2047875 96520 0 0 BROCHURE ON UNFAIR CONTRACT TERMS AND MISLEADING TRADING PRACTICES IN THE FINANCIAL SERVICES -561975 top Introduction 0 0 Introduction DRAFT Unfair Contract Terms and Misleading Trading Practices in Financial Services The financial services sector has experienced exponential growth in many countries owing to the technolog ical advancement . Th is growth has presented new challenges for Agencies regulating consumer protection and also for consumers. Under the Zambian Presidency, the ICPEN Working Group on Unfair Trading Practices in the Financial Services Sector was formed. The ultimate aim of the Working Group was to formulate a brochure / guidelines on Unfair Contract Terms and Misleading Trading Practices that will guide consumers on how to avoid such unfair trading practices. The brochure will also guide Agencies in communicating with traders and consumers . The g uide line capture s the feedback received from ICPEN members from the Survey Report which was presented by the Working Group on Financial Services in Livingstone, Zambia. It is the expectation of the Working Group that this document will play a vital role of living up to ICPEN’s mission of “Protecting Consumers Worldwide” ICPEN Working Group on Unfair Trading Practices in the Financial Sector Competition Authority of Kenya Consumer Protection Service, Republic of Cyprus Competition & Consumer Protection Commission of Zambia Directorate-General for Economic Inspection , Belgium The Gambia Competition & Consumer Protection Commission The National Consumer Service (SERNAC), Chile Competition & Fair Trading Commission, Malawi -448310 -219075 Background 0 0 Background The financial sector continues to play a key role in the growth and development of the econom y . The improvements in the financial sector in the last few years have been made possible through a combination of technology driven methods, such as provision of loans through the mobile phone technology or through internet-based methods. While the traditional methods of provision of finance still remain dominant, online - based financial provision shows great potential in replacing the bricks and mortar-based financing. The Survey Report by the ICPEN Working Group on Financial Services highlighted that inherent challenges relating to unfair contract terms and misleading/unfair trading practices underline the need for more effective and consistent financial consumer protection, financial education and consumer policies that are able to adapt to the fast growing and evolving financial environment. Due to the broad nature of the financial services sector, this guidelines restricts itself to the provision of consumer credit. It is noted that the provision of consumer credit is undertaken through the bricks or mortar method or digitally, through the mobile phone technology or internet. -438150 9525 Purpose and contents of this brochure 0 0 Purpose and contents of this brochure The purpose of this brochure / guideline is to assist consumers identify ing unfair contract terms and misleading/ unfair trading practices, and to make better choices on how to avoid them. It will also assist Agencies in identifying such practices, and in communicating with consumers on how to avoid them. Last but not least, it will further assist operators to offer consumer-friendly financial products. The brochure/guideline includes guidance on the following: Important factors to consider when agencies communicate with consumers; The most common t ypes of Unfair Contract Terms in financial services ; The most common t ypes of Misleading/Unfair Trading Practices in financial services ; What information shall consumer credit providers give to consumers regarding financial information ? How this information shall be provided to consumers? Final words -504825 9525 Definition of Terms and Important factors to be considered by agencies 0 0 Definition of Terms and Important factors to be considered by agencies Unfair Contract Term: is a contractual term which, contrary to the requirement of good faith, causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. If a contract term is unclear to the average consumer and not drafted in plain, intelligible language , this can be taken into consideration whether or not a contract term is unfair . Trading Practice can be considered as unfair if, (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behaviour of the average consumer to whom the product reaches or is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers. Agencies should consider the following factors, as they sensitize consumers: Are consumers aware of the specific or general legal, regulatory or supervision framework within which they can receive redress? Are Agencies cognizant of the possible gaps in their legal, regulatory, enforcement or supervision framework? Will there be a need to make amendments to the framework in order to address the gaps ? Are consumers and other stakeholders aware of with whom the responsibility to enforce consumer credit legislation lie? This is in consideration that there are Agencies that do not have authority but regulate financial products . Can the Agencies with no authority be able to regulate financial products and also be in a position to have an advisory role to those that are able to regulate? The kind of investigative and enforcement powers that Agencies have and their adequacy in providing effective redress for consumers in this sector. -514985 9525 Types of Unfair Contract Terms 0 0 Types of Unfair Contract Terms Based on the most common categories of unfair contract terms in financial services, indicated by the ICPEN members, the following are the most common questions that shall be answered when a contract is examined . Are there any: Unfair terms regarding disproportionate contractual penalties when consumer fail to fulfil his obligation? Unfair terms that allow providers to unilaterally modify, terminate a contract or charge for expenses? Unfair terms in relation to information that consumer s should receive; Unfair terms about charges on consumers for early debt repayments? Unclear/vague contract terms in credit agreements? Unfair terms regarding the right of the lender to share personal information provided by the consumer without the consent of the consumer ? Undisclosed t ying arrangements mostly on credit insurance Unjustified /unexplained switching costs Based on the most common categories of misleading / unfair trading practices in financial services, indicated by the ICPEN members, the following are the most common questions that shall be answered when a trading practice is examined: Is the advertising misleading? Is the information on the total amount of the credit not clear? Is there any obligation of consumers to conclude further contracts (e. g. insurances or building saving contracts) in order to obtain a credit ? Does the creditor or credit intermediary approach the consumer by phone or letter to offer the refinancing or regrouping of his credits and d uring this contact, additional financial means offered ? Is the provider investigates the consumer’s repayment capacity on a case by