relied on practices in use for the insurance
sector (especially related to defined benefit plans and
life annuities) and the securities sector (for defined con-tribution
plans and investment funds). Recent experi-ence
has demonstrated, however, that other issues are
at least as important for consumer protection in private
pensions including, critically, the need to understand
the roles of risk and lifecycle stage in determining ap-propriate
investment and funding strategies.
Other pension specific issues include: (1) flexibility and
options for consumers to switch among service provid-ers
of pension plans (pension management companies),
(2) the terms and conditions of investment contracts
with pension management companies, (3) treatment of
the decumulation (pay-out) phase, (4) controls over any
fees that are deducted from the pension fund, (5) lev-els
of competition among pension management com-panies,
and (6) portability of full accumulated entitle-ments
when changing employer.
Supervision is also a key issue for consumer protection
in private pensions. Pensions may be supervised by
the prudential supervisor, or the taxation authorities,
or a combination thereof (e.g. Australia, Canada, and
Peru). There are also examples of the securities super-visor
having responsibility for pensions (e.g. the Rus-
Private Pensions Sector
Annex
1

76
sian Federation) or a combination of separate insurance
and securities supervisors (e.g. Turkey). With only a few
exceptions (such as the US), private pensions are not
insured by the state. Thus, no established international
approach or even range of approaches currently exists.
However, recent ongoing global research has begun to
identify Good Practices for private pension arrange-ments
and this will ultimately lead, as with the other
financial sector elements, to a consensus. In the inter-im,
the Good Practices noted below provide a useful
starting point. These have so far been tested in five con-sumer
protection diagnostic reviews (Bulgaria, Croatia,
Latvia, Romania and the Russian Federation) carried
out by the WBG.
XXIX. Consumer Protection Institutions
The law should recognize and provide for clear rules on
consumer protection in the area of private pensions and
there should be adequate supporting institutional ar-rangements:
a. There should be specific provisions in the law,
which create an effective regime for the protec-tion
of consumers who deal directly with pension
management companies and members/ affiliates of
occupational plans.
b. There should be a general consumer protection
agency or a specialized agency, responsible for
the implementation, oversight and enforcement
of pension consumer protection, as well as data
collection and analysis (including inquiries, com-plaints
and disputes).
c. The law should provide, or at least not prohibit,
a role for the private sector, including voluntary
consumer organizations and self-regulatory orga-nizations,
in respect of consumer protection re-garding
private pensions.
a. The judicial system should provide credibility to
the enforcement of the rules on pension consumer
protection.
b. The media and consumer associations should play
an active role in promoting pension consumer
protection.
XXX. Disclosure and Sales Practices
General Practices
a. There should be disclosure principles and practices
that cover the consumer’s relationship with the
pension management company or occupational
plan in all three stages of such relationships: pre-sale,
point of sale, and post-sale.
b. There should be clear rules on solicitation and is-suance
of pension products.
c. The information available and provided to the
consumer should clearly inform the consumer of
the choice of accounts, products and services, as
well as the risks associated with each of the options
or choices.
d. Employers should be responsible for ensuring that
new plan members are made fully aware of their
rights and obligations under any occupational
pension arrangements.
e. Employers should be required to vest benefits with
employees relatively quickly so as to avoid undesir-able
personnel practices (such as terminating em-ployment
just as employer contributions are about
to vest).
f. Employers should be obliged to ensure that contri-butions
are properly collected, accounted for and
passed on to the pension fund’s managers.
a. Pension management companies should ensure
do not mislead the customers.
b. All marketing and sales materials of pension man-agement
companies should be easily readable and
understandable by the average public.
c. The pension management company should be le-gally
responsible for all statements made in mar-

77
Annex 1
keting and sales materials related to its products,
and for all statements made by any person acting
as an agent for the company.
Key Facts Statement
A Key Facts Statement disclosing the key factors of the
pension scheme and its services should be presented by
the pension management company before the consum-er
signs a contract.
Special Disclosures
a. Pension management companies should disclose
information relating to the products they offer,
including investment options, risk and benefits,
fees and charges94, any restrictions or penalties on
transfer, fraud protection over accounts, and fee
on closure of account.
b. Customers should be notified of any planned
change in fees or charges a reasonable period in
advance of the effective date of the change.
c. Pension management companies should inform
consumers upfront of the nature of any guarantee
arrangements covering their pension products.
d. Customers should be informed upfront regarding
the time, manner and process of disputing informa-tion
on statements and in respect of transactions.
e. Customers should be informed in writing, at the
time of sale or when joining an occupational plan,
of the options available to them if they decide to
change employer, move or retire.
a. Marketing personnel, officers selling and approv-ing
transactions, and agents, should have sufficient
qualifications and competence, depending on the
complexities of the products they sell.
b. The law should require agents to be licensed, or at
least be authorized to operate, by the regulator or
supervisor.
c. Personnel departments with responsibility for oc-cupational
arrangements should have at least one
suitably qualified individual who can explain the
plan to members and deal with third-party provid-ers
such as asset management companies.
Know Your Customer
The sales officer should examine important characteris-tics
of any potential customer, such as age, employment
prospects and financial position, and be aware of the
customer’s risk appetite and his or her long-term objec-tives
for retirement, and recommend relevant financial
products accordingly.
a. The regulator or supervisor should publish annual
public reports on the development, health and
strength of the pensions industry either as a special
report or as part of its disclosure and accountabil-ity
requirements under the law that governs these.
b. All pension management companies should dis-close
information regarding their financial posi-tion
and profit performance.
c. Actuarial reports on funding levels should be re-quired
annually for defined benefit plans and
members and affiliates should be advised of the
condition of the plan in a short and clear written
report.
d. Investment reports for defined contribution plans
should at least match best practice mutual fund
reporting.
Contracts
There should be consistent contracts or membership
forms for pension products and the contents of a con-tract
should be read by the customer or explained to the
customer before it is signed. Ideally, the customer should
be required to confirm in their own handwriting that
they understand the terms of the pension contract plan.
Cooling-off Period
There should be a reasonable cooling-off period associ-ated
with any individual pension product.

78
XXXI. Customer Account Handling
and Maintenance
Statements
a. Members and affiliates of a defined contribution
pension plan should not be locked into a specified
investment profile (and shares in their employer
in particular) for more than a short period (e.g.
one week) after providing notification of a desire
to switch investment profiles.
b. Customers or occupational plan members should
receive a regular streamlined statement of their
account that provides the complete details of ac-count
activity (including investment performance
on a standardized basis) in an easy-to-read format,
making reconciliation easy.
c. Customers should have a means to dispute the
accuracy of any transaction recorded in the state-ment
within a reasonable, stipulated period.
d. When customers sign up for paperless statements,
such statements should be in an easy-to-read and
readily understandable format.
XXXII. Privacy and Data Protection
of Customer’s Information
a. The financial activities of any customer of a pen-sion
management company should be kept con-fidential
and protected from unwarranted private
and governmental scrutiny.
b. The law should require pension management com-panies
to ensure that they protect the confidential-ity
and security of personal information of their
customers against any anticipated threats or haz-ards
to the security or integrity of such informa-tion,
and against unauthorized access to, or use of,
customer information that could result in substan-tial
harm or inconvenience to any customer.
Sharing Customer’s Information
a. Pension management companies should inform
the consumer of third-party dealings for which the
pension management company intends to share
information regarding the consumer’s account.
b. Pension management companies should explain
to customers how they use and share customers’
personal information.
c. Pension management companies should be pro-hibited
from selling (or sharing) account or per-sonal
information to (or with) any outside com-pany
not affiliated with the pension management
company for the purpose of telemarketing or di-rect
mail marketing.
d. The law should allow a customer to stop or “opt
out” of the sharing by the pension management
company of certain information regarding the
customer, and the pension management company
should inform its customers of their opt-out right.
e. The law should prohibit the disclosure of informa-tion
of customers by third parties.
a. The law should state specific procedures and ex-ceptions
concerning the release of customer finan-cial
records to government authorities.
b. The law should provide for penalties for breach of
confidentiality laws.
XXXIII. Dispute Resolution Mechanisms
a. An internal avenue for claim and dispute resolu-tion
practices within the pension management
company should be required by the supervisory
agency.
b. Pension management companies should provide
designated employees available to consumers for
inquiries and complaints.
c. The pension management company should inform
its customers of the internal procedures on dispute
resolution.
d. The regulator or supervisor should investigate
whether pension management companies comply

79
Annex 1
with their internal procedures regarding dispute
resolution.
A system should be in place that allows consumers to
seek third-party recourse in the event they cannot re-solve
a pensions-related issue with their employer or a
pension management company.
XXXIV. Guarantee Schemes
and Safety Provisions
Guarantee Schemes and Safety Provisions
Guarantee and compensation schemes are less com-mon
in the pensions sector than in banking and insur-ancHH.
There are more likely to be fiduciary duties and
custodian arrangements to ensure the safety of assets.
a. There needs to be a basic requirement in the law
to the effect that pension management companies
should seek to safeguard pension fund assets.
b. There should also be adequate depository or custo-dian
arrangements in place to ensure that assets are
safeguardeGG.
XXXV. Consumer Empowerment &
Financial Literacy
a. A range of initiatives should be undertaken to im-prove
people’s financial literacy.
authority to provide financial education, in-formation
and guidance to the public, including
on the private pensions sector.
governmental agencies, the supervisory authority
for private pensions, the private pension indus-try
and consumer associations in the provision of
financial education, information and guidance
to consumers, particularly on the private pensions
sector.
a. Financial regulators and consumer associations
should provide, via the internet and printed pub-lications,
independent information on the key fea-tures,
benefits and risks –and where practicable the
costs- of the main types of financial products and
services, including private pensions.
b. The relevant authority should adopt policies that
encourage non-government organizations to pro-vide
consumer awareness programs to the public
in the area of pensions.
Consulting Consumers and
the Financial Services Industry
a. The relevant authority should consult consumer
associations and the private pension industry to
help the authority develop financial literacy pro-grams
that meet the needs and expectations of fi-nancial
consumers, especially pension fund mem-bers
and affiliates.

