Final- Unsafe in Any Currency

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UNSAFEINANYCURRENCY

AREFINANCIALSERVICESPROVIDERSRIPPINGOFFPOOR

CONSUMERS?

Access to financial services isnow considered abasic consumer righti

but the evils of banking and insurance and the vulnerability of poor

consumers have grown beyond borders and continents. In Ghana,

whereover80percentofGhanaiansare financially illiterate,and this

amazingly includes highlyeducated folks, the financial services sector

has been swarmed by predatory lending practices from those

businesses pretending to be commercial, to the microfinance and

insurance service specialists, to the noncommercial quasiNGO

(QUANGOs) social missionaries, to the grey area of new innovative

mobile phone banking twistsii. Consumer naivety in financial services

WorkingPap

er:#7

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consumereducationisselfpreservation

ThisWorkingPaperwaspreparedbyJeanLukazMIH


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Unsafe in Any Currency:AreFinancialServicesProvidersrippingoffPoorConsumers?

http://www.theconsumerpartnership.wordpress.com;http://www.ghanaconsumerwatch.wordpress.com;

http://www.ghanaconsumerwatch.blogspot.com

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has evenbecome a common financialjoke inGhanawhere consumers are said to always confuse

shareswithshirts.TheFinancialServicessectorinGhanaandinAfricaseemtobelooselyregulated

bygovernmentsandbusinessesarejustpayinglipservicetovoluntarycodesoutlinedbyforumssuch

as thePartnership forMakingFinanceWorkforAfrica (MFW4A)iiiand theUNBlueBookonBuilding

Inclusive Financial Sectors for Developmentiv that have inherent measures to curtail proliferating

crossbordershylocks.

OnMarch15,WorldConsumerRightsDay (WCRD)2010v, TheConsumerPartnership in collaborationwith the

Ghana Standards Board (GSB)jointly organized a seminar on the Consumers International global theme Our

Money,OurRights,whereanumberoffinancialconsumerprotectioninitiativesbySPEEDGhanaandtheGhana

MicrofinanceInstituteNetwork(GHAMFIN)targetedattheilliterateandpoorconsumerswerealsodiscussed.This

hadbeenanimportantstepintargetingthenonEnglishspeakingpopulationasfinancialliteracyeducationalroad

showsanddramawereconductedinlocallanguages.

The best consumer protection is selfprotection and consumers require consumer education to protect

themselves in themarket place. There is the need for consumer education on financial services to focus on

financialcapability, responsible finance,consumerprotection,and theconductofbusiness regulation inGhana.

However,mostconsumereducationeffortsbygovernmentagenciesare ineffectivebecause theyare inEnglish

onlyandtargetedatthe literatepopulationwhoreadoneortwomajornewspapers.This leavesabouthalfthe

populationuninformedanduneducated.ConsumerProtectionAdvocacymustthusborderontheneedforaccess

tostable,secureandfairfinancialservices,whichisimportantforconsumerseverywhere,notleastinthecontext

oftheglobalfinancialcrisis.Governmentpolicymakershaveadutyto increaseconsumer information(truthin

lendingforexample),investinfinancialliteracyinitiatives(i.e.,consumereducation),insistthattheretailfinancial

industry take steps to protect consumers (selfregulatory codes of conduct, for example) and encourage the

development of an independent regulatory oversight body responsible for monitoring, reviewing and taking

complaints. Inorder toprotect consumers, theGovernmentmustensure that consumershave regular reliable

information onwhat services financial institutions offer atwhich price andwhat the risk involved is, so that

consumerscanmakewellinformedchoices.

THE MORALLEAPBY BANKOF GHANA


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InamovetoprotectingGhanaianconsumersinFinancialServices,theBankofGhana(BoG)vihasestablishedanew

Investigation and Consumer Reporting Office (ICRO)within the Banking Supervision Department (BSD) as the

financial industrywatchdogofficeof theBankofGhana (BoG),with responsibility forprotecting consumersof

financial products and services and educating them on their rights and responsibilities. While this effort is

laudable,thegovernmentmustbemovingmoretowardsstatesponsorshipofregulationinsteadofstateprovision

since this prevents duplication ofmandates as is the case of this new ICROwithin theBank ofGhana that is

workingwiththesamemission, lawsandregulatoryauthority inallmattersrelatingtobankingandnonbanking

financialbusiness,thatis

BankofGhanaAct2002,Act612 BankingAct,2004(Act673) FinancialInstitutions(NonBank)Law1993,PNDCLaw328 CompaniesCodeAct179,1963 BankofGhanaNotices/Directives/Circulars/Regulations

GhanamustemulatetheexampleoftheUSinmovingforanewregulatoryauthorityspecificallydedicatedtothe

protection of consumers of financial services in the form of the new Consumer Financial Protection Agency

(CFPA)thatwaseventuallybasedontherecognitionofthevulnerabilityofconsumerstofinancialservicesthatare

UnsafeatanyRateasconcludedbyElizabethWarreninhertreatiseina2007articleinDemocracyJournalvii:

Itisimpossibletobuyatoasterthathasaoneinfivechanceofburstingintoflames

andburningdownyourhouse.Butitispossibletorefinanceanexistinghomewitha

mortgage that has the same oneinfive chance ofputting thefamily out on the

street...Similarly, its impossible tochange thepriceona toasteronce ithasbeen

purchased.Butlongafterthepapershavebeensigned,itispossibletotripletheprice

ofthecreditusedtofinancethepurchaseofthatappliance...Thedifferencebetween

thetwomarketsisregulation.

