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Financial Services Consumer Protection Increases Confidence and Stability

Bulgarians are active users of banking products, but improved consumer disclosure, redress mechanisms and financial education are needed, reveals the latest World Bank report

The workshop openingSOFIA, APRIL 13, 2009 – Financial services consumer protection improves efficiency of financial intermediation and indirectly reduces risks to financial stability, which has been seriously challenged by the recent financial turmoil.
The latest World Bank’s study entitled “BULGARIA: Diagnostic Review of Consumer Protection and Financial Capability” provides an in-depth review on the existing rules and practices in Bulgaria compared to international good practices on consumer protection in financial services.

The key findings of the Bulgaria report were presented today at a workshop inaugurated by EU Commissioner for Consumer Affairs Meglena Kuneva and attended by government officials from Ministry of Finance, Ministry of Economy and Energy, Bulgarian National Bank, the Financial Supervision Commission, Consumer Protection Commission and the Competition Protection Commission.

The report, prepared at the request of Bulgarian Government, is the eighth review in a World Bank-sponsored pilot program to assess consumer protection in financial services in middle-income countries worldwide. It uses a set of draft international good practices prepared by the World Bank in consultation with regulators. Similar reviews have been conducted for the Czech Republic, Slovakia, Lithuania, Romania, Croatia, Russia and Azerbaijan.

According to Sue Rutledge, the World Bank’s Regional Consumer Protection Coordinator and one of the main authors of the report, “At its heart, the need for consumer protection arises from an imbalance of power, information and resources between consumers and their financial service providers, placing consumers at a disadvantage”. She continues: “Consumer protection legislation and institutions have been put in place in Bulgaria, as Bulgarian legislation has transposed the all EU Directives related to consumer protection in financial service. However financial consumer protection is rapidly improving worldwide and more could be done."

Use of consumer financial services has been increasing in Bulgaria. Between 2003 and 2007, household borrowings increased from 7 to 24 percent of GDP. While household savings have also increased, debt to financial wealth doubled in the same period. In addition, a survey conducted in September 2008 by the market research institute, GfK Bulgaria, found that one-third of Bulgarian consumers hold a debit card while about 9 percent have credit cards. The use of plastic cards has significantly increased relative to January 2005, when GfK Bulgaria showed that only one-fifth held debit cards and 2 percent used credit cards.

As is seen worldwide, the increasing use of consumer financial services is accompanied by consumer complaints. About 1,200 complaints and disputes were presented to the authorities in 2008. Bulgarian consumers feel that they could benefit from increased consumer protection, including for financial services.

In order to address the challenges, Bulgaria could consider a pragmatic and effective program to empower consumers through:
A) Strengthening the institutional structure, including the possible consideration of an independent financial ombudsman as a long term solution;
B) Improving the quality and user-friendliness of consumer disclosure, including establishment of a Key Facts Statement for all standard retail financial products;
C) Strengthening the business practices of financial institutions vis-à-vis consumers, including developing codes of conduct and involving consumer associations in monitoring of compliance with the codes;
D) Improving the mechanisms to address consumer complaints and disputes; and
E) Expanding the access of consumers to useful and timely financial education, including raising consumer awareness through formal financial education, better consumer information and unbiased financial advice.

”The most valuable global asset today is trust. Strengthening financial services consumer protection builds public trust in financial systems. The World Bank, as a committed partner, endeavors to bring up the best of global and European knowledge to support Bulgaria in mitigating the current financial turmoil and becoming a full-fledged EU member”, said Florian Fichtl, World Bank’s Country Manager for Bulgaria at the official presentation of the report.

The DRAFT for consultations version of the report could be found here:
Volume1
Volume 2 




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