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BULGARIA

Diagnostic Review of Consumer Protection and Financial Capability Volume I

Key Findings and Recommendations

May 2009

Private and Financial Sector Development Department Europe and Central Asia Region Washington, DC


BULGARIA

Diagnostic Review of Consumer Protection and Financial Capability Volume I Key Findings and Recommendations

May 2009

THE WORLD BANK Private and Financial Sector Development Department Europe and Central Asia Region Washington, DC

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This Diagnostic Review is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent.

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BULGARIA Diagnostic Review of Consumer Protection and Financial Capability Volume I Key Findings and Recommendations

Contents Abbreviations & Acronyms ............................................................................................ iv Foreword......................................................................................................................... v Acknowledgments........................................................................................................... vi Executive Summary ........................................................................................................ 1 Introduction ..................................................................................................................... 7 Importance of Consumer Protection & Financial Capability ......................................... 8 Bulgarian Policy for Consumer Protection in Financial Services in the EU Context .. 11 Background on Bulgarian Household Finances............................................................ 14 Key Findings & Recommendations .............................................................................. 17 Institutional Structure.................................................................................................19 Consumer Disclosure .................................................................................................24 Business Practices ......................................................................................................28 Inquiries, Complaints & Disputes ..............................................................................31 Financial Education ...................................................................................................37 References ..................................................................................................................... 40

Tables Table 1: Household Currency Exposures ..................................................................... 16 Table 2: Household Use of Financial Services by 2008 ............................................... 16 Table 3: Number of Complaints Received by European Complaint Services in 2007 . 33

Figures Figure 1: Household Loans by Purpose and Maturity .................................................. 14 Figure 2: Shares of Foreign Currency Loans in Household Loan Portfolios ............... 15 Figure 3: Shares of Bad and Restructured Loans in Household Loan Portfolios ......... 15

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Abbreviations & Acronyms ABB ABI ADR AMC APR BAAMC BAL BALIP BASPSC BGN BNB BSE-Sofia CEE CIU COE CPC DOLCETA DG SANCO EC EU EU-15 FSC FX GDP IMF IT KYC LIBOR MFI Act MiFID MOU MTPL NBCI NGO NMS OECD SIC SOFIBOR UCITS UK USA USAID USD n.a. $1 =

Association of Banks in Bulgaria Association of Bulgarian Insurers Alternative dispute resolution Asset management company Annual Percentage Rate of Charge Bulgarian Association of Asset Management Companies Bulgarian Association of Leasing Bulgarian Association of Licensed Investment Brokers Bulgarian Association of Supplementary Pension Security Companies Bulgarian Lev (local currency) Bulgarian National Bank Bulgarian Stock Exchange-Sofia Central and Eastern Europe Collective investment undertaking Council of Europe Consumer Protection Commission Development of On-Line Consumer Education Tools for Adults Directorate-General for Health and Consumers (of the EC) European Commission European Union Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom Financial Supervision Commission Foreign Exchange Gross domestic product International Monetary Fund Information technology Know your customer London Interbank Offered Rate Market in Financial Instruments Act Directive on Markets in Financial Instruments Memoranda of Understanding Motor third party liability Non-bank credit institution Non-governmental organization EU New Member State Organisation for Economic Co-operation and Development Social Insurance Code Sofia Interbank Offered Rate Undertakings for Collective Investment in Transferable Securities United Kingdom United States of America United States Agency for International Development United States Dollar

Not Available 1.48 BGN (April 2009)

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Foreword Consumer protection in financial services lies at the heart of any financial sector that is efficient, competitive and fair. Three areas are important. Customers of financial institutions should have the right to receive information that is clear, complete, accurate and comprehensible before they decide to borrow or to invest. They should have access to recourse mechanisms that are efficient and cost-effective. They should also be able to obtain sufficient financial education to understand the terms and conditions and other information provided to them as financial consumers. We are pleased to provide this pilot Diagnostic Review of Consumer Protection and Financial Capability in Bulgaria and thank the Bulgarian authorities for their valuable cooperation and collaboration in its preparation. The Review not only looks at financial services in Bulgaria but also refines a set of good practices or benchmarks for use in reviewing consumer protection in financial services in any jurisdiction. It is expected that this work will prove helpful to the international community and those in emerging markets who seek to establish common ground for minimum good practices in consumer protection in financial services.

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Acknowledgments This review was prepared by a team led by Sue Rutledge, Regional Corporate Governance/ Consumer Protection Coordinator and Senior Private Sector Development Specialist, World Bank. The project team consisted of Brett Coleman (Senior Financial Sector Specialist), Evgeni Evgeniev (Private Sector Development Specialist), Martin Melecky (Financial Economist), Rodolfo Wehrhahn (Senior Insurance Specialist), Richard Symonds (former Senior Counsel), Juan Carlos Izaguirre Araujo (Consultant) and Bujana Perolli (Consultant). All are of the World Bank. The Bulgarian version of this report was made possible thanks to the translation of Simeon Enchev. The report was prepared under the general guidance of Orsalia Kalantzopoulos (Country Director for Bulgaria) and Fernando Montes-Negret (Director of the Finance and Private Sector Development Department of the European and Central Asia Region). Florian Fichtl (Country Manager for Bulgaria) provided detailed comments and strategic guidance to the team. Peer review comments were received from TomĂĄĹĄ Prouza, former Deputy Finance Minister of the Czech Republic, and Antony Randle, Consultant of the World Bank. Helpful comments and advice were also provided by the Ministry of Finance, Ministry of Economy and Energy, Bulgarian National Bank, Financial Supervision Commission and the Consumer Protection Commission. The authors of this report are grateful to all for their contributions.

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Executive Summary The global financial crisis has highlighted the importance of consumer protection and financial capability as medium-term measures supporting financial sector development. In addition to short term measures to mitigate economic impacts, policymakers are taking steps to build better foundations for future development of the financial systems through improved regulatory reforms. These medium-term measures involve enhanced financial prudential regulation and oversight, financial sector governance (including governance of financial regulators and supervisors), business conduct regulation and supervision, and financial consumer protection. The latter receives an increasing emphasis not only in developed countries but also in emerging market economies, as most of the risk exposures associated with the latest credit boom period were assumed primarily by households. Financial consumer protection improves efficiency of financial intermediation—and indirectly reduces risks to financial stability. At its heart, consumer protection addresses power, information, and resource imbalances which place consumers at a disadvantage vis-à-vis financial institutions. Financial institutions are very familiar with the terms and conditions of their financial products and their risk characteristics. Retail consumers may find it difficult or costly to obtain sufficient information on their financial purchases or understand complex financial products even when relevant information is disclosed. Consumers who are empowered with information and basic rights—and who are aware of their responsibilities—provide an important source of market discipline to the financial sector, encouraging financial institutions to compete on the basis of useful products and services. In addition, financial consumer protection builds trust in financial systems and helps broaden and diversify the depositors’ base. Such public confidence indirectly reduces the liquidity risk of the banking sector. Consumer protection is gaining increasing importance at both the EU and Bulgarian level. The EU Consumer Policy strategy of 2007-13 sets three objectives to: (i) empower consumers by ensuring that they have real choices, accurate information, market transparency, and the confidence that comes from effective protection and solid rights; (ii) enhance consumers' welfare regarding price, choice, quality, diversity, affordability and safety of products; and (iii) protect consumers as a group from the serious risks and threats that cannot be withstood on an individual basis. An October 2008 report of the European Parliament also identified measures to be taken to improve financial education throughout the EU. Consumer protection legislation and institutions have been put in place in Bulgaria. Consumer protection is firmly based in Bulgarian law in both the Constitution and the Consumer Protection Act. The Act establishes the Consumer Protection Commission (CPC) within the Ministry of Economy and Energy. In addition, the National Consumer Protection Council, involving representatives of the government and consumer protection associations, was set up to advise the Minister of Economy and Energy on policy strategy concerning consumer protection. The Consumer Policy Strategy for 2004-07 set three goals: (i) establishment of a high level of consumer protection, (ii) effective enforcement 1


of the legislation and (iii) promotion of the activity of consumer protection associations. The Consumer Policy Strategy for 2010-2013 is under preparation. Bulgarian legislation has transposed the key EU Directives related to consumer protection in financial services and more revisions are being implemented. The 2007 revisions to the Consumer Protection Act transposed EU Directives related to financial consumer protection. The Directives on Consumer Credit, Distance Selling and Unfair Commercial Practices have also been transposed into Bulgarian law. At the same time, changes to the securities legislation incorporated the Directive on Markets in Financial Instruments (MiFID) while revisions to insurance legislation transposed the Directives on Life Insurance and Insurance Mediation. The Payment Service Directive was transposed into Bulgarian law. Revisions to the Law on Credit Institutions bring leasing and consumer finance companies under supervision of the Bulgarian National Bank (BNB). The Central Credit Register, held by the BNB and consisting of outstanding consumer and mortgage loans by banks, has been expanded to include reporting from all credit providers. Use of consumer financial services has been increasing in Bulgaria. Between 2003 and 2007, household borrowings increased from 7 to 24 percent of GDP. In addition, a survey conducted in September 2008 by the market research institute, GfK Bulgaria, found that one-third of Bulgarian consumers hold a debit card while about 9 percent have credit cards. The use of bank cards has significantly increased relative to January 2005, when GfK Bulgaria showed that only 20 percent held debit cards and 2 percent used credit cards. Saving products appear to be less widespread than bank cards since only 12 percent own a saving product of one form or another. At the same time, consumers complain about the practices of financial institutions. About 1,200 complaints and disputes were presented to the authorities in 2008. The Financial Supervision Commission (FSC) reported 791 complaints related to insurance products. For banking services about 100 complaints were submitted to the BNB and another 80 to the CPC. Detail is not provided on the nature of the complaints. However, some anecdotal information is provided by the financial guide Moite Pari (www.moitepari.bg), which indicates that consumers have complained that: (1) financial institutions can change their lending or deposit rates without notice to customers and without clear explanation of the changes; (2) important details of the terms and conditions of financial products are contained in contracts that are difficult for consumers to understand; (3) personnel of financial institutions are unable to explain to customers their financial products; (4) consumers have difficulty obtaining information in a format that allows them to compare offers by different institutions; (5) consumers do not receive monthly statements from financial institutions; and (6) in case of disputes over entries in credit register, consumers have difficulty obtaining correction of errors. In addition, the October 2008 Eurobarometer survey of consumer protection in 27 EU Member States indicated that Bulgarian consumers need a strengthened consumer protection framework for all sectors, including financial services. Twothirds (64 percent) of Bulgarian consumers disagreed that they were adequately protected

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by existing measures to protect consumers, while among the EU just over one-third (39 percent) were similarly critical. When trying to decide what to do when a complaint was not satisfactorily resolved, 22 percent of Bulgarian consumers (but only 14 percent in the EU) went to a consumer association or consumer help desk for assistance. However more than three-quarters gave up. 78 percent of dissatisfied consumers in Bulgaria took no further action (vs. only 51 percent among the EU). Clearer and more transparent rules—with effective enforcement mechanisms—are needed to further strengthen Bulgarian financial consumer protection framework and practices. Clear rules not only help ensure that financial institutions maintain high standards in their treatment of retail customers, but also help consumers understand their legal rights—and responsibilities—as purchasers of financial services and products. Financial education will help consumers understand their legal rights, but such rights must first be clearly articulated in laws, regulations and codes of conduct. While much improvement has been made in Bulgaria’s legal and regulatory framework for financial consumer protection, there are still some gaps that create loopholes and undermine the effectiveness of supervisory agencies in improving consumer protection. For example, whereas the rules on consumer disclosure for consumer credits are extensive, those for residential mortgages remain minimal. Measures to improve consumer protection and financial capability should be pragmatic and effective—and empower consumers. The Review recommends five main measures: A) Strengthen the institutional structure supporting financial consumer protection, B) Improve the rules related to quality and user-friendliness of consumer disclosure, C) Strengthen the rules that govern the business practices of financial institutions vis-à-vis consumers, D) Improve the mechanisms to address consumer complaints and disputes, and E) Expand the access of consumers to useful and timely financial education. A)