Annex
2
Credit reporting is a crucial component of mod-ern
financial systems and a critical driver for ef-ficiency
in lending to consumers. Efficient and
accurate credit reporting systems provide valuable ben-efits
for consumers, enabling them to obtain increased
access to credit at favorable terms and conditions and
the ability to monitor their levels of debt to ensure that
they avoid high levels of indebtedness. Transparency of
credit reporting systems is important for good gover-nance
of these systems and, at the same time, controls
should exist to protect personal data. Credit reporting
is becoming an ever more pervasive activity that affects
a consumer’s economic life by determining access and
terms of financial services. Public policy should find the
right balance between consumer data protection and the
economic rationale of processing personal information.
As of 2011, there were no international Good Practices
for consumer protection in credit reporting, although
a number of international data protection instruments
provide useful guidance (see Table 9).
Several initiatives are underway to improve credit report-ing.
The Western Hemisphere Credit and Loan Report-ing
Initiative (WHCRI)95 defines policies and actions
for sub-regional integration of credit and loan report-ing
systems. To date, assessments have been conducted
in eight countries in Latin America (Brazil, Chile, Co-lombia,
Costa Rica, Mexico, Peru, Trinidad and Tobago,
and Uruguay.)96 WHCRI plans eventually to cover all
the countries of the Latin America Region. In addition,
the IFC (as part of the WBG) has developed the Global
Credit Bureau Program, which supports credit bureaus
in more than 100 countries worldwide.97 The WBG has
also established the African Credit Reporting and Finan-cial
Information Infrastructure Program to improve the
quality and availability of data on borrowers in Africa.
A similar program is also envisaged for the Middle East.
In addition, the Credit Reporting Standards Setting
Task Force was launched by the World Bank, with sup-port
of the BIS, with the objective of defining a core
set of international standards for credit reporting. This
exercise led to the General Principles for Credit Report-ing,
published in September 2011, which includes ele-ments
of consumer protection as an instrument to fa-cilitate
credit reporting systems.98
In addition, in June 2008 the European Commission
set up an Expert Group on Credit Histories to identify
barriers to the access to, and exchange of, credit infor-mation
within the EU and to make recommendations
to the Commission.99
The Good Practices in this Annex are based upon in-ternational
approaches regarding data protection poli-cies.
These include the basic principles by the United
Nations, Organization for Economic Co-operation and
Development, the Asia-Pacific Economic Cooperation,
the European Union and the Council of Europe. Alter-native
regulatory models have been taken into account
through the comparison of credit reporting regulations
in 100 countries.100 Thus, the Good Practices have been
developed based upon a broad range of policy and aca-demic
literature, cross-country law evaluation, as well
as practical experience from a number of country-based
analyses.101 The Good Practices focus on the issues of
privacy and data protection, which lie at the core of
sound consumer protection in credit reporting systems.
Credit Reporting Systems

82
It is recognized, however, that other issues are also im-portant
and should be considered. In particular, credit
reporting systems should be subject to appropriate over-sight
with sufficient enforcement authority. Additional
issues include the viability of consumer protection in-stitutions,
questions of adequate disclosure to consum-ers
and accessibility to credit bureaus, reporting and
handling of customer information, dispute resolution
mechanisms, consumer awareness and empowerment,
and competition among credit bureaus.
XXXVI. Privacy and Data Protection
Consumer Rights in Credit Reporting
Laws and regulations should specify basic consumer
rights in these respects. These rights should include:
a. The right of the consumer to consent to informa-tion-
sharing based upon the knowledge of the in-stitution’s
information-sharing practices.
TABLE 9: Overview of Consumer Protection Regulation for Credit Reporting Systems
Institution or
Government
UN Art. XII of the Universal Declaration of Human Rights
Art. 17 of the International Covenant on Civil and Political Rights of 16 December 1966
UN Guidelines for the Regulation of Computerized Personal Data Files, adopted by the General Assembly Resolution
45/95 of 14 December 1990
OECD Guidelines for the Security of Information Systems and Networks: Towards a Culture of Security, 2002
Recommendation of the Council concerning guidelines governing the protection of privacy and trans-border flows of
personal data, adopted by the Council 23 September 1980
Declaration of Transborder Data Flows, 1985
Ministerial Declaration on the Protection of Privacy on Global Networks, 1998
World Bank Principles and Guidelines for Credit Reporting Systems, 2004
Principles For Effective Insolvency And Creditor/Debtor Regimes, 2011
General Principles for Credit Reporting, 2011
EU Directive on the Protection of Individuals with regard to the Processing of Personal Data and on the Free Movement of
such data, 1995/46/EC
Directive on Credit Agreements for Consumers, 2008/48/EC repealing Directive 87/102/EEC
COE Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (ETS No. 108 of 28
January 1981, entered into force on 01 October 1985) and Explanatory Report
Amendment to Convention ETS No. 108 allowing the European Communities to accede (adopted 15 June 1999, entered
into force after acceptation by all Parties) and Explanatory Memorandum
Additional Protocol to Convention ETS No. 108 on Supervisory Authorities and Trans-border Data Flows and Explanatory
Report (ETS No. 181, opened for signature on 8 November 2001)
Recommendation No. R(2002) 9 on the protection of personal data collected and processed for insurance purposes (18
September 2002) and Explanatory Memorandum
Recommendation No. R(90) 19 on the protection of personal data used for payment and other operations (13 September
1990) and Explanatory Memorandum
EU-US Safe Harbor Framework, 2000
US Fair Credit Reporting Act, 1970
Fair and Accurate Credit Transaction Act, 2003

83
Annex 2
b. The right to access the credit report of the indi-vidual,
subject to proper identification of that in-dividual
and free of charge (at least once a year).
c. The right to know about adverse action in credit
decisions or less-than-optimal conditions/prices
due to credit report information. In this process,
consumers should be provided with the name and
address of the credit bureau.
d. The right to be informed about all inquiries within
a period of time, such as six months.
e. The right to correct factually incorrect informa-tion
or to have it deleted.
f. The right to mark (flag) information that is in
dispute.
g. The right to decide if the consumer’s credit infor-mation
(for purposes not related to the granting of
credit) can be shared with third parties.
h. The right to have sensitive information especially
protected (not included in the credit report), such
as race, political and philosophical views, religion,
medical information, sexual orientation or trade
union membership.
i. The right to reasonable retention periods such as
those for positive information (for example, at
least two years) and negative information (for ex-ample,
5-7 years.)
j. The right to have information kept confidential
and with sufficient security measures in place to
prevent unauthorized access, misuse of data, or
loss or destruction of data.
Informed consent is the necessary pre-condition for creating
transparency of information processing. Article 3 of the UN
Guidelines regarding files states that “the purpose which a
file is to serve and its utilization in terms of that purpose
should be specified, legitimate and, when it is established,
receive a certain amount of publicity or be brought to the
attention of the person concerned.” This ensures that all pro-cessed
personal data is relevant to the purpose stated, there
are no secret databases, and no data is used without the
consent of the data subject. This right can be waived in the
context of sharing information with a public credit register
for supervisory purposes. However, the consumer should at
least be informed about that type of information sharing
and be referred to the articles in law applicable to it.
Throughout the world, this Good Practice for consumer
protection is reflected in most data protection laws, such as
the EU Data Protection Directive (implemented in the 27
EU Member States and some Latin American countries),
many non-European laws,102 the COE Convention, as well
as in the Openness Principle 12 of the OECD Guidelines
on the Protection of Privacy and Transborder Flows of Per-sonal
Data.
The right to access personal information, and in this con-text
the credit report and score, is justified by Principle 4
of the UN Guidelines (“interested-person access” that de-mands
proper proof of identity). “Access and correction
rights” are provided by all major international data protec-tion
instruments (UN, OECD, EU and APEC principles).
More advanced credit reporting regimes are implementing
the requirement to explain to consumers the credit score (for
instance, as is done in the US). This can be implemented in
a cost-effective way, but should be tailored to the develop-ment
stage of the industry so that, where the industry has
just started to operate, companies are not over-burdened
with access requirements. In these cases, a transition period
would be warranted.
Access by an individual to his or her information is granted
in most countries that have a data protection law.
Access is the pre-condition to dispute resolution and cor-rection.
These basic rights are established in all major in-ternational
instruments relevant for data protection, such
as in the UN Guidelines (Principles 2 and 4) and OECD
Guidelines on the Protection of Privacy and Transborder
Flows of Personal Data (Individual Participation Prin-ciple
13). In the latter, it is stated that the individual has
the right to obtain confirmation whether information has
been stored from the data controller and to have it commu-nicated
within a reasonable manner and timeframe. Access
is also mentioned in the World Bank’s Principles for Ef-fective
Insolvency and Creditor/Debtor Regimes (Principle
B1.4).103 In addition, the cost of correction is to be borne to
the data controller (UN Principle 4). According to Jentzsch
(2007), the right to have information corrected was laid
out in more than 40 countries.

