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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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> Posted by Elisabeth Rhyne, Managing Director, CFI

Internet privacy rules have just been overturned in the U.S. by Congress and the Administration, and at the same time, struggles over banking privacy are taking place. There are striking similarities as well as crucial differences. As a consumer protection advocate, I am struck by how the narrative about these kinds of conflicts primarily centers on where competitive advantage lies, and which company or industry is made the winner or loser, rather than about the rights of consumers.

The internet case pits telecoms and cable companies, like AT&T, Verizon and Comcast, against internet companies, like Google and Facebook. The Obama-era rules that were just overturned required broadband providers to ask customer permission before tracking, sharing and/or selling their data. These companies complain that the rules disadvantage them relative to internet-based companies, which can collect data without such rules.

The banking case, as reported in The New York Times, pits major banks against fintechs and data aggregators. The question is whether banks will transfer consumer data – at the consumer’s request – to companies that provide personal financial management tools, like Mint, Betterment, and Digit (or to data aggregators that facilitate the transfer – like Plaid and Yodlee). Without this data the financial management apps cannot build the complete portrait of a person’s financial life they need to provide analysis and advice. But banks are reluctant, even after specific consumer requests. You might think this reluctance is to protect their customers or because of data privacy rules for banking, but actually, according to The Times, it’s because the customer data reveals details about banks’ own business models – like pricing and products. The banks fear, probably correctly, that the personal financial management companies will use the information to undercut bank products with their own offerings.

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> Posted by Ros Grady

The following post was originally published on Ros’ website.

27204912422_277033d622_b2016 has seen a sharp-eyed global focus on clarifying what responsible digital financial inclusion means in practice. This is connected to the increasing recognition that digital financial inclusion brings new and significant risks for consumers, as well as considerable benefits.

The September 2016 McKinsey Global Institute Report – How Digital Finance Could Boost Growth in Emerging Economies – suggests that widespread use of digital finance (payments and digital services delivered via mobile phones and the Internet) could add $3.7 trillion to the GDP of emerging economies – or six percent – by 2025. Which in turn could create around 95 million jobs.

So responsible digital financial inclusion is important.

But what was new in 2016? Consider these important developments:

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> Posted by Virginia Moore, Communications Director, CFI

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For the last 10 years, the Global Microscope on Financial Inclusion has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.

The Leaderboard

Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.

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In the following post, John Owens offers an overview of his research project with the CFI Fellows Program.

Background & Research Questions

More and more online credit providers have started to offer loans to not only consumers but also to SMEs around the world.

Outside of digital banking platforms, new alternative online and digital platforms that target consumers and small SMEs include:

  • Peer-to-peer (P2P) SME lenders
  • Online balance sheet lenders
  • Loan aggregator portals
  • Tech and e-commerce giants
  • Mobile data-based lending models

While the rise of alternative data-based lending has opened new and innovative credit opportunities for individuals and SMEs, these new technologies and providers also come with several consumer protection challenges. These can be categorized into seven main areas:
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> Posted by Gloria Grandolini, Senior Director, Finance and Markets Global Practice, the World Bank Group

FI2020 Week is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.

Despite significant progress and the increased technical and financial resources devoted to financial inclusion, 2 billion people worldwide still lack access to regulated financial services.

As I read the FI2020 Progress Report and cast my vote on how the world is doing on the five aspects of financial inclusion the FI2020 report covers, I’m reminded of the recent Global Policy Forum of the Alliance for Financial Inclusion (AFI), where I had rich discussions with AFI members regarding how to meet challenges to expanding access to financial services.

The successes and obstacles which AFI members shared echo many of the points identified in the FI2020 Progress report as shaping the future of financial inclusion.

These hurdles can be distilled into five main challenges:

Financial literacy and capability. Countries must develop financial capability programs to ensure people can make sound financial decisions, select financial products which best fit their needs, and know how to use related channels, such as ATMs or mobile banking. Recent World Bank Group Financial Capability Surveys in Morocco and Mozambique, and studies on remittance services among migrants in France and Italy, show that a lack of awareness prevents people from using suitable financial products and services. Behavioral insights are leading to more effective – and lower cost – financial literacy efforts, which can improve uptake of new accounts and increase savings, including through tailored SMS texts.

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> Posted by Susy Cheston, Senior Advisor, CFI

Visitors to our FI2020 Progress Report on Client Protection will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the three legs of the client protection stool—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?

We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s 2014 Global Survey on Consumer Protection and Financial Literacy reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so Pollyannaish as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.

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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.