Institutional Structure

A clear structure for consumer protection in financial services is needed. Under the current structure, several agencies are responsible for addressing problems for financial consumers. For consumer credit and retail payments, consumers must approach the CPC for help, but for insurance, securities, investment funds and pensions, consumers should go to the FSC. However problems with credit registers should be presented to the Commission for Personal Data Protection. In cases where the law does not explicitly mention a competent authority, such as residential mortgages or personal leases (which are not considered to be consumer credits), CPC is the responsible authority for consumer protection. The institutional structure for financial consumer protection should be improved. The current framework provides for clear responsibilities for the agencies responsible for developing consumer policy and preparing consumer protection legislation. However less 3


clear are the responsibilities for enforcing financial consumer protection legislation and for helping to resolve disputes with consumers on individual cases. To ensure effective consumer protection in financial services, six functions are needed. They are to: (1) resolve financial consumers’ inquiries and complaints; (2) reconcile disputes; (3) gather, publish and analyze data on consumer complaints; (4) submit consolidated reports of consumer complaints and disputes to financial supervisors; (5) recommend measures to improve consumer protection; (6) initiate and conduct other activities contributing to effective and efficient financial consumer protection. All require both clear rules and effective enforcement mechanisms. Responsibility for the six areas can be divided in various ways. For Bulgaria, three approaches for the institutional structure might be considered: a) The CPC would be responsible for supervision of compliance with consumer protection legislation for all financial services, not just consumer credits and payments but also mortgages as well as leasing, insurance, securities investments, private pension plans, and credit reporting. This would require substantial capacity building within the CPC and establishment of a specialized department for financial services with additional resources. Under this option, conciliation committees should be established as permanent standing committees for each type of financial service (along the lines of the Conciliation Committee for Payment Disputes) and their operations should be improved. In the medium-to long-term, the financial services department should be detached from the CPC as a separate financial ombudsman office. b) The financial supervisory agencies would be responsible for supervision of compliance with consumer protection legislation for financial services. In this case, the CPC would be responsible for resolving consumer disputes for no financial services. Financial supervision would be provided by either the BNB or FSC and extended to cover all institutions relevant for financial consumer protection. This would require that the legal mandate of the BNB be revised to include the additional responsibility of financial consumer protection. This is not without difficulties. Combining prudential supervision with consumer protection creates conflicts for supervisory agencies but may also provide useful insights into financial stability issues arising from insufficient consumer protection. c) A financial ombudsman would be established to handle all disputes, complaints and inquiries related to consumer financial services, eventually replacing the role of the conciliation committees. The financial ombudsman could be responsible for consumer protection covering all six areas noted above. Alternatively, the financial ombudsman could be limited to providing an alternative dispute resolution mechanism outside the courts, as is currently done by the conciliation committees. The approaches are not mutually exclusive. For example, a financial ombudsman could complement the work of either the CPC or the financial supervisory agencies.

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The Diagnostic Review recommends the first option—that the CPC cover consumer protection legislation for all financial services—as an interim solution, but with consideration of a financial ombudsman as a long-term solution. Whatever solution is chosen, substantial effort and resources will be needed to implement an effective institutional structure. If the option of creating a financial ombudsman is selected, an intermediate approach would be to start by establishing a financial ombudsman office within the CPC and later considering spinning-off the office as a separate agency. Consideration should also be given to whether the ombudsman should be under the professional associations or set up as an independent authority established by law. Again the issue is complex. The work of an ombudsman set up under a professional association is facilitated by a voluntary agreement among the association members to abide by the ombudsman's decisions, generally up to small awards. Such small amounts are not generally large enough to be of concern to financial institutions and the ombudsman can carefully review each case on its merits in order to ensure that consumers feel that they have been treated fairly. International experience, for example in Germany, suggests that a banking association ombudsman is an effective and efficient approach to resolving consumer concerns over treatment by financial institutions. On the other hand, an ombudsman set up by a banking association would not be able to cover insurance or other financial services and more ombudsmen—one for each professional association in the financial sector—would be needed. Also in some countries there is concern that an ombudsman set up and funded by a professional association would be beholden to the financial institutions that are members of the association—or would be seen as such by the public. The Diagnostic Review recommends that careful consideration of the advantages and disadvantages of each type of ombudsman be conducted. Consumer associations should play a strong role in consumer protection in Bulgaria. Whatever option is selected, consumer associations should become strong advocates of financial consumers through their greater participation in policy-making concerning consumer protection. While increased financing support from the state budget is recommended, consumer associations should also increase their transparency, improve their accountability frameworks, and establish strong reporting links to policy makers. B)

Consumer Disclosure

Consumer information should be improved. Where consumers can obtain clear and comparable information, they can make informed choices and ensure that the financial products that they purchase are suitable for their needs and objectives. Clear laws and regulations—and effective enforcement mechanism—are needed to ensure meaningful disclosure of consumer financial products. The Bulgarian legislation on consumer credit requires clear simple information on key terms and conditions in consumer credit contracts. However a Key Facts Statement for each type of standard retail financial product would further help consumers understand the key terms and conditions of their contracts, particularly for insurance and pensions, and compare the conditions of products among different financial entities. It is recommended that the professional associations

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develop standardized formats for a Key Facts Statement for each type of standard retail product. The disclosure requirements for consumer credits should also be applied to residential mortgages. Consumers should be able to obtain a copy of the full terms and conditions of retail financial products before applying for a product. Investment returns should be presented on a risk-adjusted basis with an indication of basic risk parameters. Advertising for financial services should be closely monitored to ensure that it is not misleading. Tariff surveys showing comparison pricing of financial products would be helpful. C)

Business Practices

Business practices need to be strengthened. The codes of ethics (conduct) prepared by the professional associations should be widely disseminated and their implementation regularly monitored by the CPC. All providers of consumer financial services should be obliged to be registered and their business conduct should be subject to ,monitoring by a financial supervisory agency. The insurance and pension companies should be liable for the actions of their agents. Consideration should be given to the training and certification of all sellers of financial services. Procedures for account handling should be improved. It may be useful to apply "cooling-off" periods to longer-term financial products. Consumers should be allowed to choose the provider of any product required for another financial product. Use of a "mystery shopper" may also provide useful insights on existing sales practices. D)

Inquiries, Complaints and Disputes

Treatment of consumer complaints and disputes lies at the heart of financial consumer protection. All financial institutions should be obliged to establish a clear process for dealing with customer complaints and their timely resolution. In Bulgaria, about 1,200 complaints and disputes about financial services were presented to the state authorities in 2008—but this may understate the actual number of complaints. The statistics on the number and types of consumer complaints regarding financial services should be consolidated, published and analyzed. Conciliation committees help in finding an amicable solution for customer disputes. However the structure of conciliation committees should be improved, using the Conciliation Commission for Payment Disputes as a useful model. Consideration should be given to various mechanisms of making the decisions of the conciliation committees binding on financial institutions for small amounts of money. Bulgarian legislation allows for class-action lawsuits by consumers and consumer associations, but their effectiveness in providing collective redress should be monitored. It is recommended that Bulgaria joins FIN-NET, the network of national out-of-court complaint schemes in the European Economic Area countries that are responsible for handling disputes between consumers and financial services providers.

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E)

Financial Education

Bulgaria includes financial education as part of the consumer protection legislation but consumer awareness remains extremely low. Some programs in Bulgaria are underway but much more is needed. Preparing effective financial education programs is not an easy task. A distinction should be made among three different types of programs— financial education vs. information vs. advice. Financial education programs should be carefully designed and rigorously evaluated and viewed as a long-term investment. A baseline survey of financial capability should be used to identify vulnerable parts of the Bulgarian population and design targeted financial education programs. Follow-up surveys should be conducted every three to five years to evaluate the effectiveness of the programs of financial education and consumer awareness.

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Introduction The Diagnostic Review of Consumer Protection and Financial Capability in Bulgaria is the eighth report in a World Bank-sponsored pilot program to assess consumer protection in financial services in developing and middle-income countries.1 The objectives of this Review are three-fold to: (1) conduct a review of the existing rules and practices in Bulgaria compared to international good practices on consumer protection in financial services; (2) provide recommendations on ways to improve consumer protection in financial services in Bulgaria; and (3) refine a set of good practices prepared by the World Bank for assessing consumer protection in financial services, including financial capability. The Diagnostic Review was prepared at the request of Ministry of Finance with the valuable input of the Bulgarian National Bank, the Financial Supervision Commission, the Ministry of Economy and Energy, the Consumer Protection Commission and the Commission for the Protection of Competition, other public entities, the Association of Banks in Bulgaria, consumer associations and experts from the financial and legal community. The good practices used in the Review were developed based on international approaches in both developed and developing countries to effective and efficient consumer protection in financial services. 2 A set of good practices was initially assembled for the Slovakia Review and was subsequently revised for the Romania, Croatia, Russia and Azerbaijan Reviews. The good practices incorporate the provisions of the EU Directives related to consumer protection and the reports of European financial regulatory and supervisory agencies as well as the laws, regulations and business practice codes in the United States, Australia, Canada and other countries worldwide. The Organization for Economic Cooperation and Development (OECD) has also released sets of good practices for financial education and awareness on pensions and insurance3, and a set of draft good practices for credit products, supplementing the recommendations presented in its 2005 global review of financial education programs.4 While the good practices are based on different countries’ international experience in financial consumer protection, the good practices have not yet been tested as a set of benchmarks during a global financial crisis. It is likely that the ongoing financial crisis will provide useful insights to stimulate further revisions of the good practices. In the interim, the good practices provide a useful tool for conducting systematic assessments of a country’s legal and regulatory framework for financial consumer protection. 1

In chronological order, other reports on consumer protection in financial services have been prepared for the Czech Republic, Slovakia, Azerbaijan, Romania, Croatia, Russia and Lithuania. The set of published final reports on financial consumer protection can be downloaded at http://www.worldbank.org/eca/consumerprotection. 2 The World Bank has released the document Good Practices for Consumer Protection and Financial Literacy in Europe and Central Asia: A Diagnostic Tool as a Consultative Draft. A copy can be downloaded at http://www.worldbank.org/eca/consumerprotection. 3 See OECD, Improving Financial Education and Awareness on Insurance and Private Pensions (2008) available at http://www.oecd.org/document/8/0,3343,en_2649_34851_41210376_1_1_1_1,00.html. 4 See OECD, Improving Financial Literacy: Analysis of Issues and Policies (2005), available at http://www.oecd.org/document/28/0,2340,en_2649_201185_35802524_1_1_1_1,00.html. 7


The publication of the Diagnostic Review for Bulgaria aims to enhance development of financial consumer protection both in Bulgaria and worldwide. In particular, it is anticipated that application of the good practices in middle-income countries, such as Bulgaria, will contribute to international policy dialogue on the key components of financial consumer protection and assist in the development of benchmarks that are widely accepted as generally applicable to consumer protection in financial services in any jurisdiction. The Review is presented in two volumes. Volume I notes the importance of consumer protection in financial services, provides statistics on the size and growth of the retail financial sector in Bulgaria, describes the Government's policy strategy for financial consumer protection, and sets out the key findings and recommendations of the Review. Volume II provides an assessment of the Bulgarian consumer protection framework and practices against the benchmark of good practices for five segments of the financial sector—banking, non-banking credit institutions, securities, insurance and private pensions. In addition, analysis of consumer protection and financial capability issues for the credit reporting system is provided. Annex 1 to Volume II provides a list of the key laws and institutions for consumer protection in Bulgaria.