84
The right to block information in cases of dispute is also
common in credit reporting regimes. Between 2005 and
2006, this right was implemented in 25 countries. Blocked
or flagged information indicating a dispute is an addi-tional
quality signal for creditors. The right to know to
whom the information was disclosed was implemented in
44 countries (Jentzsch, 2007).
The consent principle in many cases includes the provision
that individuals can stop information processing for pur-poses
unrelated to credit granting, such as marketing. Mar-keting
restrictions (in terms of opt-in or opt-out) were in
place in 23 countries. Opt-out increases marketing partici-pation
rates and depends on the framing of the question.104
For instance, APEC’s Principle IV Uses of Personal In-formation)
demands that information is only used for the
purposes of collection stated beforehand, except where the
individual has given consent.
The right to have sensitive information specifically protected
is part of most major international instruments, such as the
OECD reports (Comment to Guidelines on the Protection
of Privacy), UN Principles (Principle 5), the COE Con-vention
(Article 6), the EU Data Protection Directive (Ar-ticle
8), and the EU-US Safe Harbor Framework. Legal
controls against anti-discrimination are also discussed in
the World Bank Principles (Principle 15). Only the APEC
Privacy Framework does not demand extra protection of
personal sensitive information.
The major international instruments also demand a
limitation on information collection and distribution,
e.g. OECD Guidelines on the Protection of Privacy and
Transborder Flows of Personal Data (Principle 10), UN
Principles (Principle 3), APEC Privacy Framework (Prin-ciple
III Collection Limitation), and the COE Conven-tion.
The latter, for instance, states in Article 5 e. that
data are “preserved in a form which permits identifica-tion
of the data subjects for no longer than is required for
the purpose for which those data are stored.” Companies
have an incentive to collect personal information exces-sively
and this can lead to sub-optimal market results.105
Therefore, it is good practice to find time limits that set a
limitation on data collection.
International averages for negative information are seven
years for bankruptcy, five years for lawsuits, and six years
for judgments for a sub-sample of the surveyed countries.
The World Bank typically proposes a range of five to seven
years (Principle 17). According to the above principle of
purpose specification, positive information should not be
stored excessively as it loses its predictive power.
The duty of financial institutions to inform customers in
case of adverse action in credit decisions is now part of US
and European legislations. According to Jentzsch (2007),
only seven countries had this clause (during the time of re-search
in 2005-2006), partly because it was only recently
introduced in Europe in the Article 9 of the EU Directive
on Credit Agreements for Consumers.
According to the Directive, creditors should inform the con-sumer
immediately and free of charge about the result of
database consultation and the particulars of the databases
consulted. The additional duty to inform consumers about
less than optimal conditions is part of US regulations.106
Informing consumers “only in adverse action situations” is
not sufficient for adequate data protection.
Also, care should be taken to ensure that public sector and
private sector credit registers provide the same level of con-sumer
protection on the use of personal data. Both types of
information systems provide data that allow for identifica-tion
of individuals and both should provide the same high
quality of protection for consumers of financial services.
XXXVII. Consumer Empowerment &
Financial Literacy
Financial regulators should provide, via the internet
and printed publications, independent information for
consumers that seek to improve their knowledge for ac-tively
managing the credit report.
Education on credit reporting may comprise several activi-ties,
such as the key information brochure that explains to
consumers their privacy choices and their impacts, as well
as rights and obligations. Some examples from the FTC are
the following:
• Privacy Choices for Your Personal Financial
Information
• Building a Better Credit Report
• redit Repair: Self Help May Be Best
• Disposing of Consumer Report Information? New
Rule Tells How

85
Annex 2
It would be important to help consumers understand that
credit financing costs could be reduced once the credit score
reflects a better credit risk and how this can be achieved.
Education on credit reporting should also include a
disclosure of the main factors that have an impact on the
credit score. Public information campaigns have been
actively pursued by regulators in the US, South Africa,
and the UK.
Awareness of Credit Reporting
In order to ensure that financial consumer protection
and educational initiatives are appropriate, it is neces-sary
to measure financial literacy with large-scale sur-veys
that are repeated periodically. These surveys should
include questions on credit reporting and scoring.
Credit reporting is becoming an ever more pervasive activ-ity
in the economy. Therefore, questions about knowledge
regarding credit reporting should be included in financial
literacy surveys, in order for public information campaigns
on credit reporting to be tailored as best as possible. There is,
however, no international precedent for this Good Practice.

Financial Consumer Protection and
Global Financial Regulation
Global Retail Financial Market Development
Until the financial crisis of 2007-09, the global econ-omy
was adding an estimated 150 million new con-sumers
of financial services each year. Rates of increase
have since slowed but growth continues apace. Most new
consumers are in developing countries, where financial
consumer protection is still in its infancy. Global con-sumer
debt stood at 12-14 percent of GDP in the first
half of the 1990s but it has increased to 18 percent in re-cent
years. Mortgage debt rose still more rapidly—from
46 percent of GDP in 2000 to over 70 percent in 2007.107
At the same time, households have become increasingly
responsible for funding their own retirement pensions,
while expanding their investments in securities, invest-ment
funds and insurance policies. In addition, particu-larly
in low-income countries, households have increased
their use of payments services and remittances.108
By supporting the expansion of financial inclusion,
the rise of consumer finance contributes to economic
growth. Financial services provide two key functions
for all households, namely, risk management and inter-temporal
consumption smoothing. By employing such
services, consumers are able to “smooth out” consump-tion
in periods of scarcity and thus do not need to con-sume
their productive capital. In addition, financial
services allow consumers to borrow funds to invest in
new assets, including those of their businesses, however
small-scale. Furthermore, the use of formal financial
services results in efficiency of financial transactions.109
Yet an estimated 2.7 billion working-age adults world-wide
lack access to any formal financial services, rely-ing
on unreliable and often expensive informal financial
service providers.110
Consumer Finance and
Risk to Financial Stability
The global financial crisis of 2007-09 highlighted
the importance of financial consumer protection for
the long-term stability of the financial system and
the global economy. Commentators have pointed to a
combination of unconstrained financial innovation, ex-cessive
levels of global liquidity, and an extended period
of accumulating macroeconomic and financial imbal-ances
that supported unsustainable increases in finan-cial
leverage and risks.111 Contributing to the financial
crisis was the rapid growth of household lending over
the last decade.112 Financial institutions also transferred
their financial exposures to households, which increas-ingly
became subject to new types of risks, such as those
involved in borrowing in foreign currencies and at vari-able
interest rates.113 In developed mortgage markets,
complex financial products and services (such as hybrid
adjustable-rate mortgages) were sold to borrowers, some
of whom had troubled credit histories. In today’s deeply
interconnected financial markets, the securitization of
such household credit spread the weaknesses in house-hold
finance to the rest of the global financial system.114
Furthermore imperfections in the financial market are
likely to have a greater impact on the rest of the econo-my
than weaknesses in other markets due to the finan-cial
market’s central role in ensuring efficient allocation
of capital.
Background
Annex
3

88
Over the last decade, risk has been exacerbated by
the expansion in many low-income and emerging
markets of the use of formal financial services. In-creased
levels of financial inclusion have brought new
consumers into formal financial markets, which in
emerging economies often have weak financial consum-er
protection. In addition, technology has changed the
types of protection needed by many first-time financial
consumers. For example, where access to formal bank-ing
services is difficult, financial services delivered via
cellular/mobile telephones have filled a critical need for
consumers. Such delivery, however, raises issues of con-sumer
disclosure and recourse.115
At the same time, financial literacy of consumers has
not caught up with consumers’ expanded use of fi-nancial
services, especially in low-income markets.
The extent of financial literacy significantly lags behind
what is required for most consumers to understand the
available financial products and services—and what is
needed for consumers to be confident that they know
what they are buying. In many emerging markets, a sig-nificant
portion of the public lacks any history of using
basic, let alone sophisticated, financial products and ser-vices.
For many first-time financial consumers, no mem-ber
of their circle of friends and extended family has ever
entered into a long-term financial contract, such as a
home mortgage loan. Furthermore, even basic financial
products and services may challenge the ability of in-experienced
consumers to understand the inherent risks
and rewards involved in using formal financial services.
Financial Consumer Protection, Financial
System Development and Risk Mitigation
Financial consumer protection promotes the effi-ciency,
transparency and deepening of retail financial
markets. Consumers who are empowered with informa-tion
and basic rights—and who are aware of their re-sponsibilities—
provide an important source of market
discipline to the financial system, encouraging financial
institutions to compete by offering useful products and
services. In turn, this promotes consumer trust and en-gagement
with the formal financial services market.
Financial consumer protection is needed to ensure
that expanded financial inclusion results in equitable
growth. Strong consumer protection helps to ensure
that increased use of financial services benefits all con-sumers
and does not create undue risk for households.
Furthermore, weak financial consumer protection can
cause the growth-promoting benefits of expanded ac-cess
to consumer financial products and services either
to be lost or else greatly diminished.116 Weak protection
undermines consumers’ confidence and public trust,
thus discouraging households from purchasing finan-cial
products and services—and increasing the likeli-hood
that the products and services they purchase fails
to meet their needs and objectives.
Consumer protection also improves governance of
financial institutions. By strengthening transparency
in the delivery of financial services and the accountabil-ity
of financial institutions, consumer protection helps
build demand for good governance and the strengthen-ing
of business standards in the financial system.
In addition, consumer protection helps financial in-stitutions
face the many risks that arise in dealing
with retail customers. In its April 2008 report, the Joint
Forum of the Basel Committee on Banking Supervision,
the International Organization of Securities Commis-sion
and the International Association of Insurance Su-pervisors
identified three potential key risks related to
“mis-selling” financial products and services to retail cus-tomers.
117 They are: (1) legal risk, if successful lawsuits
from collective action by customers or enforcement ac-tions
by supervisory agencies result in obligations to pay
financial compensation or fines; (2) short-term liquid-ity
risk and long-term solvency risk, if retail customers
are treated unfairly and, thus, shun a financial institu-tion
and withdraw their business from it; and (3) con-tagion
risk, if the problems of one financial institution
(or type of financial product) spread across the finan-cial
system.118 Effective consumer protection can help
ensure that the actions of financial firms do not make
them subject to criticisms of mis-selling. Specifically in
the microfinance sector, minimum consumer protection
regulation is needed to avoid the reputational risk that
arises when borrowers become over-indebted.119
Last but not least, consumer protection protects the
financial system from the risk of government over-reaction.
The impact of too little consumer protection
became evident during the insurance and superannua-tion
scandals in the United Kingdom and Australia