The ineffectivenessof the regulatory roleof theBankofGhana (BoG) in the financial services sectorhasbeen

exposedsince2004whenitdirectedallcommercialbanksinthecountry,toabolishandinsomeinstancesreduce,

whatitdescribedasunfairbankchargesandfeesbeingchargedbythevariouscommercialbanksoperatinginthe


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country.Thedirective,whichemployedmoralsuasionasaregulatorytool,onlyprovidedacarteblancheforthe

commercialbankstofurtherexploitpoorGhanaianconsumersthroughextremelyhighandunfairinterestrates.

The banking population of Ghana is about 20% andmany Ghanaian households do not savewith the banks

becauseofthelowinterestonsavingsresultinginagapthathasgainedGhanathestatusofthecountrywiththe

highestlendingrateinsubSaharanAfrica.viii

WithGhana'sinterestratecurrentlyrangingbetween23.5%and41.6%comparedwithanaverageestimatedrate

of 14% for subSaharan African countries and 3.34% for Asia's emerging economies, the present business

environmentpromotesa let theborrowerbeware [caveatemptor]approach tobankingand financialservices,

whichtheUNBluebookonBuilding InclusiveFinancialSectorsforDevelopment(2006)considersasaminimalist

optionthat ispurely anticonsumer.Thisattitudeexploitsuninformedanduneducatedfinancialconsumersand

leaves very little responsibility to the lenders. There is the need for an enforced shift from letting borrowers

bewaretolettingthelendersbeware,acaveatvenditorapproachasafirststep.

THE WORLDONTHE MOVE

Sincethebeginningof2010,itseemsthatmostoftheglobalagenciessuchasConsumersInternational(CI),World

BankixandtheInternationalOrganizationforStandardization(ISO)ConsumerPolicyCommittee(COPOLCO)

xhave

gainedanewconsciousnessontheexposureofAfricanandthirdworldconsumersingeneraltothevicissitudesof

thefinancialsector.CIusedfinancialservicesasthethemeofWCRD2010toraiseawarenessoftheissuethatcuts

acrossbordersnotonlyinAfricabutalsoinEuropeandtheUSasthecriseshasshown.TheWorldBankGroupis

developingaGlobalProgramonConsumerProtectionandFinancialLiteracytoaddressthesequestionsandhelp

consumershelpthemselves,usingasuccessfulprogrampilotedinEuropeandCentralAsia,theGlobalProgramwill

beavailabletodevelopingcountriesworldwide.AndISOCOPOLCOhasinitiatedaprocesstogatherinformationon

consumerprotectionissuesrelatedtotheprovisionoffinancialservices,andthegrowthofnewtechnologiesand

businessmodelsthathaveevolvedinresponsetoconsumers'needsinfinancialservicessuchasethicalpracticesin

theprovisionof financial informationanddisclosure,bestpractices regardingtheprovisionof financialservices,

appropriatedesignofinformationfortargetedconsumerfinancialproducts,questionablebusinesspractices(e.g.

aggressivemarketingpractices,unfaircontractterms)and liabilityissues,aswellasmechanismsofenforcement

andredress.

Theglobalconsumer,itappears,isnotfullyprotectedandisunsafeinanycurrencygiventhepresentpracticesin

thefinancialservicessector.


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Endnotes

iTheConsumerPartnershipWorkingPaper:#1, WhatisConsumerProtection?,2010

iiLouiseGreenwood,Africasmobilerevolution,BBCAfricabusinessreport,August232009;GIvatury&IMasTheearlyexperiencewithbranchlessbankingCGAPFocusnoteNo46,April2008

iiiMakingFinanceWorkforAfricaPartnership (MFW4A) AfricanDevelopmentBankFormore information,visit

http://www.afdb.org/en/topicssectors/initiativespartnerships/

ivUNBlueBookBuildingInclusiveFinancialSectorsforDevelopment,UN2006

v1Ourmoney,Ourrights:AguidetomemberactiononWorldConsumerRightsDay,15March2010,PublishedbyConsumersInternational;2Ourmoney,Ourrights:Howtheglobalconsumermovementisfightingforfairfinancial

services, Published by Consumers International in December 2009, For more information, visitwww.consumersinternational.org;3Ourmoney,ourrights:TheevolutionoffinancialservicesinAfrica,Published

by ConsumersInternational

viBankofGhanahttp://www.bog.gov.gh/ ,Generated:7March,2010,21:49

viiWarren,Elizabeth,UnsafeatAnyRate[Ifit'sgoodenoughformicrowaves,it'sgoodenoughformortgages.Why

weneedaFinancialProductSafetyCommission.],inDemocracy:AJournalofIdeasIssue#5,Summer2007

viiiMensah,IreneJanice&Mensah,Gifty,Ghana'sInterestRateHighestInAfrica,PublicAgenda:(March15th,

2010),Formoreinformation,visithttp://ghanaweb.com/public_agenda/article.php?ID=14599

COPOLCO2010workshop,Restoringconsumerconfidenceinglobalfinancialservices

ixTheWorldBankGlobalProgramonConsumerProtectionandFinancialLiteracy,

xCOPOLCO2010workshop,Restoringconsumerconfidenceinglobalfinancialservices

PhotosCredit:Imagesonpages1,2and4culledfromConsumersInternational(CI)material.

2010TheConsumerPartnership,Ghana.Allrightsreserved

TheConsumerPartnershipGhana[TheCOP]

PMBKD28

KandaAccra

Ghana

Tel:+233207198999;+233275315135;+233244736924;+233277736924

Email:[email protected];[email protected];[email protected]

TheConsumerPartnership(THECOP)isanonprofitConsumerProtectionPromotionalOrganizationwiththe

aimofpromotingConsumerEducation,ConsumerParticipationintheStandardizationProcessinGhanaand

encouragingConsumerComparativeShopping.

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