You are currently browsing the tag archive for the ‘Consumer Protection’ tag.

The U.S. bail bonds system raises serious consumer protection concerns

> Posted by Allyse McGrath, Specialist, CFI

In a criminal justice system that accepts cash in exchange for temporary freedom, a predatory financial service has taken root and become yet another barrier. In the United States, bail bondsman and global insurance companies are netting between $1.4 billion and $2.4 billion annually from vulnerable people who are unable to pay the bail they need to remain out of custody before they are tried. This is not a new problem. It’s been going on since the early days of the modern U.S. criminal justice system.

Those accused of crimes are given an option to stay in jail or put up an amount of money (bail) for their release prior to trial. (It is important to note that people at this stage are presumed innocent under law.) The bail acts as a commitment device for people to show up to their court hearing. The bail amount is returned if the defendant shows up. If they do not, the court keeps it. Bail amounts vary greatly based on the severity of the crime in question as well as the potential flight risk of the accused party. The average bail amount for a felony arrest is about $10,000, roughly two months’ worth of the median annual income in the United States. In a study of nearly 30,000 cases where bail was set in New York City, only 37 percent of defendants could afford to pay bail.

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Consumer protection is a driver of revenue, and not a regulated compliance cost

> Posted by Dylan Lennox, Partner, MFX

Educating digital financial services (DFS) providers to understand that consumer protection is a core business strategy is as important – if not more important – than consumer protection regulation supervision if we hope to ensure that vulnerable consumers are well protected. For this reason, as I articulated in my last post, I would like to see DFS providers and their managers take the lead when it comes to driving consumer protection, and that consumer advocates and regulators’ efforts are aligned to make sure this happens.

There are many possible reasons why DFS managers are not taking the lead, however, beyond a general lack of awareness of consumer protection and its importance:

  • They might be driven to achieve short-term targets with limited resources, prioritizing their time, budgets and activities to meet high ROI expectations. Or they might be under pressure to launch innovations and take advantage of the “next big thing” like digital credit or data monetization.
  • They could lack the necessary knowledge and experience in their teams to properly address consumer protection. Such know-how involves truly understanding customers’ needs, developing intuitive user interfaces, designing appropriate sales incentive structures, assessing customers’ loan affordability, and implementing effective internal control frameworks to address security, loss of privacy, or fraud risks.
  • Or perhaps the technology they have implemented does not have the required functionality to properly implement basic consumer protection requirements – like those of data security, for example. In such a case, it is left up to the individual DFS managers to make specific technical developments to address consumer risks. Such an institution-by-institution approach increases the overall cost of consumer protection to the industry and decreases the likelihood that it will be implemented as these measures compete with other priorities.

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> Posted by Dylan Lennox, Partner, MFX

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After launching and operating mobile money businesses in a number of markets over the last ten years, I was aware of the necessity of protecting consumers. I knew it was a regulatory priority alongside important issues such as AML and interoperability, but that’s where I left it: in the compliance box, while I waited to be told what to do. All the consumer protection literature I read gave me the same heavy feeling, laden as it is with long lists of requirements: protect customer’s funds from loss and fraud, ensure proper disclosure and transparency, keep their data private, make sure customers can have their complaints resolved, and so forth. These looked like the core business processes I needed to implement anyway, so I felt we would be in fine shape if we were ever to have a supervisory inspection. I never looked any deeper.

In the days when enabling regulation meant “Please leave us alone to grow,” I kept my head turned firmly in the direction of my business goals, growing a base of active customers to reach scale, and then taking advantage of those network effects. After all, financial inclusion was also an objective we shared with the regulator, and as long as we were growing they maintained a light touch.

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> Posted by Sonja E. Kelly, Director of Research, CFI

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As we have watched events unfold in Iran, it has become increasingly clear that major problems with stability and security of funds in the financial system is a driver of civil unrest and political instability.

Over the last few weeks more than a dozen people have been killed and thousands have been arrested in demonstrations across the country. These demonstrations have involved tens of thousands of people in the most significant public display of opposition that the government has seen in a decade. The magnitude of this unrest is significant, and global concern is growing.

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> Posted by Elisabeth Rhyne, Managing Director, Center for Financial Inclusion at Accion

Millions of American households use payday loans each year. The question of whether these lenders are legitimate or scams is complicated, Elisabeth Rhyne finds.