89
Annex 3
respectively, resulting in extensive studies on recom-mendations
for regulatory reform, including consumer
disclosure.120 The political response to a collapse of a
part of the financial system may be to over-compensate
with heavy regulation. As a reaction to increasing public
pressure to adopt consumer protection measures, some
governments have resorted to imposing interest rate
caps for consumer loans, thus undermining develop-ment
of credit markets. While the issues of mis-selling
are particularly important in high-income and middle-income
countries, they also apply to low-income coun-tries.
For example, in India and Nicaragua mis-selling
of microcredit has resulted in government regulation
restricting the ability of lenders to collect repayments.121
Designing Financial
Consumer Protection Programs
Key Elements
The focus of financial consumer protection is on the
relationship and interaction between a retail custom-er
and a financial institution. When designing success-ful
consumer protection, it is important to distinguish
between unsophisticated retail (and possibly even illit-erate)
consumers versus highly sophisticated corporate
customers. Transactions between corporate custom-ers
and financial institutions are not subject to many
of the problems that can potentially harm households
and individuals. Thus it is the retail market for financial
services (sometimes called the business-to-consumer or
“B2C” market) that is the focus of financial consumer
protection.
At its heart, the need for financial consumer protec-tion
arises from an imbalance of power, information
and resources between consumers and their financial
service providers, placing consumers at a disadvan-tage.
Financial institutions know their products well
but individual retail consumers find it difficult and
costly to obtain sufficient information regarding their
financial purchases.122 In addition, financial products
and services tend to be difficult to understand, com-pounded
by increasing complexity and sophistication in
recent years. Also consumers typically find it expensive
and problematic to launch lawsuits to sue firms to en-force
the terms of individual contracts.
The imbalance of power between consumers and
providers is particularly marked in financial mar-kets.
In part, this is due to the complex nature of fi-nancial
products and services which often have a de-ferred
expected pay-off to the consumer and, in many
cases, are purchased only rarely. Residential mortgages
are a good example. Most consumers enter into a home
mortgage just a few times in their lifetimes, if at all. This
makes it hard for consumers to learn from their mis-takes
and become financially literate, at least with re-spect
to collateral on their immoveable property. It also
makes it easy for a bank or other financial firm to profit
from deceptive or poor quality products, knowing that
much time will likely pass before the consumer learns
the truth. Also, decisions about financial products and
services involve assessments of risk and estimates of fu-ture
values that are complex even for sophisticated re-tail
consumers. Even in well-developed markets, weak
financial consumer protection can render households
vulnerable to unfair and abusive practices of financial
institutions, including financial frauds and scams. Con-sumers
may also experience inadequate disclosure of the
risks involved in taking on large debts, particularly in
foreign currency.
An efficient and well-regulated financial system
should provide consumers with five key elements:
(1) Transparency, by providing full, plain, adequate
and comparable (and understandable) information
about the prices, terms and conditions (and inher-ent
risks) of financial products and services;
(2) Choice, by ensuring fair, non-coercive and reasonable
practices in the selling and advertising of financial
products and services, and collection of payments;
(3) Redress, by providing inexpensive and speedy mech-anisms
to address complaints and resolve disputes;
(4) Privacy, by ensuring protection over third-party ac-cess
to personal financial information; and
(5) Trust, by ensuring that financial firms act profes-sionally
and deliver what they promise.
Financial consumer protection is delivered in two
ways: (1) financial regulation and (2) financial ed-ucation.
Such financial regulation consists of market

90
conduct regulation, i.e. laws and regulations regarding
the business conduct of financial institutions in deliver-ing
financial products and services to consumers. Busi-ness
conduct regulation includes government regulation,
i.e. laws and regulations issued by government agencies
such as financial supervisors and consumer protection
agencies. It also includes self-regulation, that is, the vol-untary
codes of conduct and other responsible finance
practices adopted by industry associations as a means
of encouraging improved business practices by financial
institutions. Financial education consists of programs
of financial literacy to help consumers understand the
risks and rewards, as well as their rights and obligations,
in using financial products and services.
Financial Regulation
Some regulation of financial markets is needed. As
stated by Dani Rodrik (2007), “Markets will not work
on their own. You need all the institutions that regu-late
markets, stabilize markets … compensate losers and
provide the safety nets, without which markets can nei-ther
be legitimate (n)or, for that matter, efficient ….”123
Furthermore, financial consumer protection can help
markets work more effectively since risks are less likely
to be misallocated, and financial institutions are more
likely to act carefully, than they would in the absence
of strong regulations for financial consumer protection.
Competition policy will not fully address consumer
protection issues on its own. Mark Armstrong (2008)
observes that in most competitive markets, competi-tion
policies are sufficient to ensure that firms succeed
by providing consumers with the products and services
they want. However, Armstrong argues that retail finan-cial
markets are different from other markets and more
is required to ensure their efficiency. He notes that, in
financial markets, government policies are needed to
ensure that: (1) comparable information is provided
to consumers, (2) consumers become aware of market
conditions, (3) consumer search costs are reduced and
(4) hidden costs are clarified. Where such policies are
in place, consumers can access essential information on
which to make informed decisions.124 This is an impor-tant
first step. However, building trust in the financial
system requires still more, including policies to prevent
misleading and fraudulent marketing.125
The challenge is to strike the right balance between
government regulation and the forces of market
competition. Government intervention should be con-sidered
when it is both feasible and cost-effective—and
when there is inadequate capacity for self-regulation.
Rules need to be proactive to prevent abuses and not
simply react to problems of the past. In particular, this
requires that violations of regulations are sufficiently
punished with the aim at least of deterring future in-fringements.
At the same time, undue regulation can
stifle financial innovation. As noted by US Federal Re-serve
Board Chairman Ben Bernanke in April 2009,
regulators should “strive for the highest standards of
consumer protection without eliminating the beneficial
effects of responsible innovation on consumer choice
and access to credit.”126 Where resources are available,
the costs and benefits of the proposed financial con-sumer
protection reforms should be analyzed, taking
into account the estimated direct and indirect effect on
competition, innovation and growth. Such analysis will
help ensure that the proposed regulation is both effec-tive
and efficient.
Although self-regulation can be useful in improv-ing
the business practices of financial institutions, it
can never be a substitute for government regulation
to protect consumers. Regulation by financial institu-tions,
or what is known as “self-regulation,” occurs when
institutions agree among themselves first to establish vol-untary
codes for the business conduct of their dealings
with consumers, and then to review the extent to which
the institutions follow the requirements of the codes.
Codes of conduct can encourage financial institutions
to follow ethical standards in the treatment of retail cus-tomers.
The codes are generally developed and imple-mented
by industry associations. Market conduct codes
primarily act to complement financial regulation, partic-ularly
if the regulator (or supervisor) oversees the codes
and reports on their effectiveness. However, particularly
in developing countries, self-regulation is frequently
ineffective since institutional capacities of industry as-sociations
are often limited and financial markets are
highly concentrated and dominated by a small number
of institutions. If the voluntary codes are not sufficient
to improve business practices, the government may wish
to consider enacting legislation inspired by elements of
the codes in order to strengthen the legal framework for

91
Annex 3
financial services and then ensure that the laws and regu-lations
are effectively applied and enforced.
In the long-run, prudential regulation and consumer
protection regulation complement each other. The
rationale for financial regulation ultimately rests on the
objectives of mitigating systemic risk and protecting
consumers, including retail investors. In most circum-stances,
the two objectives are complementary. For ex-ample,
deposit insurance schemes can reduce systemic
risk while protecting retail deposits. In some instances,
however, the objectives may be in conflict. For example,
by requiring high levels of bank capital, measures to
protect depositors may reduce the availability of credit
for the economy or reduce market liquidity and, thus,
contribute to macro-systemic risk.127 However, over the
long-term, prudential and business conduct supervi-sion
are complementary. Ensuring that consumers have
minimum legal protections and access to financial edu-cation
will strengthen the quality of the retail portfolios
of financial institutions and thereby strengthen the sta-bility
of the financial system.
Furthermore, business conduct supervision is need-ed
where prudential supervision is not applicable.
The last decade has seen a rapid expansion in the role of
financial intermediaries. They are diverse and their roles
range from payment agents for banking to mortgage
brokers for residential mortgage underwriting. Such
intermediaries create risk for the financial system, but
they cannot be supervised using prudential oversight.
Such financial intermediaries should be subject to busi-ness
conduct (i.e. consumer protection) regulation and
supervision.128
The design of financial consumer protection mea-sures
should also take into account recent research
in behavioral economics. Behavioral economics can
help frame policies. It can also help de-bias presenta-tion
of consumer information that empowers con-sumers
in their decision-making (such as information
regarding minimum payments). Psychological biases,
including mistaken beliefs, may influence consum-ers
to make choices that are neither rational nor op-timal.
Consumers, for example, may assume that in-terest
rate charges or penalties will not apply to them
or they may be over-optimistic about their financial
futures and, thus, unable to forecast their future fi-nancial
status accurately.129 Individuals often over-es-timate
their financial capabilities, including their un-derstanding
of the concept of the time value of money
and the impact of compound interest over time.130
Consumers also fall victim to projection bias, namely
the prediction of personal preferences into the future.131
Other related problems are hyperbolic discounting
(where consumers apply a high discount rate to their
future income and, thus, reduce the present value of
their savings to an unreasonably low level), impulse
purchasing and weaknesses in self-control. The research
points to the need for surveys of financial literacy and
consumer spending habits as essential background for
designing consumer information policies—as well as
programs of financial education.
Financial Education
Financial literacy is an important part of financial
consumer protection. Financial education cannot sub-stitute
for consumer protection regulation. However,
financial education and consumer protection regulation
are complementary and should be combined in a pro-gram
of reform of financial consumer protection.132 It is
not practical to consider measures to improve financial
consumer protection without also looking for ways of
strengthening financial literacy. A well-educated con-sumer
should be able to understand consumer disclo-sures,
the risks and rewards, and the legal rights and ob-ligations
that are involved. In short, a financially literate
consumer should be able to make informed decisions
about financial products and services.133 Such empow-ered
consumers should play an active role in shopping
for the best financial products and services—and the
best providers—that meet their needs. However, finan-cial
education is not a panacea. Even the best programs
of financial education cannot replace basic, well-tested
and high-impact rules of business conduct for financial
institutions, such as adequate disclosure of effective
interest rates.
Financial education for consumers should focus on
the appropriate use of financial products and servic-es.
Particularly complex financial products and services,
such as long-term residential mortgages with adjustable
rates of interest, require more in-depth understanding
than simple products such as bank savings accounts.

