•What matters most is not the rule, but its enforcement
Last week, the media reported a set of fresh-mint regulations being proposed by the apex bank to protect bank customers from exploitation by banks. The draft regulations, said to be currently under consideration by the stakeholders, is as detailed and comprehensive as it could be –a rule book– a rather ambitious attempt to re-order and or erect a new operational and ethical foundation for the industry.
Among many, it starts with the broad goal for the Central Bank of Nigeria (CBN) – which is to “ensure that operators (banks) establish structures to prohibit predatory lending and hence support a positive credit culture in the industry”; for financial operators, it spells out its role in “credit counselling to prevent consumers’ indebtedness due to limited financial knowledge” as well as disseminate information on the existence of the services while also encouraging them to take advantage of them. It also wants lenders to “provide detailed information on the terms and conditions of a loan agreement to consumers prior to executing the loan agreement”. This must include the “pricing, repayment schedule, repayment amount, tenure and opt out options”.
On the thorny issue of loan recovery, whereas the CBN is to set guidelines for ethical debt collection practices in the industry based on “dialogue, respect for the consumers’ privacy and longevity of consumer-operator relationships amongst others”, actual debt recovery processes, the rule prescribes, must be courteous, fair and non-coercive. Moreover, personnel assigned to recover debts are expected to be properly trained while consumers shall be informed in advance before a recovery process is initiated.
In case of contract variations, operators are expected to give prior notice to consumers within the time specified in contracts, before implementing variations in terms and conditions of contracts. Contractual language, it proposes, must be “precise, clear and unambiguous”. “Information”, in all cases, “must be communicated in plain and simple language to limit the possibility of misinterpretation. Contract documents must be in legible font size. Where technical terms are used, the financial operator shall take due care to ensure that such technical terms are clearly explained to the understanding of the consumer to avoid the occurrence of confusion or miscommunication”.
To generate increased business volumes or attract new customers,
financial operators are mandated to “provide factual information and
shall not seek to mislead consumers. Financial operators shall also not
take advantage of consumers’ inexperience, gullibility or lack of
understanding”.
These are just a few of the many provisions of the new rules.
We observe primarily that the rules are not necessarily novel or even different, at least in any fundamental sense, from the well-known conventions that have evolved over the course of the years and which have come to govern the operations in the financial services industry globally. That our practitioners have been carrying on in the absence of a codified body of guiding rules for financial service providers; the very idea that such important rules are only being set out in the form that is being proposed by the apex bank given the state of development in the industry is not only incongruous but unsettling. Indeed, it may well serve to explain a number of the puzzles that have hobbled the industry, factors that have rendered the goal of financial inclusion for majority a non-starter. Need we further ask why consumers of financial products are constantly treated to the short end of the stick; or question the arbitrariness that has characterised relations between service provider and the consumer, not to talk of the brazen criminality that some of these factors have given rise to?
We must however say that rules are important only to the extent that they are kept. The challenge really is getting the operators to obey them. In other words, the true test of the effectiveness of the rules would come later when practitioners are seen to abide by them. At the moment, we can only say of the proposed regulations: better late than never.
Last week, the media reported a set of fresh-mint regulations being proposed by the apex bank to protect bank customers from exploitation by banks. The draft regulations, said to be currently under consideration by the stakeholders, is as detailed and comprehensive as it could be –a rule book– a rather ambitious attempt to re-order and or erect a new operational and ethical foundation for the industry.
Among many, it starts with the broad goal for the Central Bank of Nigeria (CBN) – which is to “ensure that operators (banks) establish structures to prohibit predatory lending and hence support a positive credit culture in the industry”; for financial operators, it spells out its role in “credit counselling to prevent consumers’ indebtedness due to limited financial knowledge” as well as disseminate information on the existence of the services while also encouraging them to take advantage of them. It also wants lenders to “provide detailed information on the terms and conditions of a loan agreement to consumers prior to executing the loan agreement”. This must include the “pricing, repayment schedule, repayment amount, tenure and opt out options”.
On the thorny issue of loan recovery, whereas the CBN is to set guidelines for ethical debt collection practices in the industry based on “dialogue, respect for the consumers’ privacy and longevity of consumer-operator relationships amongst others”, actual debt recovery processes, the rule prescribes, must be courteous, fair and non-coercive. Moreover, personnel assigned to recover debts are expected to be properly trained while consumers shall be informed in advance before a recovery process is initiated.
In case of contract variations, operators are expected to give prior notice to consumers within the time specified in contracts, before implementing variations in terms and conditions of contracts. Contractual language, it proposes, must be “precise, clear and unambiguous”. “Information”, in all cases, “must be communicated in plain and simple language to limit the possibility of misinterpretation. Contract documents must be in legible font size. Where technical terms are used, the financial operator shall take due care to ensure that such technical terms are clearly explained to the understanding of the consumer to avoid the occurrence of confusion or miscommunication”.
These are just a few of the many provisions of the new rules.
We observe primarily that the rules are not necessarily novel or even different, at least in any fundamental sense, from the well-known conventions that have evolved over the course of the years and which have come to govern the operations in the financial services industry globally. That our practitioners have been carrying on in the absence of a codified body of guiding rules for financial service providers; the very idea that such important rules are only being set out in the form that is being proposed by the apex bank given the state of development in the industry is not only incongruous but unsettling. Indeed, it may well serve to explain a number of the puzzles that have hobbled the industry, factors that have rendered the goal of financial inclusion for majority a non-starter. Need we further ask why consumers of financial products are constantly treated to the short end of the stick; or question the arbitrariness that has characterised relations between service provider and the consumer, not to talk of the brazen criminality that some of these factors have given rise to?
We must however say that rules are important only to the extent that they are kept. The challenge really is getting the operators to obey them. In other words, the true test of the effectiveness of the rules would come later when practitioners are seen to abide by them. At the moment, we can only say of the proposed regulations: better late than never.
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