Importance of Consumer Protection & Financial Capability The global financial crisis has highlighted the importance of consumer protection and financial capability as medium-term measures supporting financial sector development. In addition to short term measures to mitigate economic impacts, policymakers are taking steps to build better foundations for future development of the financial systems through improved regulatory reforms. These medium-term measures involve enhanced financial prudential regulation and oversight, financial sector governance (including governance of financial regulators and supervisors), business conduct regulation and supervision, and financial consumer protection. The latter receives an increasing emphasis not only in developed countries but also in emerging market economies, as most of the risk exposures associated with the latest credit boom period were assumed primarily by households. Each year the global economy adds an estimated 150 million new consumers in financial services. Most are in developing countries, where consumer protection and financial literacy are still in their infancy. Particularly in the countries that have moved from state planning to market economies, protecting the interests of consumers has become an important component of sound and competitive financial markets. Weak consumer protection and financial capability affect both developed and developing countries. Emerging countries worldwide have seen rapid development of their financial sectors over the last ten years and rapid growth of income has provided consumers with more resources to invest. Increased competition among financial firms, combined with improvements in their technology and infrastructure, has resulted in highly complex financial products sold to the public. However, the public in many emerging markets (particularly the post-transition countries of Europe and Central Asia) lacks a history of using sophisticated financial products. Even in well-developed markets, 8


weak consumer protection and financial literacy can render households vulnerable to unfair and abusive practices by financial institutions—as well as financial frauds and scams. At its heart, the need for consumer protection arises from an imbalance of power, information and resources between consumers and their financial service providers, placing consumers at a disadvantage. Consumer protection aims to address this market failure. Financial institutions know their products well but individual retail consumers may find it difficult or costly to obtain sufficient information on their financial purchases. Personal insurance, such as auto or life insurance, are often cited as examples of the imbalances. The complex contracts prepared by insurers—and the risk allocation between the consumer and the financial institution—are often beyond the capacity of most consumers to understand. A well-designed consumer protection framework can help reduce the imbalances of power and information between consumers and financial institutions. Consumer protection and financial capability promote efficiency and transparency of retail financial markets. Consumer protection attempts to redress the imbalances between retail consumers and financial service providers, giving individuals clear and complete information on which to make informed decisions and by prohibiting financial institutions from engaging in unfair or deceptive practices. Consumers who are empowered with information and basic rights—and who are aware of their responsibilities—provide an important source of market discipline to the financial sector, encouraging financial institutions to compete by offering better products and services rather than by taking advantage of poorly informed consumers. Financial capability helps consumers understand the information and make risk/return choices that optimize their financial wealth. Consumer protection also improves governance of financial institutions. By strengthening transparency in the delivery of financial services and accountability, consumer protection also helps promote good governance in the financial sector. Strong consumer protection can also have an indirect impact in reducing financial risks, contributing to financial stability. Both consumer protection and financial capability are needed to build trust in financial systems and thus broaden and diversify the deposit base. This, in turn, reduces liquidity risk of the banking sector. Empowered consumers also help foster financial stability by protecting themselves from incurring large exposures to market risks. This increases transparency of the credit risk assumed by the financial system and lowers the related monitoring costs for outsiders, including financial supervisors. In addition, consumer protection helps financial firms in facing the specific risks that arise in dealing with retail customers. In its April 2008 report, the Joint Forum of the Basel Committee on Banking Supervision, the International Organization of Securities Commission and the International Association of Insurance Supervisors identifies three key risks related to possible "mis-selling" financial products to retail

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customers. 5 They are: (1) legal risk, if successful lawsuits from collective action by customers or enforcement actions by supervisory agencies result in obligations to pay financial compensation or fines; (2) short-term liquidity risk and long-term solvency risk, if retail customers are treated unfairly and thus shun the financial institution and withdraw their business; and (3) contagion risk, if the problems of one financial institution (or type of financial product) spread across the financial sector. Effective consumer protection can help ensure that the actions of financial firms do not make them subject to criticisms of mis-selling. Consumer protection could also shield the financial sector from the risk of political over-reaction in periods of financial turmoil. The political response to collapses of parts of the financial sector may be to over-compensate with heavy regulation. The impact of too little consumer protection became evident, for example, during the insurance and superannuation scandals in the United Kingdom and Australia. The result of the scandals was seen in extensive studies on recommendations for wide-ranging regulatory reform. Financial consumer protection has two modes of delivery: (1) regulation, and (2) financial education. Some substitution is possible. For example, in developed markets with informed consumers, financial education can empower consumers to demand clear and comparable information and seek redress over disputes. However in most markets, financial education alone is not sufficient and some regulation is needed. The reasons are three-fold: (1) financial education will always lag behind the development of financial markets, (2) the direct (immediate) costs of implementing financial education programs are relatively high compared to regulation, and (3) the existing governance structure (incentives) of financial markets does not support adequate market discipline. However regulation also imposes a cost on the financial sector. Regulation can impair both competition and innovation in the financial sector, thus raise consumer costs and obstruct development of adequate market discipline that would hold risk-taking in check. Clear priorities need to be set. Regulation should be subject to cost-benefit analysis and consumer protection regulations should be assessed to determine their impact on sound consumer finance.6 An effective and efficient consumer protection framework should provide consumers with: 

Transparency by providing full, plain, adequate and comparable information about the prices, terms and conditions (and inherent risks) of financial products and services;

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Joint Forum of the Basel Committee on Banking Supervision, the International Organization of Securities Commission and the International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008. 6 Bulgarian legislation on consumer protection issues is mainly driven by the application of EU Directives. The recent Directives have maximum harmonization character, which means that Member States are obliged to establish the level of protection set out in the Directive and they are not allowed to go further than that level. 10


   

Choice by ensuring fair, non-coercive and reasonable practices in the selling of financial products and services and collection of payments; Redress by providing inexpensive and speedy mechanisms to address complaints and resolve disputes; and Privacy by ensuring control over access to personal financial information. Access to financial education that enables consumers develop the financial capability required to understand the risks/return (cost) trade-offs, and their rights and obligations regarding the financial products and services that they buy.7

Bulgarian Policy for Consumer Protection in Financial Services in the EU Context The EU Consumer Policy strategy 2007-2013 aims to strengthen consumer protection and financial literacy.8 The strategy has three objectives to: (1) empower consumers by ensuring that they have real choices, accurate information, market transparency, and the confidence that comes from effective protection and solid rights; (2) enhance consumers' welfare regarding price, choice, quality, diversity, affordability and safety of products; and (3) protect consumers as a group from the serious risks and threats that cannot be withstood on an individual basis. Key steps for the implementation of the strategy involve development of benchmarks for national consumer policies, including a consumer protection policy for the financial sector, and collection of service quality data and complaint statistics. The EU takes the approach that an effective regime of financial consumer protection covers three areas. Consumers should have access to: (1) sufficient information to make informed decisions in the purchase of financial services, (2) cost-effective recourse mechanisms to redress violations of the financial service contract, and (3) programs of financial education. Financial education is being emphasized in the program under development in the EU. In November 2007, the European Commission (EC) released its survey of over 150 financial education programs conducted in the 27 Member States. An October 2008 report of the European Parliament identified six measures to be taken to improve financial education throughout the EU.9 They are: 1) A basic program in financial education should be developed at the EU level to set common rules and principles to be applied in Member States; 2) The Commission should recommend that Member States include financial education in their national school curricula; 3) Special targeted approaches should be developed for school children, college students, adults, low-income households and pensioners;

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Financial education is also needed to help households in making long-term financial decisions, such as savings for retirement or sending children to college. However such "life-cycle" planning is beyond the direct scope of consumer protection in financial services. 8 EU Consumer Policy Strategy 2007-2013 COM (2007) 99 final. http://ec.europa.eu/consumers/ overview/cons_policy/EN%2099.pdf. 9 European Parliament Report on protecting the consumer: improving consumer education and awareness of credit and finance (2007/2288(INI)) http://www.europarl.europa.eu/sides/getDoc.do?language=EN&reference=A6-0393/2008. 11


4) Member States should develop networks of financial education, with participation of government and non-government agencies, as well as specially trained tutors; 5) The Commission should encourage Member States to establish special programs for pensioners and consumers at the end of their professional careers; and 6) The Commission should create a budget for financial education programs at the EU level, covering media campaigns to increase consumer awareness of the problems created by low financial literacy. In its Communication on Financial Education the Commission noted it would conduct a comprehensive review in 2010 to evaluate the effectiveness of existing programs of financial education among Member States. 10 In Bulgaria, consumer protection is also firmly based in the law. Consumer protection is firmly enshrined in the Constitution of the Republic of Bulgaria. Article 19 of the Constitution adopted on July 12, 1991 says that “the state shall establish and guarantee equal legal conditions for economic activity to all citizens and corporate entities by preventing any abuse of a monopoly status and unfair competition and by protecting the consumer.” In addition, the Consumer Protection Act specifies eight consumer rights. They are the right to:  Be informed about products and services;  Be protected against products and services that are hazardous to consumers' life, health or property;  Protection of economic interests with regard to unfair commercial practices and methods of sale, unfair contractual terms, and provision of guarantees associated with consumer goods;  Obtain redress for damage caused by defective products;  Access judicial and out-of-court procedures for the resolution of consumer disputes;  Education on issues related to consumer protection;  Association for the purposes of protecting consumers' interests; and  Be represented before State bodies making decisions on issues affecting consumers. The initial legislation created consumer protection institutions. The initial consumer protection legislation was approved as early as 1999 and it established the Consumer Protection Commission as a legal entity within the Ministry of Economy. At the same time, the National Consumer Protection Council was set up to advise the Minister of Economy on strategic policies on consumer protection. The Consumer Policy Strategy for 2004-07 identified six priorities for strengthening of consumer protection in Bulgaria. They were to: (1) complete the process of harmonizing the consumer protection legislation, including consumer protection in crossfrontier payments, e-commerce and financial services; (2) create conditions for the effective implementation and enforcement of legislation and to provide support to lawenforcement bodies; (3) improve the institutional structure for consumer protection and 10

European Commission, Communication from the Commission: Financial Education, COM (2007) 808 final http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52007DC0808:EN:NOT. 12


its effectiveness; (4) provide assistance to non-government associations for consumer protection, in order to involve them more actively in the process of setting up policy and its implementation; (5) ensure a stronger representation of consumer associations in collective decision-making bodies; and (6) improve consumer access to justice. In 2007 and 2008 new legislations related to financial consumer protection were enacted. However, in 2008 the Ministry of Economy and Energy’s Consumer Protection Directorate was inactive in terms of policy initiation in the field of consumer protection. In addition, the National Consumer Protection Council did not meet even once in the past year, although its Statute (in force since June 10, 2006) requires a meeting every four months. In 2009, the Ministry of Economy and Energy is expected to develop the Consumer Policy Strategy for 2010-13. The October 2008 Eurobarometer survey of the 27 EU Member States suggests that Bulgarian consumers need a strengthened consumer protection framework for all sectors, including financial services.11 The Eurobarometer survey was requested by DG SANCO to look at consumer protection in all sectors (including financial services). Among the EU, more consumers in Bulgaria felt that they were inadequately protected on consumer protection than in any other Member State. Two-thirds (64 percent) of Bulgarian consumers disagreed that they were adequately protected by existing measures to protect consumers, while among the EU just over one-third (39 percent) were similarly critical. Moreover, Bulgarian consumers were reluctant to rely on either government or non-government organizations (NGOs) to protect their interests. Only 27 percent in Bulgaria trust public authorities to protect their interests (vs. 54 percent average among the EU.) Still fewer would rely on consumer associations to help them. Only 22 percent of Bulgarians trust independent consumer organizations to protect their consumer rights (vs. 64 percent among the EU). Furthermore, the conciliation committees have not yet become an effective method of recourse for Bulgarian consumers. Only 12 percent thought that it was easy to resolve disputes using arbitration, mediation or conciliation bodies (vs. 39 percent among the EU.) When trying to decide what to do when a complaint was not satisfactorily resolved, 22 percent of Bulgarian consumers (but only 14 percent in the EU) went to a consumer association or consumer help desk for assistance. However more than three-quarters gave up. 78 percent of dissatisfied consumers in Bulgaria took no further action (vs. only 51 percent among the EU). Regarding general consumer protection in goods and services, Bulgarian consumers are primarily interested in having strong laws to protect their interests. When asked how best to protect consumers, the Eurobarometer survey found that the largest number of Bulgarian consumers (45 percent) preferred the legal right to terminate a contract or asking for a price reduction or repair of the goods. Tied for the second best ways (for 43 percent of Bulgarians) were the legal obligations of providers to ensure safe goods and services and not to mislead or deceive consumers. Only one-third chose disclosure as their favorite form of consumer protection. Just 34 percent thought that clear written information about the goods or services and the sales contract was the best way to protect consumers. 11

European Commission, Special Eurobarometer No. 298, Consumer protection in the internal market, October 2008. 13


While the Eurobarometer survey provides useful insights, a survey focused on consumer protection in financial services is needed. Due to their specialized nature, financial services constitute a unique set of issues related to consumer protection. A specialized survey on consumer behavior and attitudes regarding financial services would be helpful in designing targeted policy measures to strengthen financial consumer protection. Such a survey could be part of a survey on financial capability, as proposed below.

Background on Bulgarian Household Finances The financial indebtedness of Bulgarian households—and the maturity of household loans12 rose from 2003 to 2007. Consumer debt increased almost six-fold from 2003 to 2007 as household borrowings rose from 7 percent of GDP in 2003 to 24 percent in 2007. Loans for house purchases gained an increased share in the portfolio of loans to households and non-profit institutions serving households (henceforth household loans), thereby increasing the maturity of the portfolio. Since December 2003, the percentage of loans with maturities of between one and five years has been decreasing (from 65 percent of total household loans to 11 percent by end-2008) while loans with maturity above five years have been increasing proportionately and stood at 74 percent by the end of 2008 (see Figure 1). Figure 1: Household Loans by Purpose and Maturity Shares of Household Loans by Purpose

Shares of Household Loans by Maturity

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10% 0%

0% Dec 02

Dec 03

Dec 04

Dec 05

Dec 06

Dec 07

Overdraft

Consumer loans

Loans for house purchase

Other loans

Dec 02

Dec 08

Dec 03

Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Loans with maturity up to 1 year Loans with maturity over 1 up to 5 years Loans with maturity over 5 years

Source: BNB.

