Getting Beyond Codes in Consumer Protection


Challenges

Why should consumer protection be a challenge for financial institutions whose purpose is to benefit their customers? Competition, desire to achieve profitability and internal incentives may all play a role in pushing financial institutions into practices that do not coincide with pro-consumer ideals. This project is about understanding those incentives and creating new incentives for good practice.

Consumer Protection Principles

The basic principles of consumer protection are widely agreed upon. ACCION, MFN and SEEP, among others, have consumer protection codes of conduct. CGAP is working with investors on another statement of principles. The principles of each code are much the same. However, this consensus around the need and the content of pro-consumer codes has not yet led to deeper implementation of the codes or a way of monitoring them to make sure they are implemented.

View ACCION’s Pro-Consumer Pledge

Incentives for Implementation

The incentive framework in favor of consumer protection is presently weak. There are few mechanisms providing either positive or negative incentives. One source of positive incentive could come from investors and funders who would be willing to consider whether an institution operates on a pro-consumer basis before deciding to support it. In order to act on that basis, investors need a way to judge the pro-consumer performance of an institution – through an external certification or rating process. At present, there is interest in having such a certification, but the body of knowledge needed to make it work is not sufficiently developed.

Process for Microfinance Institutions

  • Steering Committee – The Steering Committee for the Beyond Codes project was formed in the spring of 2008.

  • Participant Selection – One country from each region was selected, with 2–4 institutions participating in each country, including credit unions, nonprofits and regulated financial institutions. Currently the countries included in the project are Mexico, Bosnia, the Philippines and Kenya.

  • Webinar – On August 26, 2008 the Center hosted a webinar to raise awareness on the issue of Consumer Protection.

    > View the agenda and presentations from the August 26 webinar.

  • Dialogue Group – On September 25-26 the Steering Committee, representatives from the participating MFIs, and selected experts will meet in DC to design the self assessment that each MFI will use to determine its status of implementing the six key consumer protection principles.

  • Action Research – Application of the guided self-assessment tool at each participating MFI will allow the institution to identify its areas of vulnerability and its priorities for improvement.

  • Implementation and Monitoring – After the self assessment has been completed, a nine-month implementation and monitoring phase will begin during which the institution will document its progress, main challenges and practical recommendations.

  • Dialogue Group Follow-up – The members of the Dialogue Group will meet in 2009 to share lessons learned from each institution’s self-assessment, implementation, and monitoring phase. These lessons will inform the creation of guidelines for the consumer-protection, certification process.

  • Final Report – The lessons and experiences discussed in the workshop above will be combined into a guide to assist other institutions with their implementation of consumer protection practices.

  • Certification Process – The desired long-term outcome of the Beyond Codes project is the collection of a sufficient breadth of experiences at the institutional level to inform the creation of a certification process that will allow clients, investors and other stakeholders to feel confident in an institution’s dedication to implementing and enforcing pro-consumer policies.