A comprehensive policy framework for financial consumer protection can help protect financial consumers from potential detriment. As the leading international standard for financial consumer protection, the G20/OECD High-Level Principles on Financial Consumer Protection set out the components that countries should consider when developing a financial consumer protection regulatory framework. They also offer a roadmap for countries aiming to improve their existing policies and regulations. The Principles are cross-sectoral in nature and can be applied to the credit, banking, payments, insurance, pensions and investment sectors.
Financial consumer protection
Financial consumer protection aims to ensure fair and responsible treatment of financial consumers in their purchase and use of financial products and services and their dealings with financial services providers. Financial consumer protection policies play an important role, alongside financial inclusion and financial literacy, in promoting inclusive growth and financial stability.
The OECD conducts research, develops standards and provides policy guidance to support comprehensive and effective financial consumer protection frameworks globally.
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Key messages
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Consumers of financial products and services face a complex landscape with a range of evolving issues, opportunities and risks. It is therefore critical that policy makers identify and monitor emerging risks and co-operate on approaches to address them.
The most significant risks arising from the conduct of financial institutions include: fees and poor-value financial products and services, ineffective disclosures and dishonest sales practices, and inappropriate financial advice and failure to assess whether a product is suitable for a particular consumer.
The most significant risks stemming from the characteristics and circumstances of consumers include: lack of financial literacy, over-indebtedness - exacerbated by inflation, high interest rates and new forms of credit - and lack of digital capability.
The most significant risks caused by the broader operating environment include: inflation and rising interest rates, financial scams and frauds, and new business models and digital innovation.
The G20/OECD Task Force on Financial Consumer Protection serves as a forum for policy makers to exchange perspectives on current and emerging risks and opportunities facing financial consumers, to develop standards and policy guidance, and to collect data.
Vulnerable consumers are those more susceptible to experiencing financial difficulty either because of the market they are in, the financial products they purchase or their attributes or circumstances. Financial shocks, for example, can cause many to experience financial vulnerability, regardless of their prior circumstances.
One way to support consumers experiencing vulnerability is through access to consumer protection hardship arrangements. The COVID-19 pandemic clearly showed the importance of appropriate hardship arrangements for consumers experiencing financial difficulty. These hardship measures were most effective when implemented quickly and with a high degree of flexibility to provide short-term relief to mitigate the impact of emergency measures.
The G20/OECD Task Force on Financial Consumer Protection is currently undertaking work to understand how authorities are defining and responding to the vulnerability of consumers of financial products and services.
Context
Digital innovation and the risks for financial consumers
The rapid pace of digital innovation presents both challenges and opportunities for financial consumer protection. On the one hand, digital technologies can improve access to financial services, enhance convenience, and drive innovation in products and delivery channels. Digital innovation can also improve financial inclusion by reaching underserved populations and offering tailored solutions for their needs. On the other hand, digital technologies can also introduce new risks, such as data privacy concerns, cybersecurity threats, and difficulties in understanding complex products.
Policy makers should strengthen data protection laws, promote data security standards, and enhance consumer awareness of their rights and the risks related to data sharing.
The OECD supports efforts to leverage digital technologies to expand access to affordable financial services, particularly for marginalised groups such as low-income individuals, women and rural communities.
Evolving scams and frauds
Financial scams and frauds have risen in recent years, accelerated by increased remote access and widespread adoption of digital products and services, and they have become a major concern globally.
The Consumer Finance Risk Monitor analyses the risks to financial consumers in 43 jurisdictions. In nearly two-thirds, financial scams and frauds are one of the top risks stemming from the operating environment. The Monitor also shows that the top two types of scams and frauds are tricking consumers into providing personally identifiable information (86% of respondents) and fake schemes designed to tempt consumers to transfer, pay or invest money or buy fake insurance (84%).
Poor-value financial products and services deplete household budgets and undermine trust in the financial sector
While financial scams and frauds may lead to a sudden loss in assets, the cumulative loss of wealth caused by poor-value products and services can have a significant material impact on household budgets and contribute to a loss of trust in financial institutions and the financial system.
Whether a product or service can be qualified as “quality” depends on a range of factors, which can include overall costs, pricing structures, added value for consumers, complexity, the proportion of costs that go to commissions or distribution fees and comparison of costs with those of competitors. For insurance products, claims ratios can help to assess value for money, and for investment products, expected rates of return and profitability for issuers may be considered.
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