The dark side of digital

Lucy Hopkins from Consumer Focus asks us to consider the potential pitfalls for consumers in the internet era, and how regulators can pre-empt the dangers.

Imagine a world where a company can refuse you a loan because one of your friends on Facebook has a bad credit rating.

Imagine you get worse deals than others when buying online because a company has tracked your search patterns and knows that you’re not much of a bargain hunter.

Imagine you leave negative comments for a company on a review site and someone starts posting malicious information about you online which spreads like wildfire, leading to you losing your job.

These are just some of the problems that an increasing number of people could be facing in the digital age.

This is not to say that digital advances are a bad thing. Widespread access to the internet and the tools and applications that have been built on it has brought many benefits—such as increased access to information, transparency, convenience and new means of communication—to millions of people.

But there has been less focus on what potential risks and challenges will emerge from how providers will deploy these technologies. Consumer Focus’ review of digital downsides 'All that's digital isn't gold: The challenges and risks of the digital age,' (pdf) aims to do just that.

It covers issues from new web monopolies and online reputation management to unfair terms of data sharing and biased search engine results.

The aim of highlighting these and other detriments is to prompt debate and persuade those who are in a position to pre-empt and prevent these (regulators, enforcers, consumer groups and companies that operate in this area) to understand and respond to these consumer  issues now before they become widespread problems.

Reviewing these downsides, it becomes clear that there is not one, single way of addressing or mitigating their effects. The rapid pace of change in the digital world moves faster than traditional regulatory approaches are typically able to, meaning classic responses might not always be suitable for the problems that are emerging.

This fast pace and unpredictable nature of change also makes it difficult to anticipate problems and plan responses.

So regulators, and other bodies working in the consumer interest, will need to start to consider how they can be more agile in order to respond to the challenges these detriments will present to our traditional regulatory frameworks.

Our message on financial services attracts high-level crowd in US capital

After CI’s latest event on financial consumer protection, Justin Macmullan takes stock of the progress being made and the challenges ahead.

“What progress has been made” was the big question being asked by the 80 or so delegates at a one-day conference on financial consumer protection (FCP) coordinated by Consumers International and the Trans Atlantic Consumer Dialogue on 6 June in Washington.

The answers came from an impressive line up of speakers from the Mexican presidency of the G20, the Financial Stability Board, the OECD, the World Bank and officials from the US, Canada and the EU – a sure sign that CI is attracting the attention of the big players in FCP.

The conference was opened by David Vladeck from the US Federal Trade Commission and Nicholas Rathod from the US Consumer Financial Protection Bureau who set the scene with current examples of what US agencies are doing to protect consumers of financial services.

The conference then moved on to the three main sessions. The first session assessed progress in the G20 process - something that CI is closely involved with, having played an instrumental part in getting it off the ground in 2010.

Two years after the launch of that campaign a lot has been achieved including a new set of international principles, and proposals for a new international organisation (FinCoNet) to support the development of financial consumer protection around the world.

Juan Manual Valle spoke for the Mexican government which holds the G20 presidency this year and received considerable praise for Mexico’s openness to work with consumer organisations and their efforts to link the G20’s work on financial inclusion with consumer protection.  

However, challenges remain. Clear guidelines need to be developed on how the principles should be implemented and plans for how their implementation is working will be reviewed.  FinCoNet also needs to be established with the resources and mandate to do an effective job.

The next session moved the debate from the international to the regional and national. With major changes in European and US financial regulation over the last two years, there was a lot to discuss. What was striking was how common many of the challenges were – top of the list being the need to establish an effective organisation with a clear mandate and focus on financial consumer protection and appropriate tools to do the job.

The final session took on the issue of mobile banking – a development that is already well established in some countries and is about to take off in many others. Here there was an interesting debate around how to protect consumers’ security, privacy and rights whilst not stifling innovation. A question of balance, or smart regulation, that will no doubt continue as the technology spreads from one country to another.

