Bank clients' protection assured

By Bianca Cuaresma, BusinessMirror

Posted at May 15 2014 07:39 AM | Updated as of May 15 2014 05:39 PM

MANILA -- Monetary authorities pushed local banks and other financial institutions to exert more effort in protecting the rights of their customers, as the Bangko Sentral ng Pilipinas (BSP) announced on Wednesday the approval of its new consumer-protection framework.

The Bangko Sentral ng Pilipinas (BSP) announced that the Monetary Board formally approved the Financial Consumer Protection Framework—a set of standards that would gauge the local lenders’ ability to uphold consumer protection.

In a news briefing on Wednesday, BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. described the effort of the central bank as a “proactive move” to make sure the rise of consumer loans would not become an issue “in both stability and from the standpoint of consumers” in the country.

“It is quite timely to have a framework at this stage than wait for a crisis to happen,” Espenilla said.

The framework provides for an evaluation process of all BSP-Supervised Financial Institutions (BSFI) that would include periodic on-site assessment and continuing off-site evaluations.

Financial institutions will then be given a composite rating based on their ability to follow the measures set in the new framework. The ratings are on a scale of 1 to 4—with 1 being poor and requiring close supervisory attention and monitoring, and 4 being strong and without cause for supervisory concern.

Lenders are measured on five consumer-protection standards that all BSFIs “should observe at all times” according to the central bank. These standards include disclosure and transparency; fair treatment; privacy of information; financial education and effective recourse facility.

Under the provision of transparency, the central bank requires financial entities to provide all material details of an instrument or service before any transaction.

The central bank also requires BSFIs to determine the suitability of products and services to the risk and financial profile of financial consumers. This goes beyond the current tests conducted by institutions, as the new framework requires them to cover selling practices of the staff and a special consideration for possible overindebtedness of consumers.

Financial institutions are likewise required to protect the privacy of all their clients’ personal information.

“Information on a client could not generally be shared, absent the client’s authorization. BSFIs are not at liberty to share the client’s information even with their subsidiaries and affiliates for purposes of marketing and referrals,” the central bank said.

Banks and other financial institutions must also strengthen their complaint-handling mechanism as the BSP has observed “inconsistency in handling the complaints and laying out a framework” for clients. Espenilla said the complaints still mostly arise from credit-card consumers.

“The issues on credit cards are typically on the collection side—aggressive collection methods, request for restructuring when they are over-indebted already,” Espenilla said.

The implementation of the consumer protection framework will be effective 15 days upon the publication of the circular.

However, banks will be assessed formally one year from the effectivity of the circular to give them time to review current systems, put new measures and train their staff, Espenilla said.

If the central bank deems it necessary, the BSP may enforce actions to any BSFI depending on the gravity of institution’s inability to follow the measures put in the consumer-protection framework.

The enforcement actions will range from written reminders, corrective measures, notice of violation, administrative sanctions to disciplinary actions against directors and officers. Espenilla said the underlying theme of the framework is to move ahead of a potential problem early by making the ground rules early on.

“Overall, the framework addresses the need to protect and empower the financial consumers. With increased transparency, fair treatment and assurance that their rights will be fully protected, financial consumers will have a greater confidence in the formal financial system. Empowered financial consumer drive competition, promote efficiency and productivity, thereby encouraging a dynamic and robust financial system,” the BSP said.

Espenilla also said they would be presenting the new framework to other regulators and the country and hopes to propagate the consumer-protection practice through the financial system.

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