92
Financial education programs should be adjusted ac-cordingly.
It may also be helpful to identify specific tar-get
groups for financial education, in particular those
most fragile and vulnerable, including the unemployed
and migrants and those exposed to accidents of life
which weaken their financial situation, such as a sudden
drop of income, divorce or a loss in the family. For such
populations, financial education should include discus-sion
of the risks related to episodic expense and revenue
streams and the potential for over-indebtedness.
General financial education is important but lies
outside the scope of targeted programs of financial
consumer protection. General programs of financial
education should teach households how to prepare fam-ily
budgets and plans to meet their financial needs and
goals. These skills are critically important in establishing
and maintaining financial well-being. They should be
complementary to (but not directly part of ) targeted
financial consumer protection initiatives.134
Building financial literacy requires a sustained long-term
effort. While the experience of industrialized
countries over the last thirty years—and more recently
in developing countries—has identified lessons of “what
works and what does not” in consumer protection, little
is clearly understood as to what works (and what does
not) in improving financial literacy over the long-term,
although ongoing research is expected to provide new
insights.135 Box 1 summarizes some initial measures that
have pointed to success being realized in financial edu-cation
programs.136
National financial education strategies should in-clude
a role for both government and civil society.
Clear guidelines are also needed on the types of infor-mation
and personnel resources that should be provided
by financial service providers, government and con-sumer
organizations. The industry associations within
the financial system, such as banking associations, are
often keenly interested in providing financial education
and training for consumers. This should be encouraged
as part of a national strategy to improve financial edu-cation.
Consideration should also be given to ways of
strengthening consumer organizations and ensuring
that they have a long-term and stable funding source
that will allow them to play a vital role in protecting and
educating financial consumers.
National financial education programs should be led
by the financial regulators but involve all stakeholders.
It is the financial regulators who are most aware of the
weaknesses in financial literacy—and the issues that
these weaknesses create for financial sector development.
However, national programs need the active involvement of
all stakeholders, including the financial services industry
and their professional associations, consumer advocacy
organizations, government ministries and agencies (and
particularly the education ministry) as well as the mass
media.
Experience in developed countries suggests that
financial education should be focused on “teachable
moments.” To be successful, financial education needs
to provide information “at the time the consumer wants it
and in the form the consumer wants it.” Consumers are
often receptive to financial education at certain points in
their lives, for example, when they first take a residential
mortgage, start a family, or plan for retirement.
Financial education should be tailored to consumers’
levels of literacy and expertise. Particularly in low-income
countries, financial education programs need to be tailored
to meet the needs of consumers with low levels of general
literacy and limited experience in using financial services.
Any program to improve financial education should
be rigorously tested. Techniques of delivering financial
education have been well tested in the US, Europe and
elsewhere over the last 30 years, but their impact on levels
of financial literacy is still unclear. Even more unclear is
the impact of financial education on consumer behavior.
Financial education should, therefore, be encouraged, but it
should be rigorously tested and evaluated in the short and
long-term.
BOX 1: Measures to Ensure Success of Financial Education Programs

93
Annex 3
Design of the Good Practices for
The Good Practices attempt to capture what are gen-erally
agreed to be effective approaches to treating
financial consumer protection. They seek to state
measures that evoke general agreement among regu-lators.
As a result, where substantial debate still remains
over the best way(s) of dealing with an issue related to
financial consumer protection, that issue has not been
included. For example, there are wide-ranging views on
the best institutional structure for financial regulation,
including regulation of business conduct. Nier (2009)
provides preliminary analysis showing that countries
with separate consumer protection and prudential regu-lators
(known as the “Twin Peak” approach) generally
weather financial crises better than those with a single
integrated regulatory agency with both prudential and
consumer protection mandates.137 However, differing
views are provided by the Group of 30 and the FSA’s
Turner Review.138 Thus, the subject remains one for
further debate. The Good Practices also do not include
issues of approval of product design—either before or
after a financial product is issued. Some regulators pro-hibit
financial products and services that they consider
to be “toxic” for financial consumers, but there exists no
international consensus on the parameters for any such
financial product approval or prohibition.
The Good Practices relate only to the direct relation-ships
between retail customers and financial institu-tions
(or their agents and intermediaries). Thus, the
Good Practices do not include collateral registries. Al-though
they are important parts of financial system in-frastructure,
collateral registries are not directly involved
in relations between consumers and their financial insti-tutions.
Small firms, especially sole proprietorships, are
also not specifically covered under the Good Practices
but the recommendations for consumer protection will
generally also help to protect small businesses. How-ever,
microfinance borrowers are covered (as part of the
Good Practices for Non-Bank Credit Institutions) due
to the difficulty in separating loans for micro businesses
from credits for consumers.
The Good Practices cover only the formal financial
system. Although the Good Practices apply to vari-ous
forms of regulated non-bank financial institutions
(such as microfinance lenders, credit cooperatives,
credit unions and investment clubs), informal service
providers, such as “loan sharks,” lie beyond the scope
of the Good Practices. At the same time, any entity that
engaged in selling financial products or services should
be subject to appropriate regulation. If not, consumers
may be vulnerable to entities offering financial products
or services using business models that are specifically
designed to take advantage of regulatory gaps.
Good Practices for key parts of the financial system
have been prepared. Detailed Good Practices for each
major sector—banking, securities, insurance, and non-bank
credit institutions—are presented with annota-tions
to identify the basis for each Good Practice.139
One of the challenges has been to choose between a
common set of Good Practices for all consumer finance
and Good Practices that are sector-specific. The Good
Practices are broken down by sector since most laws
and regulatory agencies are specific to different types of
financial institutions. Such an approach also facilitates
the work of assessors who are generally specialists in
one or two sectors. Consideration could also, however,
be given to product or service-specific Good Practices.
Certainly many common elements are present in all
types of retail financial products and services and the
approach and general objectives are similar regardless
of the specific retail product or service. However, each
sector of the financial market has its own peculiarities
and a common approach misses important subtleties.
However consumer protection is a systemic issue across
the financial sector. As a result, effective market conduct
supervision requires close cooperation among govern-ment
agencies to align with the interconnected financial
markets they must supervise. The Good Practices have
been designed with this approach in mind.
An increasingly important issue for consumer pro-tection
regimes is “regulatory arbitrage.” In such cas-es,
regulators may miss important business conduct is-sues
regarding financial products and services that look
like one type of product but are legally another. Unit-linked
insurance policies (also called variable annuities)
are a case in point. From a legal perspective, they are in-surance
products and are therefore regulated under the
rules that apply to insurance policies. However, from a
functional perspective, they are indistinguishable from

94
investment funds. Yet such unit-linked products are
generally regulated as insurance products and are not
subject to the stringent disclosure requirements that
typically apply to investment funds. Similar issues arise
for mortgages and mortgage alternatives, such as build-ing
savings loans or specific consumer credit related to
home building or renovation. A cross-sector approach is
likely to become increasingly significant as more sophis-ticated
financial products and services become available
and consumer well-being ever more threatened by regu-latory
arbitrage in packaging products.
The Good Practices allow a country to compare its
financial consumer protection framework to interna-tional
practice. The Good Practices provide an effective
tool for systematic analysis of the laws, regulations and
institutions involved in financial consumer protection,
as well as allow detailed comparisons across different
countries. The Good Practices thus provide the basis for
countries to conduct self-assessments of their financial
consumer protection frameworks. By providing a level
of detail not generally found in overarching “principles”,
the Good Practices afford a precise and systematic meth-odology
for assessing a country’s consumer protection
framework compared to international practice—and,
thus, for determining what needs to be done. However,
the value of the Good Practices is in generating specific
advice not only for government authorities but also for
financial industry institutions and associations, as well
as consumer organizations. It is then up to the authori-ties,
institutions and organizations in each country to
determine the pace and strategic choices to complete a
road-map of reform implementation, with the details
of implementation dependent entirely on the country
context. In three out of the 18 countries noted in Table
1, the diagnostic reviews have led to the development of
detailed country-level action plans and implementation
programs for strengthening legislative and institutional
capacity. All of the diagnostics have stimulated substan-tive
changes to government policies, national laws or
institutional structures.
However, implementation of the Good Practices
should be tailored to a country’s needs and objec-tives.
While the work of carrying through on appropri-ate
reforms is necessarily country-context specific, the
basic ideas are fundamental and universally applicable.
They should, therefore, be part of consumer protection
strategies for countries worldwide. In some low-income
countries, such as those of sub-Sahara Africa, the regu-lated
financial system serves less than 20 percent of the
population and the rest are obliged to rely on informal
financial service providers that fall outside government
regulation. In countries where formal financial services
are not widely used, consumer protection regulation and
supervision should be designed in ways that increase ac-cess
to financial services and strengthen consumer trust
in the formal financial system. Furthermore, it is well-recognized
that no recommendations coming from
an outside source can be implemented without local
“champions” pursuing programs that meet the country’s
needs and objectives. Also country action plans need to
take into account the political strength and will of these
champions. In most countries, the best solution is likely
to be a phased-in reform program. CGAP suggests, for
example, that in countries with low supervisory capac-ity,
such phasing-in should be based on: (1) identifica-tion
of key issues and (2) assessment of government’s
capacity to develop rules, investigate and detect alleged
breaches of the rules, and sanction financial institutions
found to have broken the rules.140 It would also be help-ful
to prepare even rough estimates of the expected im-pact
of reforms on the affordability and availability of
financial services.
Possible Areas for Future Work by the
International Community
The Good Practices should inevitably be further re-fined
and developed. Future work might include re-finement
of the Good Practices for private pensions and
credit reporting (in addition to future revisions of the
other Good Practices.) Good Practices are also needed
for residential mortgage underwriting. It may be help-ful
to expand the discussion of consumer protection for
credit cards to debit cards and prepaid cards. In particu-lar,
specific issues on prepaid cards and mobile money
products related to procedures for closing accounts and
forfeiture of unused balances. In addition, future revi-sions
of the Good Practices will benefit from comments
received on the existing drafts, as well as from examples
of successful approaches in low-income economies or
other countries where resources for financial system
supervision are especially limited. Consideration could
also be given to increasing the consistency of the Good