What was clear from all the discussions was the value in sharing examples and experiences between countries and the essential role that consumer organisations have in ensuring consumers views are heard in these debates.

CI is uniquely positioned to deliver on both these counts and will be continuing our work on FCP with our international membership.

Financial services is a priority programme for CI as part of the Your Rights, Our Mission | Strategy 2015.

A conference programme (pdf) and full list of speakers (pdf) is also available.

Can reading to children really be against the law?

Despite some ridiculous applications of IP law, CI’s Jeremy Malcolm sees a chink of light in stakeholder discussions on copyright usage. 

Copyright law is a balance between the interests of creators and those of consumers.

Creators expect to be able to earn a living from their work, which usually involves selling or licensing the right to reproduce or publicly perform it, and copyright makes this possible.

At the same time, copyright allows consumers to make use of works in various ways that do not amount to an economic activity, including private uses such as singing a song in the shower, reading books to children, and copying a CD onto your portable music player.

At least, it does so in theory. In practice, some of these private uses have come under threat, often due to changes in technology.  

Mercifully, singing in the shower is still OK; but uploading a video of yourself singing to YouTube is a copyright infringement. Reading to your children is fine, but it was recently revealed that in Belgium, public libraries in which volunteers read story books to children are being charged money for that privilege. And copying a CD onto your portable music player, along with similar acts of format shifting, is still illegal in many countries of the world.

It is issues like these that prompted Consumers International, in partnership with BEUC(the European consumers association) and Copyright for Creativity (a joint industry and consumer initiative) to hold a meeting in the library of the European Parliament, hosted by Dutch MEP Mariette Schaake.  

The objective was to discuss these issues with copyright owners and MEPs, and to work towards agreement on short-term solutions that could be put in place while we wait for the law to catch up. Reflecting this, we titled the meeting “I Want it Now!: Creators Addressing Consumers’ Needs in the Digital Age.” 

The first part of the meeting took the form of three moderated debates on the topics:

·         There are uses of music in education that should never require payment;

·         Users and creators must be able to use copyrighted material to produce a new compound work for non-commercial purposes without needing a license; and

·         Consumers should be able to use lawfully-acquired/licensed copyrighted material for any purpose within their home and personal network.

Interestingly, it was not only consumer representatives who argued in favour of these propositions. In fact, those in favour in the first debate were Martyn Ware, founder of music groups The Human League and Heaven 17, and Konrad Boehmer, composer and ex-president of Dutch collecting society BUMA/Stemra.  

Those against included Boehmer’s colleague Robbert Baruch, current Manager for Public Affairs of BUMA/Stemra, as well as Marianne Rollet from the International Confederation of Authors and Composers Societies.

Following the debates, we discussed what could be done now to address the concerns that consumers had voiced.  

The copyright owners’ representatives did not accept all of the concerns, and correctly pointed out that some of them (such as the inability to access some content streaming or download services across borders, even within Europe) pointed to problems in the administration of copyright, more than to shortcomings in the law itself.  

Nevertheless, there was a consensus to work towards developing a joint best practice standard to allow for more flexible use of existing copyright exceptions or limitations, beginning with the right to make quotations (which is the only compulsory copyright limitation in international law).

This is an excellent starting point, since an appropriately broad and flexible application of the quotation right could facilitate many creative uses of copyright works for purposes such as non-commercial remixes, mash-ups, home movies, fan fiction and art, and online video sharing, the legality of which in most of Europe is currently ambiguous at best.  

If we can successfully develop a shared understanding with copyright owners on the flexible application of the quotation right, the outcome will provide a template for future law reform and may even open the door to further fair use rights for consumers being agreed in the future.

Consumer protection must be at the center of rebuilding our economies

Ira Rheingold, Executive Director of the National Association of Consumer Advocates (NACA), outlines how to create fair and just consumer-centric financial regulation.

For the past five years, the European Union and the United States have faced their greatest collective economic crisis since the Great Depression.