Households have increasingly borrowed in foreign exchange, although almost entirely in Euros. Household loans in foreign currencies (primarily Euros) rose from 7 percent at the end of 2002 to 29 percent by end-2008 (see Figure 2). Lower borrowing interest rates in Euros relative to Levs, in combination with Bulgaria’s currency board regime (foreign exchange rate of Lev pegged to the Euro) has encouraged Bulgarian consumers to borrow in Euros rather than borrow in the local currency. 12

The data on household loans used in this section correspond to the statistics on “loans to households and non-profit institutions serving households” granted by “other monetary financial institutions” as published in the English version of the Bulgarian National Bank’s Monetary Statistics of December 2008. 14


Figure 2: Shares of Foreign Currency Loans in Household Loan Portfolios 50%

40%

30%

20%

10%

0% Dec 02

Dec Dec Dec 03 04 05 Total household loans Loans for house purchase

Dec Dec Dec 06 07 08 Consumer loans Overdraft and other loans

Source: BNB.

Delinquencies in household loans were rising but stabilized in 2007. Bad and restructured household loans have increased from 1 percent of total household loans in December 2004 to 3 percent by the end of 2008 (see Figure 3). The highest percentage of bad and restructured loans appeared during 2004 and 2006 in the segment of “other loans". Loans made by non-bank credit institutions have shown higher delinquencies than those originated by commercial banks (10 percent of total household loans vs. 4 percent). Despite the share of bad and restructured loans in foreign currency (household loans increased by mid-2006), it is relatively low and stabilized in 2007. Figure 3: Shares of Bad and Restructured Loans in Household Loan Portfolios 6% 5% 4% 3% 2% 1% 0% Dec 02

Dec 03

Dec 04

Dec 05

Total household loans Consumer loans Other loans

Dec 06

Dec 07

Dec 08

Foreign currency household loans Loans for house purchase

Source: BNB.

Households’ savings are dominated by term deposits in Euros. Term deposits represent 64 percent of total household deposits in the banking system, while deposits with maturities of up to three months account for 20 percent, and overnight deposits for 16 percent. 46 percent of household deposits are in Euros, while only 28 percent of

15


household borrowings are in Euros. 13 This situation has left households with a net currency exposure in Euros greater than 5 billion Levs (see Table 1). Table 1: Household Currency Exposures (in BGN millions) Currency Deposits Borrowings Net Exposure Levs 9,669 12,800 -3,131 Euros 10,148 5,125 5,023 US Dollars 2,099 16 1,993 Other Currencies 125 149 -24 Source: BNB (2008). Note: Data does not include leasing companies or non-bank lenders.

Bulgarians are increasing their use of banking products. A survey conducted in September 2008 by the market research institute, GfK Bulgaria, found that one-third of Bulgarian consumers hold a debit card while about 9 percent have credit cards (see Table 2). The use of bank cards has significantly increased relative to January 2005, when GfK Bulgaria showed that only 20 percent held debit cards and 2 percent used credit cards. Saving products appear to be less widespread than bank cards since only 12 percent own a saving product of one form or another. Fewer than 3 percent invest in pension or investment funds and less than 1 percent in insurance policies. According to the World Bank’s survey on access to finance Bulgaria is ranked at number 40 among 157 countries, with 56 percent of its population having access to an account with a financial intermediary (approximately 74 out of 1,000 people have an account related to a credit product and there are approximately 1,300 deposit accounts per 1,000 people).14 In order for the financial sector to play efficiently its role of financial intermediation and provision of credit for businesses and households, further deepening in the use of financial services will be needed. Table 2: Household Use of Financial Services by 2008 Financial Service Debit Card Credit Card Saving Products Pension Insurance, Investment Funds Insurance Products Source: GfK (2008).

13 14

Survey Respondents 33% 9% 12% under 3% under 1%

Household borrowings include borrowings from non-profit institutions serving households. See World Bank, Finance for All? Policies and Pitfalls in Expanding Access, 2008. 16


Key Findings & Recommendations The years of 2006-07 witnessed a flurry of new legislation related to consumer protection in financial services in Bulgaria. In particular, the revisions to the Consumer Protection Act transposed many of the key EU Directives related to financial consumer protection. In this period the Directives on Consumer Credit, Distance Selling and Unfair Commercial Practices were also transposed into Bulgarian law. At the same time, changes to the securities legislation incorporated the Directive on Markets in Financial Instruments (MiFID) while revisions to insurance legislation transposed the Directives on Life Insurance and Insurance Mediation. In March 2009, the Payment Services Directive was transposed into Bulgarian law. All have substantially and substantively strengthened the rights of consumers regarding the purchase of financial services in Bulgaria. Importantly, the Consumer Protection Act states that where the provisions of any two laws are in conflict, the provisions of the law providing a higher degree of consumer protection shall apply. The revised legislation brought Bulgaria's consumer protection legislation into compliance with those applicable for all EU Member States. While some Directives, such as the April 2008 revised Directive on Consumer Credit provides for a two-year period for transposition into national law, the Bulgarian authorities have already planned its incorporation into local legislation. More legislative revisions for supervision of the financial sector have recently been approved. The amendments to the Law on Credit Institutions were enacted by the Parliament on 31 March 2009. The revised Law brings leasing and consumer finance companies under supervision of the BNB. Non-deposit taking institutions would not be subject to the full panoply of prudential supervision but they would be obliged to register with the BNB. Over time, non-bank credit institutions may also be subject to some form of market conduct regulation and supervision related to business practices (but not capital solvency levels). Ensuring that financial institutions are supervised by a financial supervisory agency will help limit possible abuses in treatment of financial consumers in Bulgaria. Other institutional changes are also underway in data-bases of credit information. The Central Credit Register held by the BNB has been expanded to include not only outstanding consumer and mortgage loans by banks, but all credits granted by all providers, including non-bank financial institutions that provide credit to retail customers. In addition, the Central Credit Register is to maintain information on credit histories of individual physical persons and legal entities, covering not only negative information where payments have been missed, but also positive information where payments have been made on time even for repaid debts. Such changes are welcome. Nevertheless consumers complain about the practices of financial institutions. Statistics on complaints are not published for all parts of the financial sector. The FSC provides some detail on the number of complaints and the nature of the complaint but similar information is not publicly available for consumers of banking services or consumer credit. However, the financial guide Moite Pari (www.moitepari.bg) provides

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some anecdotal information. It notes that consumers have complained that: (1) financial institutions can change their lending or deposit rates without notice to customers and without clear explanation of the changes; (2) important details of the terms and conditions of financial products are contained in contracts that are difficult for consumers to understand; (3) personnel of financial institutions are unable to explain to customers their financial products; (4) consumers have difficulty obtaining information in a format that allows them to compare offers by different institutions; (5) consumers do not receive monthly statements from financial institutions; and (6) in case of disputes over entries in credit register, consumers have difficulty obtaining correction of errors. Clearer and more transparent rules—with effective enforcement mechanisms—are needed to further strengthen the financial consumer protection framework and practices. Clear rules help ensure that financial institutions throughout the financial sector maintain high standards in treatment of their retail customers. At the same time, clear rules help consumers understand their legal rights—and responsibilities—as purchasers of financial services and products. Financial education will help consumers understand their legal rights, but such rights must first be clearly articulated in laws, regulations and codes of conduct. While much improvement has been made in Bulgaria’s legal and regulatory framework for financial consumer protection, some gaps remain. Such weaknesses create loopholes and undermine the effectiveness of supervisory agencies in improving consumer protection. For example, the rules on consumer disclosure for consumer credits are extensive and determined by the Law on Consumer Credit (which was in turn based on the recently revised EU Directive on Consumer Credit). By contrast, consumer disclosure on residential mortgages (for which the EU Directive has not yet been approved) remains minimal—even though consumer purchases of mortgages are typically the single most important financial decision for households. Furthermore consumer associations note that consumers are often unable to distinguish between a mortgage loan versus a consumer loan with a mortgage used to pledge collateral. Any reform program on financial consumer protection and education should be both pragmatic and effective. The program should ideally require a combined effort of the financial supervisory agencies, the consumer protection commission, consumer associations and professional associations (taking into consideration the institutional and political economy constraints in the country). The program should consist of practical steps that set a path for continuous improvements in financial consumer protection. The medium-term effectiveness of the program should be ensured via careful monitoring and impact evaluation of any policy interventions so that adjustments and further refinements are facilitated. The applied measures should be subject to a cost-benefit analysis to ensure that the added value to the consumers (and ultimately to development of the financial sector) corresponds to the investment of time and resources needed to implement a given intervention. The program should be monitored and its successes (and its weaknesses) evaluated so that further refinements can be made.

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The program should empower consumers. The program should be evaluated in terms of its ability to empower consumers—to give consumers information in a form that they can easily understand, that allows them to compare offers by different service providers, that ensures that they can find out the accurate costs of different products, and that they know how to obtain more information and dispute an incorrect charge or credit. As part of a program to improve financial consumer protection, five measures are recommended: 1) Strengthen the institutional structure supporting financial consumer protection, 2) Improve the rules related to quality and user-friendliness of consumer disclosure, 3) Strengthen the rules that govern the business practices of financial institutions visà-vis consumers, 4) Improve the mechanisms to address consumer complaints and disputes, and 5) Expand the access of consumers to useful and timely financial education.

Institutional Structure Under the Consumer Protection Act, the Ministry of Economy and Energy is the main administrative body responsible for consumer protection in Bulgaria. The Ministry is responsible for: (1) carrying out and coordinating state policy for consumer protection, (2) taking measures to integrate consumer concerns into government policies, (3) conducting the work of the National Consumer Protection Council, and (4) coordinating the activities of the other administrative bodies having an impact on consumer protection in Bulgaria. National policy on consumer protection is developed by the National Consumer Protection Council. The National Council was established in 1999. Its role is to advise the Minister of Economy and Energy on issues related to consumer protection and to develop the multi-year strategic plans for consumer protection. The National Council is composed of government representatives and representatives of consumer associations. To date, work of the National Council has been slow to start, with questions remaining on sufficient participation by consumer advocacy organizations. There is also insufficient coordination among government agencies responsible for financial consumer protection, especially in terms of a coordinated strategic plan to evaluate the current level of financial consumer protection (and financial capability) and development of ways of improving both. However, development of the Consumer Policy Strategy for 2010-13 provides an opportunity to prepare a coordinated strategic plan to address the key issues in consumer protection, including financial services. To be effective, the plan should be reviewed by—and obtain the support of—key stakeholders, including not only government agencies but also consumer advocacy organizations. The primary body responsible for enforcing consumer protection legislation in Bulgaria is the Consumer Protection Commission (CPC). The CPC was established in 1999 as a legal entity within the authority of the Ministry of Economy. Regarding financial services, the CPC is responsible for enforcing the Law on Consumer Credit. The CPC has strong authority. Under the Consumer Protection Act (article 165) the head of

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the CPC has the right to issue individual administrative acts, penal decrees and impose “forceful administrative measures�. Regarding consumer disputes, the role of the CPC is limited to mediating disputes, primarily through its conciliation committees. The proposals of the conciliation committees are non-binding on all parties, any of which may refuse the proposal and go to court. However, consumer protection in other parts of the financial sector is enforced by other government agencies. For insurance, the FSC ensures the protection of policyholders (including retail policy-holders) under the Insurance Code. Indeed, policy-holder protection is an explicit part of the FSC's mandate in the legislation. Similarly for securities, investment funds and pension funds, the FSC is legally mandated to protect the interests of investors. Consumer disputes on funds transfers can be presented to the Conciliation Commission for Payment Disputes, which was established by the CPC. However in the credit reporting system, it could appear less clear to which agency consumers should present their complaints about financial institutions and other companies (telecommunications, utilities etc.) that fail to correct errors in the data-base of repayment history. Although, it would be desirable that the complaints be submitted to the CPC, the Commission for Personal Data Protection could be seen as the relevant authority for complaints since it regulates and supervises personal data protection. Moreover, in cases where the law does not explicitly mention a competent authority, such as residential mortgages and personal car leases that are not consumer credits, CPC is the responsible authority for consumer protection. Such a complex structure makes it difficult to enforce consistent consumer protection across all financial services in Bulgaria. A clear institutional structure for consumer protection in financial services is needed. Based on international experience, the preferred long-term recommendation is to establish a financial ombudsman, which would clarify and consolidate the institutional structure for financial consumer protection. Nevertheless, acknowledging Bulgaria’s context, the Diagnostic Review recommends expanding the authority and capacity of the CPC as an interim solution. If the authorities consider that these options are not currently suitable for Bulgaria, another option outlines an alternative institutional framework for financial consumer protection with strengthened roles for the financial supervisors and the Commission for Personal Data Protection. The approaches are presented below for consideration: 1) The CPC would be responsible for supervision of compliance with consumer protection legislation for all financial services, not only consumer credits and payments, but also mortgages as well as leasing, insurance, securities investments, private pension plans and credit reporting; 2) The financial supervisory agencies would be responsible for supervision of compliance with consumer protection legislation for financial services; 3) A financial ombudsman would be established to handle all disputes, complaints and inquiries related to consumer financial services, eventually replacing the role of the conciliation committees.