case basis? Are there any hidden costs, by do not containing a detailed breakdown of all charges in the contract? Is it clear for what products or services the consumer is bound by the contract? Are there any omission or deceitful information provided to consumers? -521208 214503 Types of Misleading/ Unfair Trading Practices 0 0 Types of Misleading/ Unfair Trading Practices Are there any excessive use of “technical” terms that impose obligations to consumers? Is the contract or any clauses in the contract written in other languages, rather than the official language of the country? Is there any imposition on consumers of charges, costs and expenses with no further explanation? In case of foreign currency loans are the currency risks involved explained in a clear way? Is the recovery of d ebt recovery from third parties that are not guarantor’s to a credit for example family members, referees or friends. -493776 255905 Types of Misleading/ Unfair Trading Practices 0 0 Types of Misleading/ Unfair Trading Practices -590550 bottom Complaints Handling, Enforcement and Redress 0 0 Complaints Handling, Enforcement and Redress For the purpose of ensuring a high level of consumer protection in the area of financial services and that the institutions which are responsible for consumer protection , act in a professional and responsible manner , it is important that ICPEN members put in place the following measures: Standardized procedure for handling complaints, for example, a maximum time for handling a complaint; Guidance to consumer credit providers on the importance of providing clarity to consumers on the available financial products to avoid confusion. To ensure effectiveness in its enforcement and redress mechanisms, ICPEN members can undertake the following: Sign cooperation agreements with different Agencies and Authorities; Impose penalties and other adequate redress mechanisms for consumers , such as order refunds or disclosure of information to consumers; Issue Guidelines (i.e. on creditworthiness assessment, consumer credit advertisements or explanatory letters; Issue injunctions, opinions, D irectives , so as to prevent further violations; Modify legislation, draft new legislation or develop/amend consumer resolution guidelines ; Undertake consumer education , either by themselves or through partnerships with other local groups or ICPEN members. Sensitization campaigns can be undertaken jointly through online methods. -552450 9525 Information to be provided to consumers 0 0 Information to be provided to consumers In order to increase the ability of the consumers to make informed decisions for themselves, the financial institutions should be advised to provide all the necessary information in advertisements and in the precontractual phase . Some important information that financial institutions shall provide to consumers are: The identity and the geographical address of the issuer of the information; the possible duration of the consumer credit agreements; types of available consumer credit borrowing rate, indicating whether fixed or variable or both; the total cost of the consumer credit to the consumer and the annual percentage rate ; the number, frequency and amount of the regular repayment instalments ; and t he description of the conditions direct ly relating to early repayment; Disclosure of insurance premiums on credit and the details of the insurer. Due to the significant risks connected to financial products, ICPEN members should promote measures to support education of consumers regarding responsible borrowing and debt management ; and especially to assist consumers to beware of unfair contract terms and misleading trading practices. Awareness to consumers can be given through any of the following methods: Consumer education through programs targeting teachers, students and parents; Consumer education through website s , blogs and social media; Issuing Guidelines; Use of IT tools for consumers (i.e. simulators, calculators, comparison sites , mobile apps ); -530860 219075 Financial Education/ Consumer Awareness/ Guidelines 0 0 Financial Education/ Consumer Awareness/ Guidelines Leaflets/publications; Campaigns on media (Radio and TV programmes); Meetings with other Authorities, Consumer and Business Associations; Seminars to inform traders and their staff; Seminars/training/programmes to promote consumers' awareness. -647700 top Final Words 0 0 Final Words It is worth noting that although ICPEN member s have different levels of development , nevertheless, they experience similar types of unfair contract terms and/ or misleading trading practices in the financial services sector . Therefore, the brochure /guidelines will guide ICPEN members to develop a more consistent and coherent financial environment, particularly in relation to the information and remedies that should be available to consumers, as well as the actions available to enforcers and policy makers. By using the brochure /guidelines , ICPEN members will assist consumers to take more conscious transactional decisions when accessing financial services . This will also help financial service providers to off er consumer friendly financial products. Eventually , we expect that ICPEN members will inform consumers of the availability of such guidelines , so that consumers are aware of their rights before they enter into an agreement relating to financial services. Note / Disclaimer: This document is not legally binding, nor is it an exhaustive guideline to examining and determining whether a contract term or a trading practice in the financial services sector is unfair or not. This is a guidance document, based on the information gathered through a survey taken by ICPEN me mbers. When considering the legality of a contract term or a trading practice in the financial services sector, each ICPEN member should bear in mind the legal framework in force in his country.
Saatja: Shmb &Icpensecretariat (FOD Economie - SPF Economie)
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[email protected]>
Saadetud: 17.02.2020 16:44
Adressaat: Shmb &Icpensecretariat (FOD Economie - SPF Economie)
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[email protected]>
Teema: ICPEN Draft Brochure on Unfair Contract Terms and Misleading Trading Practices in
the Financial Services
Manused: image001.png; Final draft Brochure.docx
Dear ICPEN Members and Partners,
Please find in attachment the draft brochure/guideline on Unfair Contract Terms and Misleading Trading Practices
in the Financial Services.
You will have the opportunity to make comments and suggestions on the brochure during the Unfair Practices in the
Financial Sector session at the upcoming ICPEN Conference in Bogotá.
We invite your final comments in writing by 12th April 2020 for incorporation. The brochure will be finalized by
12th May 2020.
Kind regards,
Boniface Kamiti and George Mavroyiannis – Co-Leads, Unfair Trading Practices in the Financial Sector Working
Group
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On behalf of the Unfair Trading Practices in the Financial Sector Working Group and with kind regards,
The ICPEN Secretariat