Failing banks, mountainous debt, minimal consumer savings and disastrous unemployment rates threaten all of our countries’ immediate and long-term financial well-being.

How we respond to this crisis and how we apply the lessons we should have learned from our own culpability in allowing this to happen, will go a long way in determining whether the EU and the US can regain their moral and financial standing in the world.

As we tackle this difficult challenge, I believe that it's essential that the needs and voices of ordinary consumers be put at the forefront of our decision making. This clearly has not been the case recently and we're paying the price for it right now.

As someone who has worked as a consumer advocate for the past two decades, our current crisis came as no surprise to me or my colleagues. It has been clear to us, since the late 1990s, that many of our nation’s big institutions had lost their way.

We watched our economies grow dependent on consumer debt, while simultaneously encouraging the reduction of those very same consumers' real income and savings. We watched as big banks recklessly disregarded the needs of consumers and investors, as well as their own long-term safety and soundness, for immediate and irresponsible profits.

And as we watched this happening, consumer advocates warned our governments, in their race to "deregulate" and "harmonize", that their failure to rein in this thoughtless and dangerous behaviour and to properly protect their nation's consumers would lead to our collective financial ruin.

But consumer voices were ignored and that's exactly what we watched happen.

What should be clear to everyone by now is that the central blame for the breakdown of our economies ultimately lies with the dishonest and unfair banking practices of the worlds’ largest financial institutions.

The lending these multi-national companies created and funded, with ridiculously complex and opaque financial instruments, were negligibly underwritten, unsuitable and unsustainable for borrowers, arranged by persons not bound to act in the best interest of the borrower, and were filled with terms so complex that many individual consumers (and investors) had little opportunity to fully understand the nature or magnitude of the risks they were taking.

If our governments had put the needs of ordinary consumers first and foremost and provided effective protections that had truly punished institutions engaged in these practices, much of our current economic disaster could have been averted.

Unfortunately they did not and unfair and deceptive practices prospered. Simply, when financial institutions do a cost-benefit analysis of regulation and determine that unfair and deceptive practices will not only go unpunished, but will be rewarded, than those practices will ultimately become standard industry behavior.

So how do we create a fair and just consumer-centric regulatory scheme?

First, it is essential that we allow all levels of government to participate in the development of consumer protection regulation. On the international level, because much of the financial services industry operates cross-border, these companies must be monitored trans-nationally, as their behaviour carries risks into every market in which they do business.

Additionally, while it is important that we create international standards of financial service industry behaviour, these standards (and the desire for international harmonisation) must not stymie early action or stronger standards by individual nations.

Conversely, it is equally essential that international regulators not allow these institutions to avoid one country’s stricter regulation by “exporting” their home countries more lax regulation thus leading to a competitive race to the bottom among countries seeking to attract corporate headquarters.

Second, on the national level, where much of the rgulatory failure occurred, consumer protection law must be seen as an essential part of creating a robust and sustainable marketplace and economy. Simply, for our economies to function properly, the financial services market must be built and structured from the consumers' perspective.

Transparency, substantive restrictions, effective and robust enforcement and sufficient consumer consultation rights must be built into a well-managed and well-regulated financial services structure.

Finally, in developing these viable and effective consumer protection schemes, national governments must allow for a strong concurrent and complementary role for provincial or state government regulators. These more local governments can provide needed early enforcement of existing standards and also develop new standards to address emerging practices before they cause widespread consumer harm or systemic risk.

State and provincial legislatures are often in a unique position to spot and stop bad practices before they become universal. To ensure rapid and appropriate responses to abuses in the financial credit markets, consumer protection and regulation of financial institutions must be allowed at all levels of government.

Our current financial crisis need not have happened and it need not ever happen again. We must always remember that in our ever-more complex and inter-related world, the motivation and interests of financial institutions often conflict with the general well-being of ordinary consumers and the long-term economic soundness of our nations.