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The approaches are not mutually exclusive. For example, a financial ombudsman could complement the work of either the CPC or the financial supervisory agencies. The advantages and challenges of each proposed option are discussed next. Option 1 – CPC to Handle All Financial Consumer Protection This option should require expanding the authority of the CPC to include all financial products and services and not only consumer credit. The CPC would be responsible for: (1) resolving financial consumers’ inquiries and complaints, (2) reconciling disputes, (3) gathering, publishing and analyzing data on consumer complaints, (4) submitting consolidated reports of consumer complaints and disputes to financial supervisors, (5) recommending them to apply measures to improve consumer protection, and (6) initiating and conducting other activities contributing to effective and efficient financial consumer protection. Expanding the authority of the CPC will require substantial building of CPC’s institutional capacity. The CPC assumed the responsibility for consumer protection in the field of consumer credit just recently, after the approval of the updated Law on Consumer Credit (in force since October 2006) which followed the harmonization of the Bulgarian legislation with the acquis. Consumer protection in non-financial products and services require substantial resources and adding a highly complex area, such as the full spectrum of retail financial services, would place a substantial burden on both the CPC and its line ministry, the Ministry of Economy and Energy. To be successful, a detailed capacity building plan will be needed, accompanied by the necessary funding from budget resources and possibly donor funds. Consideration should also be given to measures to build financial sector expertise within the CPC. As a starting point, a specialized financial services department should be created. Expert staff from the BNB and the FSC could be seconded to the CPC to help develop the expertise of the financial services department. Attention could also be given to the levels of salary needed to attract and retain experts in financial services. In addition, conciliation committees should be established as permanent standing committees for each type of financial service, and their structure and operation mechanisms should be improved. In the medium-to long-term, the financial services department should be detached from the CPC as a separate financial ombudsman office. The CPC should also include in its Annual Report a summary of its activities regarding financial consumer complaints as well as annual statistics on the number and nature of financial complaints received, the types of products and the final results of the complaints. Option 2 – Supervisory Agencies to Handle All Financial Consumer Protection Under this option, financial consumer disputes should be resolved by the BNB, the FSC and the Commission for Personal Data Protection. The supervisory functions of the BNB and FSC should be extended to cover all institutions relevant for financial

21


consumer protection, and the legal mandate of the BNB should be revised to include the additional responsibility of financial consumer protection. Relying on the BNB and the FSC to resolve consumer disputes with financial institutions could be challenging. The role of the FSC is to review consumer disputes to see if the actions of the financial institution have violated the law and to determine if the practice creates systemic risks for the financial sector. By contrast, the BNB views consumer protection as an important element in building a strong and resilient financial sector—but one that creates conflicts with its key mandate of ensuring financial stability. In some cases, decisions that defend the interests of consumers will require compensation from financial institutions. It could be argued that having the BNB rule in favor of the consumer and require payment by the financial institution would—in the short-run— harm the financial institution. However, over the long-term, a financial system needs a strong level of public confidence to maintain soundness and stability and fair treatment of its customers helps build that public support. Strengthened coordination across the three agencies would be needed. Authorities should meet regularly to share and analyze information on consumer disputes that may reflect practices that create systemic risks, and to jointly address common issues on consumer protection. This could be achieved by establishing a forum on financial consumer protection. The supervisory agencies should also establish similar formats for the collection, analysis and publication of complaint statistics of their sectors. The statistics should be published on each agency’s website with the same frequency, and there should be links to the other agencies responsible for consumer protection, in order to facilitate the access to all complaints information by the consumers and consumer associations. Option 3 – Creation of a Financial Ombudsman Under this option, the financial ombudsman should be the only out-of-court institution responsible for consumer disputes for all financial products and services. The office of the financial ombudsman would be responsible for: (1) resolving financial consumers’ inquiries and complaints; (2) reconciling disputes; (3) gathering, publishing and analyzing data on consumer complaints; (4) submitting consolidated reports of consumer complaints and disputes to financial supervisors; (5) recommending them to apply measures to improve consumer protection; and (6) initiating and conducting other activities contributing to effective and efficient financial consumer protection. Creation of a financial ombudsman is a time-consuming process—and one that will need substantial institution-building—but it could have the most favorable longterm impact on financial consumer protection. A financial ombudsman provides a useful out-of-court solution for retail financial services. Most consumer disputes involve small amounts of money. A financial ombudsman can review cases and make quick decisions. By taking fast decisions and operating fairly and transparently, a financial ombudsman can build public confidence that consumer disputes can be resolved quickly and transparently.

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The EU experience on financial ombudsman shows that several models are available but two are particularly effective—that of the independent statutory ombudsman (as found in the United Kingdom and Ireland) and the ombudsman established by the professional associations (as seen in the Ombudsman Scheme of the Private Commercial Banks of Germany). The approach of the United Kingdom and Ireland requires the establishment of a permanent office, set up by law and with funding from the government budget and the industry. The German Ombudsman Scheme is set up by statute of the Association of German Banks, operates under the auspices of the association, and consists of five Ombudsmen who are generally retired judges. The decisions of the Ombudsman Scheme are binding on the banks for amounts up to Euros 5,000 although the consumer retains the right to appeal to the courts. Both structures are effective in redressing the imbalance of power, information and resources between a consumer and its financial institution. In the case of an ombudsman established by professional association, attention should be paid to the presence of conflicts of interest. Since a professional association’s main goals are to develop its financial segment and protect the rights and interests of its members (financial institutions), the associated ombudsman may find it difficult to objectively fulfill functions related to protection of rights and interests of consumers. The establishment of a financial ombudsman in Bulgaria presents some challenges. One difficulty is that, as is true of many civil law jurisdictions, the Bulgarian Constitution restricts to the court system authority to make binding final legal decisions. However, the German approach might be useful for Bulgaria, since it permits the creation of an ombudsman by voluntary agreement of the professional association. The Association of Banks in Bulgaria (ABB) has already conducted initial investigation of the approaches used in the United Kingdom and Germany, but a comprehensive review by an interministerial task force (with participation of the professional associations and consumer associations) may be needed. There should be an evaluation of the costs and benefits for Bulgarian financial institutions of the different approaches to financial ombudsman. Most post-transition countries, including the new Member States of the European Union, are making efforts to reduce the number of government structures and institutions. The creation of yet another government institution may be perceived as an additional administrative burden for private sector institutions that are the source of growth for the economy. However, an institutional framework that does not operate effectively also introduces inefficiencies that generate burden on the private sector. At the same time, consideration should be given to the specific needs of Bulgarian consumers, particularly in light of the experience of the financial crisis in 1996-97 and the context of an on-going global financial crisis and its spillover to emerging market economies. Role of Consumer Associations

Consumer associations have an important role to play in consumer protection in Bulgaria. Under the Consumer Protection Act, consumer associations are to: (1) carry out public programs including publications and information campaigns about consumer rights, (2) bring collective actions to the courts to protect interests of consumers, and (3) 23


provide advice and information to consumers. The law specifies that for a consumer association to be considered as sufficiently representative of all consumers, it must maintain representative offices in at least one-third of the regional centers of the country, and it must conduct effective actions for protection of consumer interests (producing and disseminating publications on consumer protection, conducting campaigns to raise consumers’ awareness of their rights, or undertaking actions for protection of collective interests of consumers). The representative consumer associations shall participate in the National Consumer Protection Council, in the collective and advisory bodies for consumer protection. The participation of consumer associations in the financial sector should be expanded to become strong advocates of financial consumers. Currently, the associations lack sufficient staff, funding, reputation and technical expertise to act as effective advocacy organizations regarding financial consumers. Bulgaria has 10 consumer associations that together received a total of about 75,000 Euro from the Ministry of Economy and Energy to cover all their operations, including activities related to financial services. This funding has been increased for 2009. However, additional funding from the State budget needs to be provided to the consumer associations for them to play an active role in financial consumer protection. While increased financing support from the state budget is recommended, consumer associations should also increase their transparency, improve their accountability frameworks and establish strong reporting links to policy makers. Consumer associations should publish an annual report on their activities regarding consumer protection, and conduct trend analysis of inquiries, complaints and disputes submitted by consumers. Moreover, the functioning of the National Consumer Protection Council as the main advisory body on consumer protection policy strategy in Bulgaria needs to be revived and made effective.

Consumer Disclosure At the foundation of effective financial consumer protection is consumer disclosure. Financial institutions should be obliged to present their financial products in a clear and comparable format, which is easy for consumers to understand and allows consumers to compare offers from different financial institutions. Where consumers can obtain clear and comparable information, they can make informed choices and ensure that the financial products that they purchase are suitable for their needs and objectives. Clear laws and regulations—and effective enforcement mechanism—are needed to ensure meaningful disclosure of consumer financial products. The Bulgarian legislation requires clear information on key terms and conditions in consumer credit contracts. The Law on Consumer Credit applies to loans between BGN 400 and 40,000 and requires detailed disclosure to the consumer. This must include: (1) the principal of the credit; (2) the maximum amount of the credit, or the methods of determining it; (3) the annual percentage rate (APR); (4) the conditions under which charges may be amended; (5) the conditions for credit repayment by the consumer, including the amount, number, frequency and dates of payments, as well as the total amount of these payments, where possible; (6) other fees and charges outside the calculation of the annual percentage rate of charge; (7) expenses related to the agreement

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payable by the consumer; (8) a statement of the right of the consumer to repay the credit before the due date and the conditions for termination of the agreement; (9) the required security or collateral, its value, and the conditions under which it may be released; and (10) the required insurance and related expenses when the choice of insurer is made by the financial institution and not the consumer. In addition, the credit agreement must be presented in clear and understandable language. These provisions are very useful but still more could be done. The transposition of the revised EU Directive on Consumer Credit into national law will be a further step to strengthen consumer protection in Bulgaria. A Key Facts Statement for each type of standard retail financial product would help consumers understand material conditions of their contracts. For financial products, consumers need a short standardized description written in plain language that is comparable across products provided by different institutions. A Key Facts Statement for each type of financial product would provide such standardized information for consumers. For example, for a consumer credit, the Key Facts Statement should provide a summary in a page or two of all key terms and conditions. This would include not only the items noted in the Law on Consumer Credit but also: (1) all fees—particularly prepayment and overdue penalty fees—and any other charges that could potentially be incurred; (2) any required deposits or advance payments; (3) if the interest rate is variable, the basis on which the calculation is made, i.e. the base rate using a published reference rate such as LIBOR or SOFIBOR (Sofia Interbank Offered Rate) plus a fixed margin over the base rate; and (4) the contact information for submission of inquiries, complaints and disputes. In particular, the Key Facts Statement should indicate the name of the department (with telephone number and fax numbers and email address) where inquiries, complaints and disputes can be submitted to the financial institution. If the credit is used to finance a consumer product, such as a television or washing machine, the consumer should be advised of the cash price of the product without financing charges. For insurance, securities and pension products, an easily similarly readable and comprehensible Key Facts Statement should appear at the front of all proposal and policy documents. Special attention should be paid to credit card disclosures, where consumers should be informed of the impact of paying only the minimum amount due. For the credit reporting system, a brochure could explain to consumers the procedures for correcting inaccurate information in the credit registers. The Key Facts Statements would not replace the contract for legal purposes but each financial institution would be obliged to ensure that their disclosures under the Key Facts Statements included no incorrect material information. Key Facts Statements should be provided for all classes of consumer financial products, including insurance and pensions. Use of Key Facts Statements would make it easier for consumers to compare offers by different service providers. Financial consumers in Bulgaria can access websites such as www.moitepari.bg (Moite Pari) and www.fincity.bg to review offers by different financial institutions. Requiring that all financial institutions prepare their offers for commonly-used retail financial products in a standardized format will further facilitate the ability of consumers to shop around and compare offers—and thus ultimately increase transparency and competition in the financial sector.

