Protecting the Rights of Financial Consumers and Retail Investors: Striking a Balance

Key conclusions

The financial commissioners’ activities boost trust between consumers and financial institutions 

“The claim stage is the most important component of the process of considering a case by the financial commissioner [...] The Financial Commissioner Service was initially designed in such a way that we do not directly deal with reconciliation procedures. We consider a dispute and make a decision based on the merits of the dispute, but the actual process of considering a case by the financial commissioner is structured in such a way as to encourage and direct the financial institution towards voluntary reconciliation with the consumer,” Chief Financial Commissioner Yury Voronin said.

Mediation could become a new promising focus area for the Financial Commissioner Service in Russia

“We have a principle, and it is mainly applied in our work. It’s the principle of reconciling the parties. We have a unit whose employees are trained to reach out to both the financial institution and the consumer who has applied to the mediator’s office. They build paths that should lead to reconciliation. Last year, the total number of reconciliations was 80%. In 13%, decisions were made against financial organizations,” said Vazgen Mnatsakanyan, Principal Financial System Mediator of the of the Republic of Armenia.

“The sphere of mediation that exists today and is described by law is not very well applied in practice [...] A while ago, we created a special working group at the Central Bank to develop mediation procedures [...] and are getting closer to an understanding what a settlement mediation standard that is acceptable both for a financial institution and for a consumer may look like,” said Mikhail Mamuta, Head of Service for Protection of Consumer Rights and Ensuring the Availability of Financial Services and a Member of the Board of Directors of the Central Bank of the Russian Federation (Bank of Russia).

PROBLEMS

Lack of regulation in disputes between retail investors and financial institutions 

“Another focus is disputes or claims by retail investors against financial institutions. It has yet to be regulated [...] The number of retail investors has increased many times over. We have exceeded 20 million people [...] And the number of property disputes between investors and financial institutions has also increased multi-fold. Based on the existing experience of financial commissioner [...] I think there is potential here that would be worth thinking about,” Mamuta said.

“We have a very unique practice associated with problems faced by consumers in the financial market in the current conditions. I think now there are a lot of potential other focus areas before the commissioner [...] There are a lot of new products, for example, mixed complex investment products, in which a legal structure for the participation of a commissioner is required in principle,” said Yevgenia Lazareva, Head of the ‘For the Rights of Borrowers’ Project of the All-Russia People’s Front and a Member of the Expert Council for Consumer Rights Protection of the Central Bank the Russian Federation (Bank of Russia).

The number of complaints and claims by financial services consumers increases during crises and additional protection mechanisms are needed

“Credit institutions continue to account for a substantial portion of the entire flow of inquiries to the Bank of Russia, which makes up about half of all complaints [...] In addition, a large part of the claims or complaints are related to the inability to service debt in the amount or within the timeframe required by the credit or loan agreement. This problem is exacerbated during crises, when people’s anticipated cash incomes decrease, but in general it is also typical of the normal flow of the economy,” Mamuta said.

“Right now, we are in a time where we are creating an unprecedented number of practices in which we must protect consumers from external manifestations [...] I don’t think it’s likely that any other countries in recent years have encountered the number of problems that have now been taken on by the consumer of financial services,” Lazareva said.

SOLUTIONS

The institution of financial commissioner can expand the scope of its activities to meet new challenges

“I think that the service’s potential has yet to be fully unleashed. We need to look for other ways, in addition to the existing ones, to influence the environment, which needs to be covered. There is great potential here. It is embedded both in the law and in the essence of the financial commissioner’s activities,” Vice President of the Association of Banks of Russia Anatoly Kozlachkov said.  

The mechanism of payment holidays can be extended to any type of consumer lending 

“We have drafted a bill that provides an opportunity for a person to use payment holidays on an ongoing basis for any type of consumer loan. This bill is currently being endorsed by agencies, but I hope it will be supported […] simply because from a social point of view, the measure is very effective and  needed. It’s also beneficial for the banking system […] because mutual trust and mutual loyalty are very important factors in the stability of any financial system,” Mamuta said.

“I think when this initiative [expanding the mechanism of payment holidays] will be prepared in the form of a document, there will be a serious discussion and we will verify the data provided by banks […] Today, given the situation where the quality of loan portfolios is likely to deteriorate, this is a visible prospect and such methods will be in demand,” Kozlachkov said.

For more details, see the ROSCONGRESS.ORG Information and Analytical System.

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