Only with a carefully constructed and multi-governmental regulatory scheme that places consumers and consumer protection at its center, will we have a fair and honest local and global marketplace that is safe and stable and not subject to another bad-behaving, corporate-driven financial meltdown.

Ira Rheingold is also co-chair of the Trans Atlantic Consumer Dialogue (TACD) Financial Services group, a CI-facilitated network of EU and North America consumer organisations.

How group action is reinventing consumer activism

Richard Bates, from CI member Consumer Focus, explains how social technologies are revolutionising consumer action—an important lesson for consumer groups around the world

Here’s a theory I’m sure you’re familiar with: foster competition within a market and its benefits – prices held down, service driven up and thriving innovation – will follow, as engaged consumers work to maximise their own interest and seek out better deals.

It’s a notion that underpins our energy, telecoms and financial services markets here in Britain. 

And here’s a reality that I suspect won’t be unique to Britain: mass inertia is the norm across these sectors. It’s a predictable and understandable consumer response in markets where engagement is not a high priority and which suffer from being archetypal ‘confusopolies’.

The result is an impasse. Consumers stay put and competition gives way to complacency on the provider side. The benefits that competition should deliver for consumers are then in short supply. The fabled invisible hand is, well, all too invisible.

But, what if we created an alternative, much simpler, more powerful way of making these markets work for consumers? One where an intermediary works on behalf of consumers to:

• Provide a focal point around which consumers who want better value, but reject the conventional ‘go it alone’ route to market can cluster
• Convert mass inertia into a competitive impetus by grouping participating consumers’ aggregate demand into a winnable block of market share
• Leverage that aggregate demand to secure a better deal
• Manage the mass switch of participating consumers to the provider who makes the best offer to the group

In a new reportfor Consumer Focus, I’ve argued the possibility of doing just that. The report expands on a trend I termed ‘Get it, together’ in a previous CI blog. At the core of this trend are the opportunities for new forms of group action enabled by social technologies.

Of course, coming together as a group in order to pursue a shared objective is nothing new. 

History is rich with examples of people organising in groups and using the consequent power of numbers to advance collective interests and press for change – whether social, political, or economic.

But the costs associated with large-scale group formation and, subsequently, the co-ordination and management of group action meant that only large organisations with hierarchies and management structures could act in this way. And only then if the benefits achieved outweighed the costs incurred.

Instances of people collaborating as a group outside the bounds of an organisation were mostly limited to small scale, local initiatives.

But social technologies have eroded those costs, meaning it’s not only easy for people to form groups now, it’s also easy for the group to achieve critical mass and to co-ordinate and synchronise its actions to achieve a shared goal.

As a result, we are seeing a proliferation of new kinds of groups, including consumers working together or through intermediaries to achieve a shared objective in the marketplace. The Bank Transfer Daycampaigns in the USA harness precisely these dynamics, as do local Carrotmob initiatives.

What’s more, in the past effective group effort often depended on a division of labour that assigned all members a task to undertake in pursuit of the group’s aims. Not anymore.

An active intermediary can now work on behalf of the group and harness the power of its numbers - rather than the efforts of its members - to achieve the shared goal. Other than aligning with the group and signalling assent to an action being undertaken on their behalf, individual members can now be effective in aggregate while remaining largely passive in practice.

In a consumer context, this solves the problem of inertia and minimises the costs of market participation for consumers, offering them the attractive proposition of better outcomes for less effort.

Today, we’re seeing the first wave of initiatives that look to put these ideas into practice and disrupt the markets to which they’re applied. Within the next three to five years collective switching could well turn the status quo on its head and create a situation where providers will have to work much harder to win and retain the custom of large groups of consumers.

Already, collective switching pioneer – iChoosr – has secured significant savings on energy bills for hundreds of thousands of consumers in Belgium and the Netherlands. Consumentenbond has also applied the approach successfully in the Dutch energy market. Which? has just overseen the first instance of collective switching in the British energy market, resulting in a straightforward route to an average saving of £123  for up to 200,000 participating consumers. Choice provided a much needed jolt to the Australian mortgage market by applying a variation of the approach there. 