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It is recommended that the professional associations develop standardized formats for a Key Facts Statement for each type of standard retail product. The supervisory agencies should also review and comment on the formats (for example, to ensure that they provide material information that would not mislead consumers) but the preparation of the formats would best be done by the respective professional associations. Thus, for consumer credits, the ABB would develop a standard format that would allow banks to efficiently prepare the Key Facts Statements, which would be reviewed by the BNB. Non-bank credit providers might also comment on the format, although to date no professional association of consumer finance companies or other form of non-bank credit institutions has been put in place. It is also recommended that the professional associations for insurance companies and pension management companies prepare Key Facts Statements for their standard products—and their formats should be reviewed by the FSC. The Key Facts Statements should also be tested in order to ensure that the average consumer understands their content and can use the information to make relevant comparisons and decisions. The disclosure requirements for consumer credits should also be applied to residential mortgage loans. Households that take a BGN 500 consumer loan are protected by the Law on Consumer Credit. However those who sign a BGN 50,000 mortgage on their home have no similar protection. Borrowing money for the purchase of a house or apartment is often the single largest financial decision made by households, and consumers should receive at least as much information on mortgage borrowings as for consumer credits. This would include disclosure of the APR as well as preparation of a Key Facts Statement. While the European Commission has not yet prepared a Directive on mortgage credits, consideration should be given to the consumer disclosure needed on mortgages for personal property. Consumers should be able to obtain a copy of the full terms and conditions of retail financial products without having to submit an application for a product. Access to pre-contractual information is essential for informed decision-making. Consumers that are considering entering into a contract with a financial service provider should have easy access to the full set of contractual terms before they apply for the product. This will allow them to familiarize themselves with the contractual terms without the pressure of a salesperson looking to complete a sale. It also allows consumers to obtain the advice of friends and family members, upon whom most consumers rely as a first source of advice in post-transition countries. However, a study by the Bulgarian National Consumers Association found that only about half of Bulgarian banks provide a copy of the full consumer contract on their websites. Consumers who are considering buying an insurance policy, be it life insurance or motor third-party liability (MTPL) can download a copy of the full standard contract from the website of each insurance company. Alternatively, they may visit the office of an insurance company and obtain the same document. Similar access to the standard contract should be available for borrowers on consumer credits or mortgages, unlike the practice today to submit to the consumer the individual contract in the last minute with a limited possibility to review the general terms and conditions. All the banks (and other financial institutions) should be obliged to place the standard contracts in full on their websites—and provide copies to any

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consumers who visit their offices. The requirement could be set by regulation by the supervisory agencies, or it could be part of a code of conduct set by the professional associations. However, either supervisory agencies or consumer associations should regularly monitor the easy availability of standard contracts of retail financial service providers. Consumer disclosure for private pensions should be improved. At a minimum, the investment returns should be presented on a risk-adjusted basis, identifying the basic risk parameters, such as the estimate of one standard deviation as a measure of the volatility of the pension fund, among other parameters. Importantly, consumers need to be informed that investment returns in the pension funds are not guaranteed and that participants could lose principal at any time. One additional issue is that the FSC is still developing the technical parameters for the payout phase and thus the amount of payouts for annuities cannot be estimated. Participants should be informed that such work remains to be completed. Despite legislation and prohibitions in the ethical code, misleading advertising is not uncommon. The Law on Protection of Competition includes extensive provisions prohibiting the use of misleading and unauthorized comparative advertising in the marketing of financial products. The Consumer Protection Act provides for the prohibition of unfair commercial practices against consumers, including misleading advertising. The Ethical Code of the Association of Banks also prohibits members from engaging in misleading advertising. However consumer associations complain that advertisements in the mass media continue to make unrealistic offers, including loans at zero percent interest rates. For example, advertisements for a consumer loan often present a low interest rate ("teaser rate") in large bold font, without clearly indicating that the interest rate applies only for a limited amount of time or does not include the cost of additional fees. The APR is included in the advertisement in much smaller font than the nominal loan rate. For television commercials, the APR is displayed for a briefer period of time than the teaser rate. The converse is true for deposit interest rates—a high teaser rate will be shown in large bold font, while the effective yield is shown in small font and more briefly. Consumer associations reported that, even in bank branches, sales staff will often emphasize the teaser rates and may fail to disclose the true effective interest rates. Advertising for financial services should be closely monitored to ensure that it is not misleading. As of December 2008, responsibility for enforcing the provisions on misleading and comparative advertising of the Consumer Protection Act was transferred to the Commission for the Protection of Competition. CPC has maintained responsibility for enforcing the provisions on unfair business-to-consumer commercial practices. It would be advisable for the authorities to monitor ongoing advertising practices for consumer financial products to ensure that advertising for such products is not misleading or unfair. In the case of private pensions, the FSC has established requirements for the advertising and written information materials of pension insurance companies, and compliance with them is closely monitored. The authorities should also enhance their coordination to ensure consistent policies and enforcing actions in terms of advertising. In some jurisdictions, such as Ireland, the financial legislation goes still further. The Irish

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law requires that, in their print, television and radio advertising, financial institutions indicate that they are regulated and by which financial supervisory agency. Such obligatory disclosure would also be helpful in Bulgaria. Tariff surveys showing comparison pricing of financial products would also be helpful. Surveys of offered prices for standardized products could be conducted by the professional associations or consumer advocacy associations. Alternatively, the associations or the financial supervisors could set a format for disclosure and the financial institutions could provide the data to the public. For private pensions, the FSC has already published a comparative table regarding the fees charged by pension insurance companies for the management of voluntary pension funds. In Ireland, for example, tariff surveys conducted by the Financial Regulator have proved to be an effective mechanism in encouraging consumers to engage in "comparison shopping" before purchasing a financial product.

Business Practices The codes of ethics (or conduct) prepared by the professional associations should be widely disseminated and their implementation regularly monitored by professional associations and the CPC. The ABB has developed a code of ethics for banks and placed the code on the Association’s website. This is an important first step. However, the distribution of the code of ethics is not broad enough. A search of banks’ websites found that only one out of 12 banks that were researched had placed the code of ethics on their websites. The Association’s code of ethics should be placed on the websites of each of the banks that are members of the ABB. Furthermore, the code of ethics should be available at each branch of the bank and should be given to all new customers of the banks. Consideration could also be given to a simple consumer “bill of rights” (that would include the section of the code of conduct dealing with customer relationships) which could be visibly displayed on a wall in every bank branch. Similarly, the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) should ensure that all its members comply with the code of ethics for pension insurance companies and make it easily available for consumers. The Association of Bulgarian Insurers (ABI) should implement its draft code of conduct and ensure that its members comply with it and provide easy consumer access to it. Similar requirements should apply to investment and insurance intermediaries. CPC could review whether the financial entity has complied with its code of conduct. Cases of non-compliance with the codes of conduct should be published on the website of the professional associations or the CPC. All providers of consumer financial services should be obliged to be registered and their business conduct should be subject to monitoring of a supervisory agency. Currently, many financial service providers are not licensed or monitored by any financial supervisory agency. The amendment of the Law on Credit Institutions enacted in March 2009 assigns to the BNB responsibility for supervising all providers of consumer credit, including leasing companies and consumer finance companies. However other providers of retail financial services which are becoming more active as the global financial crisis spills over to emerging market economies, such as debt

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collection agencies and independent financial advisors, are exempt from monitoring by any supervisory agency. With the recent amendments of the Law on Credit Institutions, such financial service providers are at least required to register with either the FSC or the BNB. Such financial service providers do not need to be subject to prudential supervision, unless they have custody or control of client funds, but their market conduct should be subject to surveillance by a supervisory agency. Professional associations can also be delegated administrative, preparatory, or ancillary tasks related to the granting of authorizations for financial service providers, but only the FSC, BNB or other relevant governmental agency can grant, suspend or revoke their authorizations. Debt collection practices should also be monitored. The increased use of debt collection agencies by financial institutions may also warrant additional monitoring of business practices. The law allows lenders to seize collateral to repay outstanding debts, even if the collateral has not been specifically pledged to the lender. However, the amount of the collection is limited to the size of the debt. Some consumer advocacy organizations complain that in some cases, the proceeds of the sale of collateral exceed the amount of the debt outstanding—and the owner retains the excess amount. Attention should also be paid to financial intermediaries, such as brokers and agents. Insurance and pension companies often employ agents to sell financial products on their behalf. The insurance and pension companies should be liable for the actions of their agents, particularly with regard to representations made on behalf of the insurance or pension company. Consideration should be given to the publication of a list of financial intermediaries that engage in miss-selling practices. Consideration should also be given to the training and certification of all sellers of financial services. In the securities sector, the FSC requires that investment intermediaries be subject to periodic specialized training. For insurance products, the FSC sets minimum training requirements and certifies individuals who sell insurance products. A similar approach should be taken for private pensions. 15 In the banking sector, it is the financial institution that determines the necessary training for those who sell financial services to the public but it would be preferable if the ABB took an active role in setting the curricula and minimum training requirements for sellers of banking products. The nature of the training should depend on the product, and sellers of similar products should be subject to similar training requirements. For simple financial products such as a current account, a limited amount of training may be sufficient. For complex products, such as financial derivatives, extensive training for sellers will be needed so that those who sell and market such services are completely familiar with both the risks and returns of the products. In addition, professional financial advisors are emerging as a possible source of advice for retail consumers. As independent financial advisors become active in Bulgaria, the financial supervisory agencies should consider what types of training and certification will be needed. For this, the experience of other new Member States of the EU may be helpful. Slovakia, for example, is putting together a three-tiered program, where the training and certification for the first tier (for very simple products) 15

The FSC has proposed an amendment of the Social Insurance Code, which includes a provision obliging pension insurance companies to train their agents. 29


would be set by the financial institution. Training and certification for more complex products would be established by the professional associations and for the complex sophisticated products, the financial supervisory agencies would set the curricula and conduct the certification of both sellers of financial products and independent financial advisors. Procedures for account handling should be improved. Financial institutions should be obliged to send monthly statements to consumers, unless the consumer requests that the mailings be cancelled. Under Ordinance No. 3 on Funds Transfers and Payment Systems (article 8) a bank must issue an account report for a specified period at the request of the titleholder of the account. In practice, a number of banks in Bulgaria do not typically send hardcopies of account statements to their customers. Instead, they prepare hardcopies for the customers to pick up at the branch, make statements available online, or email statements to the customer, depending on the request of the customer. Banks should also be obliged to provide a minimum notice period (such as one year) when inactive accounts are to be transferred to the state. Additional regulation is also needed in areas such as handling (and particularly) closing of securities and investment fund accounts. Banks should also be obliged to notify customers when fixed-term deposits are maturing. Similarly regulations are needed to ensure that insurance companies notify policy-holders in advance of renewals of insurance policies. In the securities sector, regulations are needed regarding timely closing of customer accounts and prompt payment (or transfer) of funds. It may be useful to apply "cooling-off" periods to long-term consumer financial products. Following the EU Directives, Bulgarian law establishes a 14-day cooling-off period for consumer credit and any financial product sold by tele-marketing and away from the premises of the financial service provider. However, cooling-off periods are a valuable mechanism to protect consumers from high-pressure sales tactics, as are sometimes used in the sale of insurance and pension products. The cooling-off provisions allow consumers to rethink the purchase of financial products and review if a product meets their needs and financial objectives. Although not part of EU Directives, coolingoff periods would be helpful for any products involved in a long-term financial decision, such as the savings component of insurance and pension products. At the same time, the presence of a cooling-off period creates some uncertainty for the financial service provider and where changes in financial markets would affect retail pricing on financial products, a penalty for the consumer who changes his/her mind after signing the contract may be justified. Consumers should be allowed to choose the provider of any product required for another financial product. In many countries, banks require insurance policies when granting a consumer loan—but then offer the consumer an insurance policy from the company that is part of the same financial group. Consumers should be permitted to choose any qualified provider of the service that is required for another financial product. Banks should clearly provide customers with separate prices of each product in a bundle, as well as any discount available if purchased as a bundle from the same bank (or from a bank’s preferred vendor). Also, customers should be able to choose the provider of all

