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FINANCIAL INCLUSION FOR INDIVIDUALS
consumer protection for finance, there may also be problems because of a lack of knowledge of financial sector issues in the agency. In the case of Brazil, for example, the Consumer Protection Secretary is supported at the local level by consumer protection bureaus known as procons, which provide services directly to citizens across all product and service categories and through a variety of means, including by phone, in person at an office, and by mobile procon vans. While these bureaus are important in making consumer protection accessible to more Brazilians, they may lack the specific knowledge of finance necessary for effective action. On several key consumer protection issues, leading procons have taken positions against financial regulators and arguably against the interests of consumers. For example, procons have criticized the law creating the positive data archive in the credit reporting system (the cadastro positivo) on the basis of concerns over data protection that are valid, but have not balanced this by discussing the potential gains through the cadastro from more transparent and competitive credit markets. In the case of the payment card industry, procons defend the right to claim nao sobre preco (often translated as the law of one price), arguing that consumers should not be subject to higher costs for goods purchased with credit cards instead of cash. However, this is a position that strengthens the hand of card acquirers in their dealings with retailers and may contribute to higher prices, which is not in the interest of consumers (Central Bank of Brazil, Ministry of Finance, and Ministry of Justice 2010).
The organization of consumer protection In some countries, including Malawi, Portugal, and, until recently, the United States, financial regulators are responsible for prudential supervision, consumer protection, and market conduct. In countries with limited resources and institutional capacity and a lack of professional staff able to perform financial market supervision, combining these two functions may be the best solution. There are also advantages to combined supervision given that the market intelligence gained
GLOBAL FINANCIAL DEVELOPMENT REPORT 2014
through the enforcement of consumer protection regulations can be useful for prudential supervision, and vice versa. Prudential regulators also tend to be well funded and attract top-quality staff, providing a strong institutional framework for consumer protection and market conduct activities. However, there is also a potential downside to this approach. This may include inefficiencies and diseconomies of scale because of a lack of harmony and poor task delegation across banking, insurance, and securities and the competition of resources between the two regulatory functions, which could result in circumstances in which regulators choose to maintain financial sector stability at the expense of consumer protection. For these reasons, some countries have created a specific regulator for financial consumer protection and market conduct issues. Another reason for separating prudential and consumer protection regulation relates to the wide range of providers offering financial products and services, many of which are nonbank financial institutions. This kind of twin peaks approach is considered a way to limit regulatory gaps and ensure competitive neutrality (Čihák and Podpiera 2008). Because of the relative stability of banking systems in countries such as Australia and Canada during the global financial crisis, interest in the twin peaks model of supervision has been growing in recent years. In the United States, a new supervisory structure, anchored by the Consumer Financial Protection Bureau, has been established to focus on consumer protection and market conduct. In the United Kingdom, a similar change has been undertaken through the creation of the Financial Conduct Authority. An alternative approach involves the establishment of a general consumer protection agency responsible for financial consumer protection. In the United States, for example, prior to the creation of the Consumer Financial Protection Bureau, the Federal Trade Commission handled some aspects of financial consumer protection, including complaints related to credit reporting. The advantages of this approach include regulatory independence because officials are not