95
Annex 3
Practices across the different types of financial services,
and clarifying the reasons for the differences among
different services. The Good Practices will also benefit
from the results of ongoing international work, includ-ing
that of FinCoNet, the International Network on
Financial Education, the OECD Task Force on Finan-cial
Consumer Protection and the World Bank-led task
force on consumer insolvency. At the same time, there
is an active ongoing debate--particularly in the US and
EU--about the future of financial regulation and su-pervision
(including that for market conduct, i.e. con-sumer
protection). The final resolution of the debate on
financial regulation and supervision will substantially
influence future revisions of the Good Practices.
New research is also emerging on key consumer pro-tection
issues. Examples include the finding that the
structure for remuneration for those selling both insur-ance
and securities products has a strong influence in
determining which products are sold to consumers. A
future Good Practice might suggest that financial advis-ers
be paid on a fee (rather than commission) basis.141
Needed also are supporting papers focused on the
specific needs of low-income countries. Particularly
in low-income countries, it would be useful to look at
measures that increase the depth of services for under-served
households. This might include, for example,
giving all consumers the right to a minimum-service
bank account, although analysis should be made of
the likely impact of any such legal stipulation. Also
important would be an analysis of the rapid develop-ment
of bank assurance (sometimes called the “bank
insurance model”) in almost all emerging markets. For
low-income countries, future work might also include
an analysis of the use of customary law in alternative
redress mechanisms, such as oral dispute resolution.
Consideration should be given to ways of expand-ing
the role of civil society. Self-regulatory organiza-tions
(such as industry associations) should be active in
consumer protection and financial education. Measures
should also be developed to ensure that consumer ad-vocacy
organizations and other non-government orga-nizations
(NGOs) are effective participants in programs
to strengthen financial consumer protection—and that
they have access to stable sources of funding for their
ongoing operations. For countries with programs in fi-nancial
consumer protection, technical assistance and
training should be provided by the international com-munity,
including through civil society.
Developing indicators for measuring the levels of fi-nancial
consumer protection across countries would
be useful. As a snapshot of a country’s financial con-sumer
protection framework, indicators summarizing
the level of development of the legal, regulatory and
institutional framework for financial consumer protec-tion
would be useful as a form of cross-country analysis.
In addition to analysis of legislation and institutional
structures, it may also be helpful to incorporate the
findings of national surveys of financial literacy and
consumer behavior, as well as levels and types of com-plaints
regarding consumer financial services.
The Developing tools to help regulators define pri-orities
for choosing among the recommendations
would be useful. National governments are often
well-equipped to identify weak points and define what
changes are needed to improve the financial consumer
environment. However, all governments have limited
resources. Tools are, therefore, needed to assist govern-ments
in selecting the reforms with the best potential
for positive impact. Such tools should include analy-ses
of risk and impact assessments, as well as estimates
of the cost of compliance for financial service firms, so
as to help reasonably predict the expected nature and
timing of changes in the financial system. The tools
might also provide guidance to countries in preparing
self-assessments of their financial consumer protection
frameworks.
The tools should also include rigorous testing and
measurement of the impact of financial consumer
protection measures. Household surveys of financial
literacy and consumer behavior provide a useful base-line
assessment against which the impact and effective-ness
of financial consumer protection reform programs
can be measured. Importantly, one of the objectives of
the surveys should be to ask about consumer confidence
in the use of formal financial services. However, the ex-tent
of consumer understanding of the information for
financial products and services should also be assessed,
using consumer cognitive and usability testing--and the
findings should be used to inform the design of con-sumer
disclosures.142 In the US, the Federal Reserve

96
Board has conducted extensive testing of mandatory
disclosure of credit card information prior to the release
of detailed regulations on disclosure. It would be useful
to conduct similar testing in other countries, including
in low-income economies and in those with low levels
of financial literacy. In addition to household surveys
and mystery shopping, it may be useful to consider oth-er
quantitative and qualitative evaluation techniques,
including ethnographic research tools. Experimentation
of different approaches, including delivery of financial
education through private sector financial institutions
and via mass media, would also be helpful.143 However,
the impact of using experimental methods to provide
financial education should be measured and evaluated,
including, where possible, through randomized con-trolled
trials. Also, consumer research and testing of
the ultimate impact of reforms with different products
and services would be particularly useful. Innovation
may lead to new approaches in the delivery of financial
services, particularly in low-income countries, and re-search
would help to identify the benefits and risks for
consumers in using new financial products and services.

1 Consumer protection regulation/supervision is often also called
“market conduct” regulation/supervision or “business conduct”
regulation/supervision.
2 G20 Communiqué: Meeting of the Finance Ministers
and Central Bank Governors, Paris, 18-19 February
2011, available at http://www.g20.org/Documents2011/02/
COMMUNIQUE-G20_MGM%20_18-19_February_2011.pdf
3 The Group of Twenty (G20) Finance Ministers and Central
Bank Governors was established in 1999 to bring together
systemically important industrialized and developing economies
to discuss key issues in the global economy. The G20 consists
of the Ministers of Finance and Central Bank Governors of 19
countries, namely: Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia,
Saudi Arabia, South Africa, Republic of Korea, Turkey, United
Kingdom and United States of America, as well as the European
Union, represented by the rotating Council presidency and the
European Central Bank. The World Bank participated in both
the OECD and FSB consultative advisory groups in preparation
on the G20 High Level Principles and the FSB report on
consumer finance protection.
4 See http://www.oecd.org/dataoecd/58/26/48892010.pdf
5 At the September 2009 G20 summit, leaders noted the need
to strengthen the international financial regulatory system:
“Far more needs to be done to protect consumers, depositors,
and investors against abusive market practices, promote high
quality standards, and help ensure the world does not face a
crisis of the scope we have seen. We are committed to take
action at the national and international level to raise standards
together so that our national authorities implement global
standards consistently in a way that ensures a level playing
field and avoids fragmentation of markets, protectionism, and
regulatory arbitrage.” (G20 Leaders’ Statement: the Pittsburgh
USA Summit, September 24-25, 2009.) In November 2010,
the G20 summit “asked the FSB (Financial Stability Board) to
work in collaboration with the OECD and other international
organizations to explore, and report back by the next summit
on, options to advance consumer finance protection through
informed choice that includes disclosure, transparency and
education; protection from fraud, abuse and errors; and
recourse and advocacy.” (G20 Seoul, Republic of Korea,
Summit Leaders’ Declaration, November 11–12, 2010.) For
further information, see http://www.g20.org/pub_communiques.
aspx
6 See http://www.financialstabilityboard.org/publications/
r_111026a.pdf
7 The section on References provides a partial listing of the
OECD’s reports, official instruments, and policy proposals
related to financial education and financial consumer
protection. See also http://www.oecd.org/department/0,3355,
en_2649_15251491_1_1_1_1_1,00.html for a discussion of
OECD’s workshops and papers on financial education and
consumer protection.
8 See Grifoni and Messy (2012) available at http://dx.doi.
org/10.1787/5k9bcwct7xmn-en
9 See http://ec.europa.eu/consumers/rights/fin_serv_en.htm
10 See https://eiopa.europa.eu/en/newsletters/news-alerts/eiopa-launches-
consultation-on-guidelines-on-complaints-handling-by-insurance-
undertakings/index.html
11 See for example projects in the Caribbean (http://www.iadb.org/
en/projects/project,1303.html?id=RG-M1062), Ecuador (http://
www.iadb.org/en/projects/project,1303.html?id=EC-M1049),
Guatemala
(http://www.iadb.org/en/projects/project,1303.
html?id=GU-M1034) and Honduras
(http://www.iadb.org/en/projects/project,1303.
html?id=HO-M1027)
12 Technically speaking, financial literacy refers to skills related
to using consumer finance while financial capability covers
not only skills but also attitudes and behavior. However in
common use, the terms are used interchangeably. This is also
the approach used in this report.
Notes

98
13 See http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/Responsi
ble+Finance+Report/$FILE/ResponsibleFinanceReport.pdf
14 See http://www.afi-global.org/sites/default/files/
mayadeclaration_30sep2011.pdf?op=Download
15 See Consumers International, Safe, fair and competitive
markets in financial services: recommendations for the G20 on
the enhancement of consumer protection in financial services,
March 2011, available at www.consumersinternational.org/
media/669348/cifinancialreport2011.pdf
16 ISO/COPOLCO discussed standardization of consumer
information on financial services, mobile financial service
provision and international remittances at its plenary meeting in
May 2012. See http://www.iso.org/sites/eNewsletters/COPOLCO/
ISO-COPOLCO_enews_010.html
17 See http://www.financial-education.org
18 Consumers International, Financial education counselling –
Counsellor’s handbook, January 2012, available at http://www.
consumersinternational.org/news-and-media/publications/financial-education-
counselling-counsellor%27s-handbook
19 See http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EX
TSOCIALPROTECTION/0,,contentMDK:22079158~menuPK:
6963602~pagePK:210058~piPK:210062~theSitePK:282637,00.
html
20 The diagnostic reviews, household survey reports, action plans,
as well as materials from dissemination seminars, can be found
at http://www.worldbank.org/consumerprotection
21 The 18 countries comprised Armenia, Azerbaijan, Bosnia and
Herzegovina, Bulgaria, Croatia, Czech Republic, Kazakhstan,
Latvia, Lithuania, Malawi, Mozambique, Nicaragua, Romania,
the Russian Federation, Slovakia, South Africa, Tajikistan and
Ukraine.
22 See Demirguc-Kunt and Klapper (2012) on the Global
Financial Inclusion Database (Global Findex) available at http://
www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB
/2012/04/19/000158349_20120419083611/Rendered/PDF/
WPS6025.pdf
23 See Annex II on Credit Reporting.
24 The Development Economics Group has conducted research
on financial education available at http://econ.worldbank.
orgThe Human Development Department is responsible for
administering a $15 million Financial Literacy and Financial
Education Trust Fund from the Russian Federation. From the
Fund, $3.2 million is administered by the OECD. The Trust
Fund finances two areas of development: (1) an instrument to
measure levels of financial literacy in low-income settings and
populations and (2) a methodology to evaluate results from
financial education and capability programs in these settings.
In addition, the World Bank has provided a $25 million loan
to the Russian Federation for Financial Literacy and Financial
Education. Additional information can be found at
http://www.worldbank.org/consumerprotection Regular reports
on the WBG activity are found at http://www/worldbank.org/
consumerprotection
25 For CGAP resources regarding microfinance, see http://
www.cgap.org/p/site/c/about/ CGAP has published consumer
protection reports on six countries as well as policy notes on
consumer protection. See http://www.cgap.org/p/site/c/template.
rc/1.11.6053/ In collaboration with ACCION International,
CGAP has developed the Smart Campaign for client protection
in microfinance, which includes a set of principles as well as
programs for certification and self-assessments by microfinance
institutions. See http://www.smartcampaign.org/ In addition, in
2011 CGAP prepared a White Paper on Global Standard-Setting
Bodies and Financial Inclusion for the Poor for the G20 Global
Partnership on Financial Inclusion. See http://www.cgap.org/
gm/document-1.9.55147/CGAP_WhitePaper_Global_Standard_
Setting_Bodies.pdf
26 See Rutledge, Annamalai, Lester and Symonds (2010) http://
siteresources.worldbank.org/INTECAREGTOPPRVSECDEV/
Resources/GoodPractices_August2010.pdf
27 See for instance--International standards and Good Practices-
Basel Core Principles, BIS Supervisory Guidance on Dealing
with Weak Banks, BIS Core Principles for Effective Deposit
Insurance Systems, BIS Enhancing corporate governance
for banking organizations, World Bank General Principles
for International Remittance Services, World Bank General
Principles for Credit Reporting, IMF--An Overview of the
Legal, Institutional, and Regulatory Framework for Bank
Insolvency.
28 See also the OECD Forum, Balancing Globalization, May
22-23, 2006 in Paris and the International Forum on Financial
Consumer Protection and Education.
29 For examples of codes of banking practices, see:
https://www.fnb.co.za/legallinks/legal/cobp.html and
http://www.bankers.asn.au/Default.aspx?ArticleID=446
30 For an overview see: http://ec.europa.eu/consumers/cons_org/
associations/index_en.htm
31 Basel Core Principle 18: Abuse of financial services. Supervisors
must be satisfied that banks have adequate policies and processes
in place, including strict “know-your-customer” rules that promote
high ethical and professional standards in the financial system and
prevent the bank from being used, intentionally or unintentionally,
for criminal activities.
32 See http://www.fatf-gafi.org/document/28/0,3343,
en_32250379_32236930_33658140_1_1_1_1,00.
html and http://www.fatf-gafi.org/document/9/0,3343,
en_32250379_32236920_34032073_1_1_1_1,00.html