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types of car insurance required for the purchase of an auto leasing product. It is a common practice in Bulgaria that an auto dealer would only allow the consumer to choose the provider of collision and comprehensive insurance—the dealer would later intermediate the liability insurance via its insurance broker, without letting the consumer choose the liability insurance provider. The credit reporting system could be strengthened. A comprehensive and up-to-date credit register is at the core of an efficient consumer finance market, since the public credit registry (and related private credit bureaus) provides the necessary data for credit scoring. Even with well-tested methodologies, credit-scoring can only provide a rough analysis of the credit-worthiness of individual consumers. Lenders should still conduct their own analysis of a borrower’s credit-worthiness but credit scoring can provide useful insight to supplement that analysis. The recent changes in the legislation that require credit bureaus to maintain positive information and permit non-bank credit institutions access and provide information to the Central Credit Register are very helpful. In addition, there should be a consumer awareness campaign that educates consumers on their rights to obtain copies of their files in the credit register and encourages consumers to check their credit histories and to submit a complaint to the relevant credit provider in order to correct errors in the credit register. Financial institutions, especially banks, should be more proactive in this regard and financial education programs should include this important aspect of personal finance. Finally, credit bureaus should be encouraged to develop credit scoring systems and to expand the credit reporting to utility companies (telecom, electricity, gas, etc.) and be obliged to regularly advise consumers of their personal credit scores. Consideration might also be given to requiring that banks offer a low-cost minimum bank account service. Bank accounts are considered to be "gateway" products that open the door for consumers to use other forms of financial services. Providing a minimum service and low-cost bank account can help deepen use of the financial sector—and provide a future expansion of the customer base for the financial system. Use of a "mystery shopper" may also provide useful insights. Hiring an expert to pose as an ordinary consumer of financial services and attempt to buy simple financial products may help government agencies and consumer associations in understanding the experience of typical financial consumers. This practice is reportedly being used by FSC and could also be applied by other agencies and associations, and for various financial products.

Inquiries, Complaints & Disputes Treatment of consumer complaints and disputes lies at the heart of financial consumer protection. Consumers need to have confidence that their concerns will be addressed efficiently and in a fair and transparent manner. For financial services, which are by their nature complex and difficult to understand, efficient resolution of customer disputes is particularly important. Furthermore complaints and disputes (as well as simple inquiries) provide an early warning signal for both the management and supervisory

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boards of financial institutions, as well as for the supervisory agencies. When the same type of complaint arises frequently—or a specific institution is the subject of numerous disputes—financial supervisors are given valuable insights into the fissures of the financial system (and which types of financial products or which institutions might be at risk in the future). The issue of redress for violation of consumer protection laws has gained increasing importance within the European Commission. In a report prepared for the DirectorateGeneral for Health and Consumers of the EC (DG SANCO) in August 2008, Civic Consulting noted the "significant" number of mass claims/issues in EU Member States.16 The report indicated that only a part of the claims/issues had been subject to a collective redress proceeding, explaining that just a small portion of consumers of large-scale lowvalue claims ("scattered mass claims") take action and are compensated. The report also noted that the financial sector had the largest number of reported mass claims/issues, although in the United Kingdom the telecommunications sector also received a large number of mass claims/issues. In Bulgaria, about 1,200 complaints and disputes on financial services were presented to the authorities in 2008. Even simple statistics on the number of complaints and disputes submitted by financial consumers are difficult to compile in Bulgaria. The BNB estimates that it annually receives about 100 complaints, of which about half are thought to come from consumers. However, this does not include complaints that are submitted directly to the banks. Nor does it include complaints related to non-bank credit institutions. More precise detail is available for insurance and pensions. The FSC notes that in 2008 it received 791 complaints on insurance products, compared to 398 complaints in 2007 and 565 complaints in 2006. For private pensions, the FSC saw 157 complaints in 2008 compared to 116 in 2007 (including two complaints that were signed collectively by 21 people).17 Similarly, the CPC calculates that it received 159 complaints about financial services in 2008. 59 of these complaints were related to the Law on Consumer Credit (compared to 52 in 2007), 82 were submitted against banks regarding issues not related to consumer credit, and 18 complaints were submitted against other credit institutions and insurance providers. In 2008, the CPC also monitored 31 contracts of banks, credit institutions and insurance providers for unequal clauses in their general terms and conditions. This resulted in the detection of 40 examples of unequal clauses. Less information is available about the number of consumer disputes on financial services that are presented to the court system. However, one judge for the Sofia Regional Court roughly estimates that each year she makes decisions on about 50 court cases related to consumer financial services. The rough estimate of about 1,200 disputes regarding financial services in Bulgaria may underestimate the actual number of complaints. Where dispute resolution services covering all parts of the financial sector are in place, such as in the United 16

Civic Consulting, Study regarding the problems faced by consumers in obtaining redress for infringements of consumer protection legislation, and the economic consequences of such problems, DG SANCO, Final Report, 26 August 2008. 17 FSC, Annual Reports 2006-2008. 32


Kingdom, the number of annual complaints is many times higher (see Table 3). Even for a single area such as insurance, the number of complaints in France and Belgium reaches over 3,000 annually. Table 3: Number of Complaints Received by European Complaint Services in 2007 Complaint Service

Number of Complaints

UK Financial Ombudsman Service

116,600

Italian Banking Ombudsman

4,000

French Insurance Mediator

4,000

Belgian Insurance Ombudsman

3,400

Hellenic Ombudsman for Banking–Investment Services

1,500

Consumer Complaints Scheme of the German Association of Private Building Societies

650

Finnish Securities Complaint Board

250

Consumer Complaints Manager of the Malta Financial Services Authority

250

Source: European Commission, Alternative Dispute Resolution in the Area of Financial Services, Consultation Document, MARKT/H3/JS D(2008).

It would be best if the statistics on the number and types of consumer complaints regarding financial services were published and analyzed. Publication of detailed statistics, including the final result for each complaint, would provide an invaluable database upon which policy could be developed.18 In the absence of published statistics, it is difficult to determine trends in problems with financial services. In addition, both the CPC and consumer associations should be encouraged to analyze trends in consumer complaints and recommend measures to address the issues. Both the CPC and consumer associations have a valuable role to play in identifying the cause of common consumer complaints and finding measures to prevent such problems from emerging. Financial supervisors should analyze the reports on consumer complaints and look for systemic risks that may thread financial sector stability. All financial institutions should be obliged to establish a clear process by which customers can submit disputes over transactions. Throughout the EU, most large financial institutions maintain a separate department or unit (sometimes as part of the public relations department) to officially receive complaints from dissatisfied customers. Providing such provisions in the law would ensure that all financial institutions have such designated persons responsible for reviewing customer disputes and complaints. The Insurance Code requires that insurance companies establish internal mechanisms—and that they inform consumers of the mechanism. Similar provisions apply to securities and electronic payments. In addition, pension insurance companies are obliged to set up boards of trustees to whom consumers can submit complaints. However, the legislation for banking is not so prescriptive. The Code of Ethics of the ABB calls on member banks 18

Publication of statistics on disputes regarding financial services is also recommended by the European Commission in its recommendation of March 30, 1998 on the principles applicable to the bodies responsible for out-of-court settlement of customer disputes (98/257/EC). 33


to “(…) establish internal procedures or rules to process customers' claims”. These shall include reasonable and the shortest possible deadlines for considering complaints and replying the claimant. The bank shall ensure that all employees dealing with customers are acquainted with the above internal procedures or rules.” In practice, most Bulgarian banks have established such internal mechanisms but it is difficult for consumers to identify the way in which they should present claims. It would be best if all contracts with retail customers (and Key Facts Statements) provided the name and contact information of the person or department to which complaints should be submitted. However, for customers not satisfied with the resolution proposed by the financial institution, the next step is difficult to identify. The Consumer Protection Act requires that in case of violation of the rights provided under the Act, consumers and consumer associations shall be entitled to submit alerts, complaints and petitions to the control authorities performing consumer protection functions (article 178, paragraph 1). The state bodies shall be obligated to register any consumer alerts, complaints and petitions submitted and to institute proceedings for consideration of the said alerts, complaints and petitions (article 179, paragraph 1). Customers with consumer credits are supposed to complain to the CPC but some go to the BNB, which is not authorized to intervene in a contractual dispute between a financial institution and its customer. According to the Law on the Bulgarian National Bank (article 2) the primary objective of the BNB is to maintain price stability through ensuring the stability of the national currency and implementing monetary policy. In addition, the BNB is in charge of monitoring the payment system, as well as regulating and supervising the banks, with the purpose of ensuring the stability of the banking system and protecting depositors’ interests. The Law on Consumer Credit also provides that BNB shall supervise the activities of banks and “may” intervene and impose corrective measures if a bank violates the Law or regulations, breaches its fiduciary duty, threatens depositors’ interests or conducts other offenses. However, the Law does not “require” such intervention. By contrast, the mandate of the FSC explicitly includes protection of consumers’ interest—and the FSC has set up consumer protection departments in each of its sections for securities, insurance and pensions. However, for both the BNB and the FSC, their role is limited. The agencies check to see if a law or regulation has been violated. They ask the financial institution to look into the complaint and respond to the financial supervisor regarding their investigation. The supervisory agency may also use the occasion of the consumer complaint to launch an on-site inspection to do its own review. However, in the final analysis, no supervisory agency can take a binding decision as to what action a financial institution should take in a particular consumer dispute. A conciliation committee can also attempt to find an amicable solution. For cases that are referred to the CPC, i.e. those relating to consumer credits and retail payments, the CPC is authorized to create a conciliation committee that attempts to mediate a solution. Under the Consumer Protection Act, the Minister of Economy and Energy shall establish conciliation committees which shall assist in the resolution of consumer disputes (article 182). The Minister shall also establish the geographical area of competence of the conciliation committees and approve a list of the members of the said committees who shall assist for a consumer dispute settlement. Each committee shall include one representative each of the CPC (designated by its Chairperson) a traders association and a 34


consumer association (article 183). The difficulty is that the conciliation committees operate on the basis of an amicable settlement, acceptable to both parties. As described by both consumer associations and local lawyers, the traders' associations have an incentive not to present themselves on the hearing date. If one of the parties fails to appear at the hearing, the conciliation committee is terminated and the case closed. Local lawyers estimate that the average time for a case to be heard in court is five years (and sometimes seven) even for simple cases. For the perspective of the financial institution, the easy approach is not to participate in the conciliation committee and wait for the consumer to take the institution into court. As per information from the CPC, there have been only 13 ad-hoc conciliation committees related to financial services, established by the CPC between 2006 and 2008. Out of these, only three have reached an agreement between the two parties. The limited number of settled cases through out-of-course mechanisms and the prolonged duration of court proceeding means that there is no effective mechanism for dispute settlement in issues related to financial services, thus limiting the conditions for fair, open, efficient and healthy financial market in Bulgaria. The structure of conciliation committees should be improved. It is recommended that permanent standing conciliation committees be established for each of the main types of financial services—for credits (including mortgages) and banking products, for securities, for insurance and for private pensions. The supervisory agency for each area could propose chairman for the area, selecting individuals who are highly respected in each field. The committees should also operate on the basis of written submissions, as does the Conciliation Commission for Payment Disputes. The structure of the Conciliation Commission for Payment Disputes provides a useful approach. The Conciliation Commission for Payment Disputes is a specialized committee, dealing with consumer issues on bank payments services, including electronic services. By contrast with the other conciliation committees, the Payments Commission enjoys a high level of respect in the financial sector. Several factors account for this. The Payments Commission was established by the CPC but it is a standing permanent committee, as opposed to the ad-hoc committees established for other consumer issues. The Payments Commission operates on the basis of written arguments presented by both parties, rather than requiring a hearing with both parties present in person. The Payments Commission cannot give binding instructions to financial institutions but its decisions are backed by a detailed reasoning and review of the law and the specifics of the dispute. Furthermore, the Chairman of the Payments Commission is personally respected for his expertise in financial issues, having retired from BNB as its General Counsel. In the first three months after the Payments Commission was established in October 2005, the Payments Commission was seized in three cases brought by individual consumers. In 2008, the Payments Commission reviewed over 100 cases and in 87 of the cases agreement was reached. To ensure high effectiveness of the conciliation committees the submitted disputes should be published (e.g. on a website) with a date and their status and the decision of the commission added as the case is dealt with, decided on and closed.

