Protecting consumers from confusion
We have the regulations, but do they work?
We need collective and concerted efforts toward financial education, financial inclusion, and financial empowerment.
Introduction
NCA, CPA, FSR, CoFI… No, believe it or not, I am not simply jotting down gobbledygook or odd abbreviations for things on my shopping list. These are South African regulations that aim to enhance consumer protection. The NCA (National Credit Act 34 of 2005), the CPA (Consumer Protection Act 68 of 2008), the FSR (Financial Sector Regulation Act 9 of 2017), and the next iteration of the CoFI Bill (Conduct of Financial Institutions Bill) have a laudable aim and lofty ambitions. One of these aims is to support the National Development Plan in its goal of achieving at least 90% financial inclusion by 2030.
The Consumer Protection Act and National Credit Act – falling short
One of the goals of the Consumer Protection Act is to promote consumers’ financial education. In South Africa, a vast abyss separates the relatively affluent and (mostly) financially literate consumer from the less wealthy and potentially less financially savvy majority. One of the things that the Act requires is that service providers, including financial services providers, communicate information in plain and simple language. Believe it or not, it is simply not good enough to refer us to the long list of Terms and Conditions (T&Cs) which are published in microscopic print as the 20th footnote on some obscure website.
Nowadays we all suffer from a poverty of time, regardless of what our bank statement says. This paucity of time can be exploited, or it can be harnessed for good.
What does exploitation look and feel like? (Aside, that is, from the time to find and read the T&Cs.) It is the feeling of being bombarded with so much information that my head is spinning. It is the feeling of being put through to the nth different operator when I am trying to find out how to cancel or amend my insurance policy. It is the feeling of finally giving up, of taking the path of least resistance, and the sinking feeling of seeing those monthly debit orders go off my bank account. Bear in mind that this assumes that I am in the fortunate position of a) having airtime to call the service provider and b) having anything worth insuring.
On the flip side, what does it mean when our time poverty is harnessed for good? It means that the process of selecting a financial product or service is streamlined and simplified. It requires clear communication and easily accessible information. Ultimately, information and communication, are essential tools when it comes to financial education. Jargon is not. Nor are acronyms and abbreviations.
Financial education, financial inclusion, and financial empowerment
The Consumer Protection Act and the National Credit Act, to some extent, address the need for financial education. The National Credit Act, however, is resoundingly silent as to the standard of education that needs to be provided to financial service consumers. Giving them the benefit of the doubt, albeit begrudgingly, this might be why some financial service providers feel that referring me to the T&Cs is sufficient. Failure to define an adequate standard of education ultimately means that the Credit Act and the Consumer Protection Act fail to achieve their aim. Even more disconcertingly, inadequate financial education has a domino effect: Sufficient financial education is a prerequisite for financially empowered consumers to effectively participate in the financial sector and in economic activities. Financial education goes hand in hand with financial inclusion. It is one of the tools that can be used to address the yawning chasm between the haves and the have-nots in our highly unequal society.
Concluding remarks
Where to from here? We don’t suggest that additional regulations will address the problem. Inadequately enforced rules and regulations merely result in regulatory fatigue and in disillusionment. Perhaps we should adjust our expectations of our authorities. Much as the private sector has come to the party in the provision of power, perhaps the financial services sector should come to the party when it comes to financial education. Perhaps the solutions to achieving greater financial inclusion aren’t to be found in some lengthy policy document or in its prolific footnotes. What can we, as participants in the financial sector, do?
We can and must provide products and services that are appropriate and accessible, which are backed by common sense principles and extensive research. Blue-sky thinking perhaps, but we can facilitate and/or sponsor workshops and financial literacy programs in underserved areas. Whether we like it or not, South Africa’s financial authorities are neither omnipresent nor omniscient. The rules and regulations can have unintended consequences (yes, it’s my gripe with the T&Cs again). Self-regulation is often far more effective than any toothless state-sanctioned threat. Reputation is immeasurably valuable in our industry. We must therefore hold ourselves, individually and collectively, accountable.
We can and must make a collective and concerted effort to improve financial education, to facilitate financial inclusion, and to achieve broader economic empowerment.
