Consumer protection mechanism needed

Looking at the parties involved in any consumer-protection mechanism, we see that we have consumers and investors on one side and financial-services providers on the other. And some sort of regulator or supervisor is needed to bridge the gap or strike a balance between the depositors, investors and consumers on the one hand and the financial-services providers and investment companies on the other.

How can we strengthen and support such a balancing mechanism? I would like to offer some suggestions for augmenting the roles of several groups and practices related to consumer protection.

First we have the consumer-activist and consumer-advocate groups. These are important because they stay alert and keep a close watch on how consumers are treated, seeing whether companies are acting responsibly and accountably. We should try to promote the role of consumer groups in a systematic manner.

Second are the credit-rating and credit-scoring companies, which I think are extremely important in ensuring a fair assessment and analysis of consumers' credit-standing and availability. Therefore, I think we should establish an efficient, systemic credit-scoring mechanism.

Third are the lawyers. We must see to it that their role functions properly and is not abused, because it is very important that consumers have access to affordable and morally sound legal protection.

Fourth are the credit counsellors. We must have sufficient formal and informal channels in which those suffering due to excessive borrowing or other credit problems have access to some sort of remedial or counselling alternatives. This is very important in alleviating the effects of such problems and restoring discipline and normalcy among affected consumers.

Fifth is an appropriate legal framework. This is very important. For example, equality of credit opportunity must be afforded consumers to the greatest extent possible. Although there are often no perfect solutions or answers regarding consumer protection, a good legal framework can help considerably in promoting equal credit opportunities regardless of origin, race, gender and age. I believe all consumers are entitled to this kind of equal treatment.

Sixth is credit reporting. Consumers need to know their current standing: any problems, why credit has been denied and what can be done to enhance credit opportunities.

Seventh are separate organisations such as exist in some countries and are responsible for consumer protection in the area of financial products and services. In Australia, for example, there is an institution called the Australian Securities and Investment Commission (ASIC), which  is specifically tasked with helping set guidelines, codes of conduct and specific regulations concerning the transparency, disclosure and fair treatment of consumers.

Finally are anti-monopoly regulations for the finance industry. These are needed to prevent financial-services providers from merging and becoming so big that they form a monopoly in the market. Without proper prevention and control, they could jeopardise justice and fair treatment for consumers.

Chodechai Suwanaporn is director of the Fiscal Policy Office's financial-systems section. The views expressed here are his own.