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Consideration should be given to various mechanisms of making the decisions of the conciliation committees binding on financial institutions for small amounts of money. Most consumer credits in Bulgaria are under BGN 6,000, and under BGN 3,000 when overdrafts are excluded. An upper limit of BGN 2,000 or 3,000 might be appropriate. Such small amounts are generally not worth the time and resources of the managerial time of financial institutions. The financial institutions would be better served by having an outside party, such as a conciliation committee, review the details of each case and make a decision based on the law and the facts of the case. Financial institutions may be willing to accept binding decisions made by a respected third-party, where the maximum amount of penalty is set at a relatively low level. 19 At the same time, the presence of a standing conciliation committee will give confidence to financial consumers that if there is a problem with a financial transaction, it can be quickly resolved. An investment in strengthening consumer confidence may bring financial institutions more consumer business—and thus more than overset the cost of making payments under decisions by conciliation committees. The Consumer Protection Act and the recent changes to the Code for Civil Procedures allow for class-action lawsuits by consumers but their effectiveness in providing collective redress should be monitored. Under the Code for Civil Procedures (chapter 33) and the Consumer Protection Act (chapter 9, section III) consumers and consumer advocacy organizations can lodge a complaint on behalf of two or more individuals in cases that affect collective interests of consumers. The legislation is intended to provide a powerful method of collective legal redress for consumers, including those of financial services, and is a useful first step. However, the specific provisions may make it difficult for consumers (or consumer advocates) to use the law. One issue is that four percent of the claimed amount must be paid as a court fee at the beginning of the trial (according to article 4 of the Tariff for the State Fees collected by the Courts under the Code for Civil Procedures, SG 50/2008 from 30 May 2008). While court fees are useful in discouraging frivolous court cases, an inappropriately high fee may also discourage consumers from presenting legitimate cases. The authorities may therefore wish to monitor the use of the class action procedures to see if they provide an effective form of collective redress for financial consumers. If the class action procedure is not used, a reduction of the court fee should be evaluated in order to encourage the effective use of the procedure by consumers. It would also be helpful if Bulgaria were to join FIN-NET. FIN-NET provides a network of alternative dispute schemes for countries throughout the EU. The network allows consumers who purchase financial services in one EU member state easy access to an out-of-court mechanism to resolve disputes in that member state. Once the alternative dispute mechanisms are fully in place in Bulgaria, it would be useful if the CPC were to join FIN-NET as Bulgaria’s representative in the network.

19

The EC Recommendation also notes that a decision taken by the body concerned may be binding on the parties only if they are informed of its binding nature in advance and specifically accepted this (see Commission Recommendations 98/257/CE and 2001/310/CE). 36


Financial Education The importance of financial education for the financial sector is seen in the work of the European Commission. The October 2008 Report of the European Parliament on protecting the consumer noted that empowered and educated consumers help foster competition, quality and innovation within the banking and financial services industries. The Report further noted that educated and confident investors can provide additional liquidity to capital markets for investment and growth. In addition, in the end of 2008 EU Consumer Affairs Commissioner Meglena Kuneva launched DOLCETA (www.dolceta.eu)—a website designed to help adults and children learn about basic consumer issues. One of the four modules covers financial services (family budget, bank account, consumer credit, mortgages, payment services, savings and investments). Another covers basic consumer legal rights (contracts, labeling, distance selling, advertising, redress). The DOLCETA modules have been translated into all EU languages, including Bulgarian. Bulgaria includes financial education as part of the consumer protection legislation but consumer awareness remains low. In Bulgaria, the right to education on issues related to consumer protection is part of the Consumer Protection Act. However, the Consumer Policy Strategy for 2004-2007 noted that among the difficulties encountered in the implementation of the national policy were a "low consumer culture" and a low level of public awareness about the conciliation committees. Some programs in Bulgaria are underway. The Ministry of Finance has conducted one seminar in 2008 oriented towards businesses on changes in European legislation related to financial services. The FSC maintains a several-week training program for high school students interested in learning about the operations of the non-banking financial sector. A limited number of newspapers also provide useful information for consumers. The daily newspaper, Dnevnik, publishes reports on EU-wide financial education initiatives, such as a recent report on the importance of financial education during the current financial crisis, which included a discussion of practices in Austria and Sweden and initiatives at the EU level. In addition, the national radio station, DARIK, has interviewed the chairman of the Conciliation Commission for Payment Disputes about fraudulent use of debit and credit cards. The Ministry of Education and Science also conducts a training program in elementary and high schools with teaching materials on personal finance translated from US consumer associations. Preparing effective financial education programs is not an easy task. The experience of industrialized countries over the last thirty years—and more recently in developing countries—has identified lessons of “what works and what does not” in consumer protection, and particularly in consumer information. By contrast, improving financial capability is a long-term process and little is clearly understood as to what works (and what does not) in improving financial capability, at least in the industrialized countries.20 20

For a summary of academic research on the limited effectiveness of financial education in the US, see Shawn Cole and Gauri Kartini Shastry, If You Are So Smart, Why Aren’t You Rich? The Effects of Education, Financial Literacy, and Cognitive Ability on Financial Market Participation, October 2007. 37


Techniques of delivering financial education have been well-tested in the US, Europe and elsewhere over the last 30 years but their impact on levels of financial capability is still unclear. Yet more unclear is the impact on consumer behavior. A distinction should be made among three different types of programs—financial education vs. information vs. advice. Financial education provides background information for consumers so that they understand broad concepts such as that all financial products have an inherent reward and risk level and that with higher reward (lower cost) comes higher risk. It is a long-term investment in necessary life skills. However, the technical issues of the impact of the compounding of interest (both as an investment and as a debt) also should be taught and can be part of basic mathematical training in schools. Financial education is generally considered to be formal training through the school systems. However, informal training done in classrooms by professional association or even supervisory agencies could also be valuable forms of financial education. Consumer information relates to the details of financial products and their terms and conditions. Consumer information should be provided by the sellers of financial products. Alternatively NGOs (or in some countries, the government supervisory agencies) could collect information from several financial institutions and provide to the public product information on a comparable basis. However both financial education and consumer information should be differentiated from financial advice. Financial advice provides a consumer with recommendations on strategies for investment and borrowings as well as recommendations on specific financial services or products. Financial advice should be provided on a customer-by-customer basis and should be tailored to the specific financial objectives and risk tolerance of a customer. Such advice should be provided only by independent financial consultants, trained and licensed for the type of financial products they advise on. Consideration should be given to the role of non-profit financial advisors, which can help indebted people sort out their debts and provide them with necessary counseling. Financial education programs should be carefully designed, rigorously tested and evaluated, and viewed as a long-term investment. Surveys of programs in OECD countries show that additional research is needed to identify effective components of high school training programs.21 It is very important to introduce a practice of evaluation of the results of educational programs and identify the most efficient ones. Controlled trials provide an effective mechanism of determining relative effectiveness of financial education programs, using control groups as a basis for comparison. A set of most costeffective, complementary programs should be supported for implementation, subject to existing budget constraints.

Other analysts go further and argue that financial education fails to improve consumer decision-making and may even be harmful by developing consumer over-confidence. See Lauren E. Willis, "Against Financial Literacy Education", University of Pennsylvania Law School, Public Law and Legal Theory Research Paper Series, Research Paper No. 08-10. However, most analysts agree that both consumer protection and financial education are needed. 21 For a summary of programs see Shaun Mundy, Financial Education Programmes in Schools, Universities and Colleges: Analysis of Selected Current Programmes and Recommendations for Best Practices, OECD Draft Report, forthcoming. 38


A baseline assessment of financial capability in Bulgaria would be helpful. The survey should use the methods that have been successfully applied in other EU Member States, such as the United Kingdom. The survey should be comprehensive and segmented. It should be large enough to cover all key groups in Bulgaria, segmented by geographic area, socio-economic level, gender, family status, household income, level of formal education, profession and ethnic origin. Special consideration should also be given regarding how low-income groups will be reached since collecting data from these groups is notoriously difficult.22 Surveys provide an essential monitoring and evaluation tool of financial education programs. Not all countries have conducted nation-wide literacy surveys. For example, surveys have been conducted in Australia, Canada, France, Hungary, India, Ireland, the Russian Federation and the United Kingdom, but neither in the United States (although discussions are underway to conduct a national survey) nor in all EU Member States. However, the surveys are a wise investment in measuring the effectiveness of financial education programs. The baseline financial capability survey should be used to identify vulnerable parts of the Bulgarian population and design the financial education program. Using the information in the survey, programs of financial education and consumer awareness can be targeted to those who need the training and information the most. The survey can be used by financial supervisory agencies and NGOs to identify and focus on the most vulnerable to find the most effective ways of providing education—whether through class-room training, seminars or at the time they purchase a financial service ("point of sale"). Follow-up surveys should be conducted every three to five years to evaluate the effectiveness of the programs of financial education and consumer awareness. The follow-up surveys can be used to determine to what extent the programs are effective and what further modifications may be needed. Follow-up surveys should be conducted every three to five years to see if the financial education programs are working—and if they, or the financial consumer protection framework, need further revision.

22

One informal approach would be to use a financial IQ quiz to test consumers’ understanding of retail financial services. The quiz could be administered through a consumer survey. An example of a financial IQ test is given in Marianne A. Hilgert and Jeanne M. Hogarth, "Household Financial Management: The Connection between Knowledge and Behavior" Federal Reserve Bulletin, July 2003. Available at http://www.federalreserve.gov/pubs/bulletin/2003/0703lead.pdf. 39


References Civic Consulting, Study regarding the problems faced by consumers in obtaining redress for infringements of consumer protection legislation, and the economic consequences of such problems, DG SANCO, Final Report, 26 August 2008. Cole, Shawn and Gauri Kartini Shastry, If You Are So Smart, Why Aren’t You Rich? The Effects of Education, Financial Literacy, and Cognitive Ability on Financial Market Participation, October 2007. European Commission, Alternative Dispute Resolution in the Area of Financial Services, Consultation Document, MARKT/H3/JS D(2008). ---------, Communication from the Commission: Financial Education, COM (2007) 808 final, December 2007. ---------, Discussion paper for the amendment of Directive 87/102/EEC concerning consumer credit. ---------, EU Consumer Policy strategy 2007-2013 COM (2007) 99 final. ---------, Eurobarometer 2003.5, Financial Services and Consumer Protection, May 2004. ---------, Green Paper on Retail Financial Services in the Single Market, COM (2007) 226 final. ---------, Special Eurobarometer No. 298, Consumer protection in the internal market, October 2008. ---------, Survey of Financial Literacy Schemes in the EU27, November 2007. ---------, Directorate-General for Competition, Report on the retail banking inquiry, Commission Staff Working Document, SEC (2007) 106. European Parliament, Report on protecting the consumer: improving consumer education and awareness of credit and finance (2007/2288(INI)), October 2008. FIN-USE, Response to the Green Paper on Retail Financial Services in the Single Market, 2007 Gross, Karen, Financial Literacy Education: Panacea, Palliative, or Something Worse? New York Law School, Presentation, 2004. Hilgert, Marianne A. and Jeanne M. Hogarth, "Household Financial Management: The Connection between Knowledge and Behavior" Federal Reserve Bulletin, July 2003. 40


Joint Forum of the Basel Committee on Banking Supervision, the International Organization of Securities Commission and the International Association of Insurance Supervisors, Customer suitability in the retail sale of financial products and services, April 2008. Llewellyn, David T., "The Economic Rationale for Financial Regulation, Financial Services Authority," FSA Occasional Papers in Financial Regulation (UK); No. 1:1-57, April 1999. Lusardi, Annamarie and Olivia Mitchell, Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education, Business Economics, January 2007. Mundy, Shaun, Financial Education Programmes in Schools, Universities and Colleges: Analysis of Selected Current Programmes and Recommendations for Best Practices, OECD Draft Report, 2008. Organisation for Economic Co-operation and Development, Improving Financial Literacy: Analysis of Issues and Policies, November 2005. ---------, Improving Financial Education and Awareness on Insurance and Private Pensions, 2008. Unicredit, CEE Households’ Wealth and Debt Monitor, November 2007. Willis, Lauren E., "Against Financial Literacy Education," University of Pennsylvania Law School, Public Law and Legal Theory Research Paper Series, Research Paper No. 08-10. World Bank, Finance for All? Policies and Pitfalls in Expanding Access, 2008. ---------, Good Practices for Consumer Protection and Financial Literacy in Europe and Central Asia: A Diagnostic Tool, Consultative Draft, 2008.

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Diagnostic Review of Consumer Protection and Financial Capability Volume one: Key Findings