99
Notes
33 See FSA’s Money Advice Service website:
http://www.moneyadviceservice.org.uk/yourmoney/
34 Available at: http://ec.europa.eu/consumers/cons_int/fina_serv/
cons_directive/cons_cred1a_en.pdf
35 See Centre for European Policy Studies and Van Dijk
Management Consultants, Tying and other potentially unfair
commercial practices in the retail financial service sector, available
at http://ec.europa.eu/internal_market/consultations/docs/2010/
tying/report_en.pdf
36 See http://www.fdic.gov/regulations/laws/rules/6500-1360.html#fd
ic6500appendixgtopart226new
37 See Regulation No. 1765-2005, as amended in January 2010,
available at http://www.sbs.gob.pe
38 See the Bank of Ghana’s Borrowers and Lenders Act, Act No.
773 of 2008. Available at http://www.bog.gov.gh/privatecontent/
IDPS/banking%20and%20financial%20laws%20of%20
ghana%202006%20-%202008.pdf
39 About 25% of South Africans speak isiZulu, 18% speak
isiXhosa and 13% speak Afrikaans.
40 See details at http://www.federalreserve.gov/newsevents/press/
bcreg/20070523a.htm
41 Available at https://www.fnb.co.za/downloads/legal/COBP071105.pdf
http://www.bankers.asn.au/Default.aspx?ArticleID=446 and
https://www.fnb.co.za/legallinks/legal/cobp.html
42 See World Bank Group, Financial and Private Sector
Development Vice Presidency, Payment Systems Development
Group, Payment Systems Worldwide: a Snapshot. Outcomes of the
Global Payment Systems Survey 2008, 2008.
43 See http://www.bis.org/press/p070123.htm
44 See http://www.bis.org/publ/cpss101.htm
45 See http://www.bis.org/press/p060109a.htm
46 See http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EX
TFINANCIALSECTOR/0,,contentMDK:23196436~pagePK:14
8956~piPK:216618~theSitePK:282885,00.html
47 Especially measures by United States- Credit Card Act of 2009
and Regulation Z (Truth in Lending).
48 For a global overview of practices related to debt collections,
see Global Practices in Responsible and Ethical Collections, IFC
Working Paper, August 2009. http://smartlessons.ifc.org/uploads/
documents/IFC%20Ethical%20collections%20-%20White%20
paper_Final.pdf
49 In some countries, individual bankruptcy may be referred to as
“insolvency”.
50 See World Bank, Report on the Treatment of Insolvency of Natural
Persons, Working Group on the Treatment of the Insolvency of
Natural Persons (forthcoming) and Susan Block-Lieb, Best Practices
in the Insolvency of Natural Persons, The World Bank Insolvency
and Creditor/Debtor Regimes Task Force Meetings, Rapporteur’s
Synopsis, January 2011 Available at http://siteresources.worldbank.
org/EXTGILD/Resources/WB_TF_2011_Consumer_Insolvency.pdf
51 See http://www.apec.org/apec/documents_reports/finance_
ministers_process/2004.html
52 See OECD, Improving Financial Literacy: Analysis of Issues and
Policies, September 2005.
53 See European Commission, Communication on Financial
Education, 2007
54 This definition, as amended here slightly, is used on the website
of the UK Financial Services Authority.
55 See Shaun Mundy, Financial Education in Schools: Analysis
of Selected Current Programmes and Literature – Draft
Recommendations for Good Practices, published in proceedings
of OECD-US Treasury International Conference on Financial
Education, Washington DC, 7-8 May 2008, Volume II.
56 See http://www.moneymadeclear.fsa.gov.uk
57 See http://www.moneymadeclear.fsa.gov.uk/publications
58 See http://www.moneymadeclear.fsa.gov.uk/tools/compare_products.
html
59 See http://remittanceprices.worldbank.org and http://
sendmoneyafrica.worldbank.org maintained by the World Bank.
See also http://148.245.102.209/enviacentroamerica (covering
Central America) as well as national databases of Australia/New
Zealand, Italy and Norway.
60 See European Commission, Directorate-General for
Competition, Report on the retail banking sector inquiry,
Commission Staff Working Document, SEC(2007) 106, 31
January 2007.
61 The term security as used in this section includes derivatives
on securities, including securities linked to commodities. If
a jurisdiction permits over-the-counter (OTC) derivatives or
foreign exchange derivatives to be sold to retail customers, they
would also be included in the term securities for the purposes of
this section. This section does not cover commodity derivative
products that are not financial in character.
62 For the purposes of this section, a collective investment
undertaking (CIU) refers to any entity that solicits money or
other assets from the public for the purpose of investing in
financial instruments. Depending on the jurisdiction, CIUs can
have a variety of legal forms and names.
63 “Know Your Customer” has various meanings depending on

100
the context. Originally developed in the securities sector, it
refers to the duty of the intermediary to take affirmative steps to
obtain information from the customer regarding the customer’s
sophistication, experience, appetite for risk and financial
situation. The customer can refuse to give this information. In
the event of such refusal, the intermediary can then choose not
to deal with the customer or warn the customer that it does not
have sufficient information to properly advise the customer as
to the suitability of specific investments.
64 The FSA will largely transfer its consumer protection role to a
new Consumer Protection and Markets Authority.
65 See for example the New Jersey Department of Banking and
Insurance, Division of Insurance – Consumer Protection
Services, http://www.nj.gov/dobi/enfcon.htm
66 See Australian Financial Ombudsman Service, http://www.fos.
org.au/centric/home_page.jsp
67 See http://ec.europa.eu/consumers/cons_org/associations/index_
en.htm
68 The website of the sub-group can be found at http://ec.europa.eu/
internal_market/finservices-retail/fscg/index_en.htm
69 See http://www.consumersinternational.org/Templates/Internal.
asp?NodeID=97533.
70 See Bakker and Gross (2004).
71 See http://www.insurance-canada.ca/index.php
72 See for example Chapter 14 of FSA, Reforming Conduct of
Business Regulation, Consultation Paper, October 2006, available
at http://www.fsa.gov.uk/pubs/cp/cp06_19.pdf.
73 See http://www.fsa.gov.uk/smallfirms/your_firm_type/credit/library/
jargon.shtml
74 See Rekaiti and Van den Bergh (2004).
75 See http://www.asic.gov.au/fido/fido.nsf/byheadline/Cooling+off+rig
hts?openDocument)
76 See http://www.moneymadeclear.fsa.gov.uk/home.html
77 See http://www.fsa.gov.uk/pubs/other/icob_forms/icob4_annex1.pdf
78 Run-off triangles usually arise (particularly in nonlife insurance)
where it may take some time after a loss occurs before the full
extent of the claims is known.
79 The document can be downloaded from the FTC’s website:
http://www.ftc.gov/os/2002/05/67fr36585.pdf
80 http://www.networkfso.org/Links.html
81 http://www.fos.org.au/centric/home_page.jsp
82 Leasing is captured in the Good Practices where it is allowed to
be directly provided to private persons for purposes other than
professional (i.e. for consumption purposes).
83 For an overview see: http://ec.europa.eu/consumers/cons_org/
associations/index_en.htm
84 See http://ec.europa.eu/internal_market/finservices-retail/fscg/
index_en.htm
85 See http://www.consumersinternational.org/Templates/Internal.
asp?NodeID=97533
86 The FATF also suggests that the principles set out in the Basel
Committee’s Customer Due Diligence for Banks could apply to
other financial institutions when relevant,
87 Guarantors are excluded.
88 See Bakker and Gross (2004).
89 See http://www.cgap.org/gm/document-1.9.2785/Guideline_
disclosure.pdf
90 Especially measures by United States- Credit Card Act of 2009
and Regulation Z (Truth in Lending).
91 See http://www.ftc.gov/os/2002/05/67fr36585.pdf
92 The International Organisation of Pensions Supervisors (IOPS)
has only been in existence for a few years. The European Union
has a Directive covering occupational arrangements, but not
individual accounts. IOPS/OECD have also produced some
broad supervisory guidelines. The US has the ERISA rules and
related supervisory structures.
93 A 2nd pillar scheme is typically an employer funded
supplementary arrangement established under a defined
contribution structure.
94 Fees and charges are a particularly contentious issue as
many are typically disguised and the basis of charging (e.g.
on contributions or assets under management) can have an
enormous impact on the sum accumulated at the retirement
date.
95 See http://www.whcri.org
96 The project is conducted by the World Bank together with the
Centro de Estudios Monetarios Latinoamericanos (CEMLA).
97 International Finance Corporation, Credit Bureau Knowledge
Guide, 2006.
98 See http://siteresources.worldbank.org/FINANCIALSECTOR/
Resources/Credit_Reporting_text.pdf
99 See http://ec.europa.eu/internal_market/finservices-retail/credit/
history_en.htm