As you may have noticed, three of those four initiatives have been offered by consumer bodies. The success of the exception, iChoosr, has been built on working in partnership with community organisations that consumers know and trust.

This suggests that integrity – a quality with which consumer and community bodies are strongly associated – will be key for consumer adoption of this approach. That’s hardly a surprise given that having the confidence to engage with an intermediary platform on a novel approach to markets that can represent a major financial commitment, will be a key issue for consumers.

Collective switching and wider initiatives harnessing the group dynamic have the potential to disrupt and rebalance how power and information flows in markets. Therefore, existing players who have most to lose are likely to resist the sea change rather than make the running in developing this kind of service.

Bodies working in the consumer interest therefore have vital roles to play as catalysts for collective switching. This could take the form of supporting pioneering intermediary services that work on behalf of consumers in markets; or, wherever necessary, involve the direct development and deployment of the platforms that can open this alternative approach up for consumers.

Richard Bates leads the Consumer Empowerment Programme at Consumer Focus @rchrdbts

4 problems with (and 5 answers to) financial consumer protection in Kenya

Michael Okumu from CI member organisation YEN,Kenya, advises consumers to educate themselves about a bank’s products and services before they sign up.

Ignorance is truly a fatal disease that increases consumers’ vulnerability. Uneducated consumers buy products and services that do not meet their expectations and then quietly, or never, complain.

On 15 March, the world celebrated World Consumer Rights Day, a day dedicated to highlighting the importance of consumers exercising their rights and responsibilities.

In Kenya, consumer protection is still non-existent with very few mechanisms of redress and a pervasive lack of knowledge of one’s rights as a consumer. This can be compounded by gaps in service delivery by dishonest service providers.

And banks are no exception. Often, consumers don’t get the best deal from a bank and do not respond effectively when this happens.

Here are some of the biggest problems for financial consumers in Africa:

1. Accessibility

Accessibility is a real problem in Africa as consumers often have to travel long distances from rural areas to get a specific service. The introduction of deposit-taking shops has eased the problem slightly but they do not address all the issues relating to accessibility.

2. Lack of ATMs

ATMs are not available everywhere, denying people access to their money and causing consumers to have to pay additional fees for drawing money from ATMs other than those their bank provides. Banks need to be more innovative to provide affordable services for all, everywhere.

3. Hidden fees

Hidden fees are another problem. Taking out loans or enjoying certain services requires close scrutiny by consumers because, in the long run, the high interest rates add up and many consumers are unaware of this at the onset.

4. Low interest

Low interest on savings is another problem still. Some consumers will question whether it is worth saving in a bank if the interest rates are so minimal. Mobile phone services provide an alternative to saving money in a bank as there are no ledger fees, account opening fees, balance statement fees, etc, but there is also no interest.

Consumers need to empower themselves by seeking information and education on their rights and responsibilities. Consumers International is helping consumer groups in East Africa educate consumers about financial services and products with its financial education counselling handbook.

Here are some tips on how to protect yourself:

1. Court your bank

When choosing a bank, consumers need to have a ‘courtship’ period. Gathering background information about a bank is very important because it gives you an idea about the bank’s character in terms of stability, reputation, social responsibility and potential. All of these are key for consumers not only to make good choices but to protect themselves from any eventualities.

2. Evaluate offers closely

Consumers need to keenly evaluate exciting offers and take them up only if they suit them. Consulting with friends or financial advisors would be an added advantage in ensuring that you pick the best financial product or service.

3. Avoid banks you aren’t sure about

It is also prudent to avoid adversely-named banks that could have evaded taxes or banks with a high turnover of staff as this could signal board wrangles, theft or mistreated staff.

4. Avoid downsizing banks

Also avoid banks that could be reducing their networks. They often do not warn their customers that they are doing this.

