Making retail financial products safer for consumers
By Christophe Nijdam, Secretary General of Finance Watch
I should know better, but I rarely read the terms and conditions before buying online. Only one in a thousand do. Online retailers know this and are good at exploiting it (in 2010, a gaming company tricked 7,500 people into selling their immortal souls – as an April fool’s joke). For financial services, this could be the next big challenge.
In December2015, the European Commission launched a green paper looking at ways to promote the sale of bank accounts, loans, insurance policies and other retail financial services across borders in the EU.
It particularly wants to rebuild trust, which is at rock bottom in the financial sector. The problem is that the natural way to build trust is through personal interaction, while selling across borders will inevitably mean more distance selling and digital delivery - and less human interaction.
The EU will have to find ways to prevent its push for cross-border selling from creating the next set of financial mis-selling scandals, or from increasing financial exclusion. Improving consumer redress is part of this.
It should also guard against “winner-takes-all” competition, in which retail giants move from country to country closing down local competitors. We have seen this happen in other retail sectors, and the financial sector is already dominated by big players. Consumer protection should go hand in hand with measures to reduce the dominance of big banks.
We would like to see EU-level action promote a range of basic products that are universally available, comparable, simple and easy to understand, regardless of which member state they are bought or sold in.
In its follow up to the green paper, the Commission has a golden opportunity to help this by harmonising the disclosure of information for basic retail financial products using “Key Information Documents”, and by warning consumers away from complex, unsuitable products with a comprehension alert.
Finally, it could introduce product rules and supervisory pre-approval - or labelling - for new financial products, similar to the ISO or EU Bio labels in other sectors. This would increase trust and sales volumes, and help to protect consumers before they suffer harm.