CBN Releases Consumer Protection Framework for Financial Institutions 

Confers sweeping powers on consumers, allows for switching of institutions
James Emejo in Abuja
The Central Bank of Nigeria (CBN) on Tuesday released the Consumer Protection Framework aimed at enhancing consumer confidence in the financial services industry and promoting financial stability, growth and innovation among operators.

The framework further aims to protect consumers’ assets; ensure timely complaints handling and dispute resolution as well as ensure financial services operators put in place effective consumer risk management framework.

Other objectives are to empower consumers to make informed decisions; promote professionalism and ethics; and outline the rights and responsibilities of consumers.
The new guidelines came at a time of growing concerns over banks’ alleged unethical conducts towards consumers, particularly in the areas of arbitrary charges.

The framework which confers far-reaching options and protective measures on financial services users will provide greater reprieve to a seeming helpless consumers.

Under the new guide, bank consumers and other consumers are allowed to engage in banking transactions with their preferred financial institutions.
Consumers will also exercise the right to terminate contracts, change or switch FIs, products and/or services subject to contractual terms.

The CBN said: “It is unethical and anti-competitive for FIs to place restrictions on consumers” adding that “Where a customer decides to switch, the financial institution shall provide the necessary information to the new financial institution.”
It among other things enforces a more effective complaints resolution mechanism, compelling the financial services providers to properly educate users of the benefits and otherwise of products.

It also mandates operators to quicken the resolution of complaints and pay compensation where appropriate to complainants.

And in an unprecedented approach, the framework made provision for far-reaching sanctions on banks and other financial institutions for any violation of the framework.
The apex bank further said it would set out guidelines for ethical debt collection practices in the financial industry.

It said the proposed guidelines “shall be based on dialogue, respect for the consumers’ privacy and longevity of consumer-financial institution relationships among others.

The CBN noted that where consumers are unable to meet their financial obligations, financial institutions would be encouraged to adopt fair and ethical debt recovery practices.

Furthermore, the framework demanded that financial institutions provide credit counselling to prevent consumers’ indebtedness due to limited financial knowledge.

According to the 33-page framework made available on the apex bank’s website: “Credit counselling is the process of educating consumers on borrowing and debt settlement.
Credit counselling facilities shall be available and accessible to all consumers. Consumers shall be made aware of such services and shall be encouraged to take advantage of such facilities provided by the financial institutions.”

According to the CBN, financial institutions will henceforth ensure that personnel assigned to recover debts are properly trained, adding that consumers should also be informed in advance before a recovery process is initiated.

Also, in an effort to shield consumers from unethical conducts over sales promotions in the industry, the apex bank said promotions or related activities will henceforth be conducted professionally and ethically.

It stated: “In a bid to generate increased business volumes or attract new customers, financial institutions shall provide factual information and shall not mislead consumers.

“Financial institutions shall be required to fulfill the terms of promotional offers. In addition, before the launch of any sales promotion, FIs shall provide the CBN with evidence of capability to manage the influx of customers without diminishing service quality.

“Disclosure and Transparency Financial institutions shall provide accurate information on financial products and services to consumers at all times to enable them make informed decisions. Such information must be timely, detailed and clear.”

It added that contract terms should contain adequate information that will enhance consumers’ decision making process prior to execution of the contract adding financial institutions shall also inform consumers of the possibility of variations in terms and conditions of contracts due to changes in economic conditions before such contracts are executed.

Another major high point of the consumer protection regulation further mandate financial institutions to “conspicuously display specific and up-to-date information (such as certificate of incorporation, banking license, interest rates, foreign exchange rates, helpdesk contact details etc.) at customer engagement areas.

“Financial institutions shall provide financial calculation tools on their websites to assist consumers to perform simple calculations that may be required to ascertain the suitability of certain financial products.

“In addition, financial institutions have a responsibility to make reasonable effort towards ensuring that consumers of financial products are knowledgeable about the products/service they wish to purchase.”

The framework seeks to guide the effective regulation of consumer protection practices of FIs under the regulatory purview of the CBN to ensure that consumers of financial services are adequately protected and treated fairly-and applies to commercial banks and Microfinance banks among others.

According to the guide, the apex bank will monitor the market to restrict practices which may inhibit competition and punish all forms of violations.
The guideline states: “The CBN shall discourage anti-competitive practices such as: a) Price-fixing or pegging of charges – any act by one or more FIs to fix charges on products and services for their benefit but to the detriment of consumers; b) Market allocation – agreement amongst FIs to form territories so that specific institutions are found in certain regions to the exclusion of others; c) Abuse of dominance – any act by one or more FIs with significant market power or share which have adverse effect on competition; and d) Tied selling – any act by financial institutions forcing consumers to buy or subscribe to other products or services along with the desired products or services.”

On sanctions for infractions by financial institutions, the CBN states: “Contravention of the provisions of this Framework or other regulations on consumer protection shall attract appropriate sanctions. The following are some of the sanctions the bank may impose: a) Refund to customers in line with relevant regulations issued by the bank; b) Letter of apology; c) Restriction on activities; suspension from inter-bank activities; e) Suspension/withdrawal of foreign exchange dealership license; f) Denial of approvals; g) Publication of infractions and sanctions; h) Monetary penalties; i) Product recall; j) Adverts cancellation; k) Warning letters to management /Board; l) Suspension/removal of Board/management staff/employees; m) Referral to law enforcement agencies for prosecution; n) Revocation of banking license; and o) Other sanctions deemed appropriate. 3. The CBN shall adopt other proactive mechanisms to monitor financial institutions’ compliance with the provisions of the Consumer Protection Framework.”