I recently browsed the website of CashNetUSA, a company that offers payday loans and related products in 38 states across the United States. The website was easy to read and presented the application process and the (very high) charges simply and clearly. But I wanted to know more. Is this company legitimate? Does it live up to its promises? Will I experience any problems along the way? More broadly, how can a consumer tell whether an online payday lender is trustworthy?

I had no peer or family member to ask about this, so I turned to online credit provider reviews and began a Google-based armchair investigation.

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> Posted by Ana Ruth Medina Arias, Lead Specialist for Latin America and the Caribbean, the Smart Campaign

“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.

Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.

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> Posted by Sonja Kelly, Director of Research, CFI

In ethics, there is a commonly shared thought experiment called the trolley problem. You are standing next to trolley tracks, and a trolley is coming. In its current trajectory, it is going to run over five people who are tied to the tracks. You could divert the train using a lever in front of you, but then the trolley would hit one person tied to the tracks. Do you become active in this scenario and sacrifice the one person? Or do you abstain from involvement and watch the five people get run over?

I don’t mean to be morbid here, but this is a thought experiment that I have been mulling over when it comes to financial inclusion.

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> Posted by Dr. Katharine Kemp, Research Fellow, UNSW Digital Financial Services Regulation Project

The following post was originally published on the IFMR blog. 

Financial inclusion is not good in itself.

We value financial inclusion as a means to an end. We value financial inclusion because we believe it will increase the well-being, dignity and freedom of poor people and people living in remote areas, who have never had access to savings, insurance, credit and payment services.

It is therefore important to ensure that the way in which financial services are delivered to these people does not ultimately diminish their well-being, dignity and freedom. We already do this in a number of ways – for example, by ensuring providers do not make misrepresentations to consumers, or charge exploitative or hidden rates or fees. Consumers should also be protected from harms that result from data practices, which are tied to the provision of financial services.

Benefits of Big Data and Data-Driven Innovations for Financial Inclusion

“Big data” has become a fixture in any future-focused discussion. It refers to data captured in very large quantities, very rapidly, from numerous sources, where that data is of sufficient quality to be useful. The collected data is analysed, using increasingly sophisticated algorithms, in the hope of revealing new correlations and insights.

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> Posted by Robin Brazier, Communications and Operations Associate, the Smart Campaign

U.S. Capitol BuildingLately, so much has been happening in Washington, D.C. that it feels impossible to keep up. Every day is a whirlwind of new developments. The Smart Campaign has been keeping its eye on one bill in particular: H.R. 10, the Financial CHOICE (Creating Home and Opportunity for Investors, Consumers and Entrepreneurs) Act of 2017. Among its other provisions, the Financial CHOICE Act threatens to disarm the Consumer Financial Protection Bureau (CFPB) and compromise the well-being of financial service consumers in the United States.

Introduced by House Representative Jeb Hensarling (TX-5) in April, the CHOICE Act, according to its sponsors, would loosen the allegedly burdensome and complicated regulations put in place by the Dodd-Frank Act of 2010 with the stated goal of increasing financial services access for small businesses and spurring economic growth. These small businesses are said to be having a difficult time getting loans from small banks due to Dodd-Frank, and the CHOICE Act would purportedly lessen these difficulties and allow more small banks to lend to small businesses.

However, from where the Smart Campaign is sitting, the CHOICE Act looks quite different.

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> Posted by the Microfinance CEO Working Group

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What’s been happening with the Microfinance CEO Working Group (MCWG)? We’re glad you asked. Fresh-off-the-press is a new annual report from the MCWG, detailing the Working Group’s key accomplishments and activities of the past year. Consumer protection is among the standout areas for the MCWG for 2016. Over the course of the year, 14 local partners belonging to the MCWG network achieved Smart Certification, including BRAC Bangladesh, the first microfinance provider in the country and the largest in the world to reach the consumer protection milestone. In total, 21.9 million clients are served by 39 MCWG network Smart Certified institutions.

The MCWG is comprised of the leaders of 10 global microfinance organizations: Accion; Aga Khan Agency for Microfinance; BRAC; CARE; FINCA; Grameen Foundation; Opportunity International; Pro Mujer; VisionFund International; and Women’s World Banking. The newest member, added in 2016, is the Aga Khan Agency for Microfinance and its General Manager Jesse Fripp. The MCWG also harnesses the expertise of more than 40 senior staffers across the member organizations, who meet regularly across seven Peer Groups focused on specific areas of microfinance, from digital financial services, to social performance, to communications, taxation, and others. Members and local partners work with more than 89 million clients in 87 countries, providing them with financial services as well as other support to help them succeed and lift their families out of poverty.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.