Financial services on the agenda at UNCTAD

Financial services—it’s complicated. And that’s why we need to ensure consumers are protected.  CI’s Robin Simpson urges inclusion of financial services in the UN’s Guidelines on Consumer Protection. 

At the United Nations Conference on Trade and Development (UNCTAD) meeting in Geneva recently, CI made the case for inclusion of financial services in the Guidelines on Consumer Protection (UNGCP), including:

• universal access to basic financial services;
• better design and disclosure of information;
• mandatory requirements for comprehensibility of financial products; and
• representation of consumer interests in the governance of the sector, both regulation and redress.

 We believe that, where states have bailed out ailing banks, competition enquiries should be carried out to ascertain whether these assistance packages have increased concentration. This is sensitive territory for a conference whose agenda was dominated by competition issues.

We also called for measures to guarantee stability of deposits stronger than the diluted provisions that were included in the G20/OECD high level principles that we found too limited.

There was a strong measure of agreement in the hall that FS is not, or no longer, solely a rich country issue. Indeed, one of the encouraging aspects of the present troubled times is the emergence of innovative services such as branchless banking in developing countries, whose consumers report savings ratios far in excess of those of the OECD countries, between 30-40% of household income.

As CI board member Connie Lau of the Hong Kong Consumer Council pointed out, these dwarf the puny rates to be found in the first decade of this century in the US where some estimates show a negative rate in some years. 

Our colleague Sothi Racahagan from Malaysia made a clarion call for stronger regulatory action and Phil Evans from the UK Competition Commission made the strong case on behavioural grounds for FS not being treated like any other sector.

Complex products with long-term effects, the impacts of which will not be known for years to come, all add up to a dangerous cocktail of ingredients that require far stronger measures than we have seen so far.

Maybe inclusion of FS in the UNGCP will make some much-needed changes a reality.

Now for the hard part.

The planet needs a silver-bullet solution, but Rio wasn’t it

CI’s Luis Flores reflects on the results of the Rio+20 Summit and what they mean for consumers.

Trying to solve the world’s most pressing and complex environmental and social problems by convening the very governments stuck in gridlock the last 20 years was never going to be a silver-bullet solution.

And after Rio+20 it is clear that an old-style UN conference with member countries negotiating a ‘consensus’ agreement is no longer the ideal medium for change.

However, despite the initial dismay over the results of the Summit, there was cause for at least a somewhat sedated celebration for the consumer rights movement.

First, sustainable consumption and production (SCP) was acknowledged as a fundamental issue. The so-called 'ten year framework of programmes' that will support governments developing national and regional programmes on SCP was also endorsed by governments on a voluntary basis.

It will be further developed in this year's negotiations at the UN General Assembly. The Rio agreement also specifically links sustainable consumption to the Sustainable Development Goals which will be the subject of more work under the UN framework.

Determined to avoid another Copenhagen and an evident failure of the environmental multilateral system, the government negotiators at Rio+20 wanted above all to be able to come out with a completed agreement and that is exactly what they did at the end of the process.

But, given the results and the lack of ambition of the official outcome document, which had been negotiated over the last nine months and finalised just before the start of the Summit, many were unhappy.

It is not necessary to understand the economics of development in great detail to have a view on the case for urgent action. Sustainability is needed now.

The question is no longer whether unsustainable growth is contributing to the global crisis or not, but how vast and irreversible the damages are going to be.

In the coming years, the entire world will have to step into a transition stage leading to real sustainable development; therefore, joint and coordinated action is necessary.

Isolated initiatives will not be enough, and neither will the sustainable purchasing decisions of the enlightened few. Governments will need to act; and companies will need to stop hiding behind perceived consumer inertia as an excuse for inaction.

International cooperation will have to put less emphasis on what a fair distribution of responsibilities should be, and more stress on the actions that – if undertaken as a joint endeavour – will neutralize negative effects on people’s lives and livelihood.

All of the public awareness that we have experienced recently should give us enough hope to continue with our efforts. Indeed, when surveyed, an increasing number of consumers express a desire to consume ‘green’ – but lack the access to do so.

For our part, CI is currently reviewing our work on sustainable consumption in order to identify where we, as a network of more than 240 consumer organisations in 115 countries, can best contribute to this global challenge. We hope to have the results in time for a renewed effort at the start of 2013.

Supermarket investigation reveals a false choice

Zoya Sheftalovich and Elise Dalley of CHOICE, Australia, discuss the pressure that big supermarkets place on their suppliers – and what this means for consumers. 

Australia has a highly-concentrated supermarket sector. Our two big players, Coles and Woolworths, control more than 70% of the market. 

Anecdotally, CHOICE had been hearing for a while that relationships between the supermarkets and their suppliers and manufacturers were strained. People were ringing us to complain of their favourite products disappearing from supermarkets, and we became aware of a trend – seemingly successful product lines were being squeezed off the shelves by home brand products.

As a consumer watchdog, there was some reticence in the office about us looking into these reports – surely supermarkets increasing their home brand product lines would be beneficial to consumers, as long as these cheaper products provided good value and quality for consumers. But our members were increasingly upset, and we knew we had to investigate.

Extreme tactics

After asking our members to tell us about products they had noticed disappearing off the shelves, we compiled a list of dozens. We then got on the phone, calling manufacturers for several days.

We heard the same story again and again: yes, product lines had been deleted, with little or no notice, and for seemingly no reason. Yes, tactics leading up to the deletion had been extreme. No, I won’t go on the record. No, I can’t talk to you in more detail. No, you can’t use my name. I need the supermarkets, and I cannot afford to antagonise them.

And it was not just small manufacturers that were feeling the pain. Several large-scale operators spoke obliquely about the harsh Australian grocery market, but clammed up when it came to giving details.

But perseverance paid off, and several sources finally agreed to tell us their stories off the record. One even agreed to have his name put to his allegations.

What we heard was terrible in its implications for manufacturers and suppliers, but was also detrimental to consumers – the supermarkets seemingly had no qualms about using their buying power to push suppliers to the brink, and the number of people we spoke to who were either on the precipice of losing their businesses, or had already done so, was frightening. The competition from the supermarkets was wiping out the competition altogether.

Worrying signs

From demanding hundreds of thousands of dollars for marketing, to setting unrealistic sales targets, to hiding products behind vertical columns in store and releasing their own, home brand products in deceptively similar packaging, the tactics used by the supermarkets were worrying.

Was this what consumers wanted? We didn’t think so.

When we published our series of investigations looking at the situation on the shelves, the copycat tactics of home brand products, and the emerging issue of incognito home brand wine, the response was resounding. We received messages of support from a huge number of our members.

And over a thousand people voted in our poll for the best (or is it worst?) copycat product. The winner?  Coles home brand sunscreen, which came in a tube that looked uncannily like the one put out by Australia’s national cancer NGO, the Cancer Council, the proceeds of which go to cancer research.

When two supermarkets control such a large share of the grocery market, no product is safe, and the consumer is not always king.

You can read the full details of our supermarket investigation here: http://www.choice.com.au/reviews-and-tests/food-and-health/food-and-drink/supermarkets

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.