101
Notes
100 See for example Jentzsch, N., Financial Privacy — An
International Comparison of Credit Reporting Systems, 2007.
Jentzsch found that 80 out of countries in the sample had
constitutional privacy protection clauses, 35 had general data
protection laws, 7 had credit reporting laws, 6 had statutory
codes and 22 had industry codes of conduct.
101 See also Miller (2003).
102 For example, the US Fair Credit Reporting Act (1970) and the
Consumer Reporting Employment Clarification Act (1998).
103 See http://siteresources.worldbank.org/INTGILD/Resources/
ICRPrinciples_Jan2011.pdf
104 See Bellman, Johnson, and Lohse (2001).
105 See Taylor (2004).
106 See “risk-based pricing notices”, Section 311(a) of the Fair
and Accurate Credit Transaction Act of 2003 and Notice of
proposed rulemaking for correction of this Act (Fair Credit
Reporting Risk-Based Pricing Regulations, 2008).
107 See Rutledge (2010).
108 World Bank, Migration and Remittances Factbook 201I,
November 2010
109 Fardoust, Kim, and Sepúlveda (2011). See also Demirgüç-
Kunt and Maksimovic (1998) on link to firm growth; Beck,
Demirgüç-Kunt, and Levine (2007) on impact on income
inequality; Menon (2004) on consumption smoothing and
Koivu (2002) on relationship between financial system and
economic growth in transition countries.
110 CGAP, Advancing Financial Access for the World’s Poor: Annual
Report 2011, 2012
111 Independent Evaluation Office of the International Monetary
Fund, IMF Performance in the Run-Up to the Financial and
Economic Crisis: IMF Surveillance in 2004-07, January 10,
2011.
112 See California Budget Report, Locked Out 2008: The Housing
Boom and Beyond, 2008. As many as half of all subprime
residential mortgage borrowers in the US had high enough
credit scores to qualify for standard, lower-cost bank mortgages.
See also Remarks by US Federal Reserve Board Governor
Edward M. Gramlich at the Financial Services Roundtable
Annual Housing Policy Meeting, Chicago, Illinois May 21,
2004.
113 Statement of Sheila C. Bair, Chairman of the Federal Deposit
Insurance Corporation, on Modernizing Bank Supervision
and Regulation before the US Senate Committee on Banking,
Housing and Urban Affairs, March 19, 2009 “As the current
crisis demonstrates, increasingly complex financial products
combined with frequently opaque marketing and disclosure
practices result in problems not just for consumers, but for
institutions and investors as well.”
114 Remarks by Vice Chairman Martin J. Gruenberg, United
States Federal Deposit Insurance Corporation at World Bank
Group Global Seminar on Consumer Protection and Financial
Literacy, Washington, D.C., September 2008.
115 Additional insight on the issues of mobile banking is provided
by McKay and Pickens (2010).
116 See Alliance for Financial Inclusion, Consumer Protection at
http://www.afi-global.net/dev/policy-areas-consumer-protection.
htm Consumer protection and financial literacy is also listed as
one of the nine principles for innovative financial inclusion. See
http://www.microfinancegateway.org/gm/document- 1.9.44743/
Innovative_Financial_Inclusion.pdf
117 The term “mis-selling” generally refers to a sale of a product by
a firm to a client that is not suitable for that client, whether or
not a recommendation by the firm to the client is made.
118 Joint Forum of Basel Committee on Banking Supervision,
International Organization of Securities Commission and
International Association of Insurance Supervisors, Customer
suitability in the retail sale of financial products and services, April
2008.
119 Center for the Study of Financial Innovation, Microfinance
Banana Skins 2011: The CSFI survey of microfinance risk: Losing
its fairy dust, February 2011
120 For additional discussion of scandals, see the Case Studies in the
April 2008 report of the Joint Forum of Basel Committee on
Banking Supervision et al.
121 See http://microfinanceafrica.net/tag/microfinance-in-andhra-pradesh/
and http://idbdocs.iadb.org/wsdocs/getdocument.
aspx?docnum=35379430
122 Technically speaking, asymmetric information raises two main
problems: adverse selection and moral hazard. Adverse selection
is also referred to as the “lemon problem”. The academic
literature notes that, with imperfect information on the part
of lenders or prospective car buyers, borrowers with weak
repayment prospects or sellers of low-quality cars (“lemons”)
crowd out everyone else from the market. See the seminal article
by Akerlof (Akerlof (1970). This is a different issue from that of
borrowers lacking sufficient information to make wise and well-informed
financial decisions.
123 PBS NewsHour, Graduate Students Recount Experiences with
Globalization, June 1, 2007
124 For example, on its website, the banking, insurance and private
pension funds supervisor of Peru publishes offers by different
institutions (as well as a data-base of permitted and prohibited
contract terms.) See http://www.sbs.gob.pe/0/modulos/JER/JER_

102
Interna.aspx?ARE=0&PFL=0&JER=152 and http://www.sbs.gob.
pe/0/modulos/JER/JER_Interna.aspx?ARE=0&PFL=1&JER=980
and http://www.sbs.gob.pe/repositorioaps/0/0/jer/regu_clausulas_
sbs/clausulas_prohibidas_SBS.doc. See also the worldwide
remittances price data base maintained by the Payment Systems
Development Group of the World Bank. Available at http://
remittanceprices.worldbank.org
125 See Armstrong (2008).
126 Chairman Ben S. Bernanke’s Speech Financial Innovation
and Consumer Protection at the Federal Reserve System’s Sixth
Biennial Community Affairs Research Conference, Washington,
D.C. April 17, 2009
127 See Nier (2009).
128 Rajan (2005) has pointed to the benefits in the expansion of
the variety of intermediaries and financial transactions leading
to improved risk-sharing, increased access to capital, and
expanded diversity of opinions expressed in the marketplace.
However, he also notes that any form of intermediation
introduces a layer of management between the investor and the
investment. The key question is whether the incentives of the
managers are aligned with those of the investors. Where such
incentives are misaligned, there is a higher risk of highly costly
financial downturn. Nier (2009) also points to weaknesses in
the originate-certify-distribute model of residential mortgage
financing. He notes that for mortgage brokers and rating
agencies, prudential regulation is not appropriate. Instead, what
is needed is business conduct regulation.
129 See Brown, Garino, Taylor and Price (2004) and Weinstein
(1980).
130 See Mandell (2004). Also see ANZ Banking Group, ANZ Survey
of Adult Financial Literacy in Australia, Melbourne (2003).
131 See Loewenstein, O’Donoghue and Rabin (2003).
132 See Rutledge (2010).
133 Furthermore, strong financial literacy may help consumers to
weather financial crises, as seen in recent research on Russia. See
Klapper, Lusardi and Panos (2011).
134 For a recent summary of current work on financial education,
see Deb and Kubzansky (2012).
135 For a summary of academic research on the limited effectiveness
of financial education in the US, see Cole and Shastry (2007).
Other analysts go further and argue that financial education
fails to improve consumer decision-making and may even be
harmful by developing consumer over-confidence. See Willis
(2008).
136 Additional insights will be gained from ongoing work on
financial education, including that financed by the Russian
Trust Fund for Financial Literacy and Financial Education.
137 See Nier (2009).
138 The Group of 30, formally known as “The Consultative Group
on International Economic and Monetary Affairs, Inc.” was
founded in 1978. It is a private, nonprofit, international body
composed of senior representatives of the private and public
sectors and academia. See http://media.washingtonpost.com/wp-srv/
business/documents/g30report.pdf For the Turner Review, see
http://www.fsa.gov.uk/pubs/other/turner_review.pdf
139 Proposed Good Practices for private pensions and credit
reporting systems were also prepared, but they are presented
as annexes due to the preliminary nature of the work. Further
refinement will be made in the course of future revisions to the
Good Practices.
140 Additional ideas on application of consumer protection
regulation in low-income countries may be found in Brix and
McKee (2010).
141 Recent research has shown that remuneration in the sale of
both insurance and securities products is clearly influenced by
remuneration structures. See for example, Anagol, Cole and
Sarkar (2010) available at http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=1786624
142 In the US, the Federal Reserve Board has conducted extensive
testing of mandatory disclosure of credit card information prior
to the release of detailed regulations on disclosure. Regarding
results of testing of consumer understanding of credit card
disclosure in the US, see http://www.federalreserve.gov/dcca/
regulationz/20070523/Execsummary.pdf http://www.ftc.gov/be/
workshops/mortgage/presentations/Hogarth_Jeanne.pdf
For insights into the comprehension of microfinance borrowers,
see Tiwari, Khandelwal and Ramji (2008). In addition, CGAP
has prepared a policy note summarizing its experience with
testing financial consumer disclosure in six countries—four
in Africa plus Mexico and the Philippines. See Collins,
Jentzsch and Mazer (2011) available at http://www.cgap.org/gm/
document-1.9.55701/FN74.pdf
143 The Financial Literacy and Financial Education Trust Fund is
financing a number of evaluation impact surveys, whose reports
are scheduled to be completed by December 2012. See http://
www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd
=2&ved=0CHYQFjAB&url=http%3A%2F%2Fsiteresources.
worldbank.org%2FSOCIALPROTECTION%2FResources%
2F280558-1235510454189%2FRFLTF-M-E_CfP_1Mar.docx
&ei=91yoT8vwOafE0AGZvKWrBQ&usg=AFQjCNEAhzZMd
YA_KYrDsJ3FQ62d8YES8w

Fin consumerprotection goodpractices_final

More Related Content

Viewers also liked (9)

Similar to Fin consumerprotection goodpractices_final (20)

Fin consumerprotection goodpractices_final