5. Ask about the complaints desk

A good bank should have a receptive complaints desk with an elaborate mechanism of redress that is accessible and responsive.

Consumers in Kenya should exercise their rights, keeping in mind that the new constitution provides protection as we wait for the Consumer Protection Bill to be passed which will further harness consumer rights and responsibilities.

And remember—if your bank only looks good in the advertising, then look for an alternative rather than ending up in a relationship that doesn’t work.

Global economic crisis deniers?

CI’s Jeremy Malcolm reports from the United Nations Conference on Trade and Development where the world’s leading industrialised economies are attempting to re-write history.

The financial crisis that struck in 2008 ushered in the first contraction in the global economy since the 1930s. Its effects spread very rapidly and widely. The world’s poorest economies were not spared. Despite the policy efforts of leading economies, both developed and developing, the global economy remains fragile.
 
None of the above seems very controversial, does it?  The paragraph could well have been taken from Wikipedia or from a report in a respected newspaper or magazine.
 
As a matter of fact, it is an almost exact quotation from the draft negotiating text for the 13th Quadrennial Conference of the United Nations Conference on Trade and Development (UNCTAD) in Doha, Qatar this week.
 
Yet UN members can't agree on it. In fact, shockingly, the world's leading industrialised economies want to erase each and every reference to the global economic and financial crisis from the text - as if making believe that it never happened.
 
The same rich countries are also refusing to agree to include references to:

• Energy price volatility and access to renewable energy;
• Access to medicine at affordable prices;
• Environmentally-compatible patterns of production and consumption that safeguard the biosphere;
• Adequate regulation and supervision of financial markets; and
• That foreign investors should comply with the domestic legislative framework of host countries, such as consumer protection law.

Perhaps even worse, they are seeking to restrict UNCTAD, with its unique development perspective, from dealing with these issues, claiming that such issues should instead be reserved for the pro-globalisation organs such as the World Bank, the International Monetary Fund and the Organisation for Economic Co-operation and Development.
 
This prompted an unprecedented open letter of protest from 49 former UNCTAD staff members earlier this month, and has created an atmosphere of high tension in the intergovernmental negotiations which are ongoing this week.
 
In partnership with other civil society groups from around the world, CI is in Doha to fight back against this shameful intransigence of the world's rich economies.
 
We are doing this in two ways: first, by talking to the delegates themselves, and pointing out how their denial of the world's food, energy, climate, financial and development crises is a slap in the face of the world's most disadvantaged consumers.
 
Second, resigned to the fact that the intergovernmental text may end up as a weak compromise, civil society groups including CI have drafted their own Civil Society Declaration and are presenting it this week.
 
In that declaration, CI confronts head-on the issues that are too difficult for governments to face. The declaration includes the following paragraph on the topic of consumer protection (for which UNCTAD is the lead agency within the UN system):
 
UNCTAD should promote consumer rights as part of its mandate over competition and consumer protection issues. Consumers have rights to the satisfaction of basic needs, to safety, to choice, to redress, to information, to consumer education, to representation, and to a healthy environment. It should lead the revision of the United Nations Guidelines for Consumer Protection in light of recent trends including the increased exposure of consumers to new products and marketing strategies, increased cross-border commerce in consumer products, and technological changes that affect consumers. 

UNCTAD and CI have a long record of working together to advance the rights of consumers, and this will continue despite the attacks from rich countries that UNCTAD is currently enduring.

 

Its mission to maximise the trade, investment and development opportunities of poor countries fits in well with CI's mission to advance the rights of consumers worldwide. In particular, we will be participating in an UNCTAD meeting to discuss the revision of the UN Guidelines for Consumer Protection this July.

 

To find out the ultimate outcome of the negotiations in Doha, or for more information on CI's work at UNCTAD, you can follow CI delegate Jeremy Malcolm's private Twitter account, @qirtaiba, or email him at jeremy@ciroap.org.