Consumer protection must come before financial innovation

23 March 2017

Retail & financial inclusion

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Finance Watch comments on the Commission’s Consumer Financial Services Action Plan

Brussels, 23 March 2017 – Finance Watch, the public interest advocacy group working to make finance serve society, commented on the Consumer Financial Services Action Plan published today by the European Commission.

Finance Watch’s Head of Policy Analysis, Frédéric Hache, said:

“On behalf of financial services end-users, we welcome this package with an important proviso: in the fast-moving world of online financial services, we must not prioritise financial innovation over consumer protection.”

Finance Watch’s key comments on the Action Plan:

We support the intention to reduce charges for cross-border transactions, review dynamic currency conversion practices, improve security of online payment, digital fraud and privacy issues, and update disclosure requirements to the digital world.
We support measures to facilitate the assessment of borrowers’ creditworthiness from other Member States but caution against encouraging lenders to rely only on quantitative data. Much crucial information is qualitative and proper credit assessment requires a local presence to know the true economic and personal context.
As the crisis showed, if we have more cross-border lending we will need complementary measures to avoid credit being withdrawn in a disorderly way in times of stress, due to the home bias of many lenders.
We hope that financial innovation will not be unduly prioritised over consumer protection. For example, the Commission’s four policy objectives relating to ‘FinTech’ do not address cyber-security, beyond privacy needs. This is a concern as technological innovation already moves at a much faster pace than improvements in cyber security.
Regarding the adaption of disclosure requirements to the digital world, we hope that measures will go beyond making disclosure formats simpler, as experience shows that most people do not read terms and conditions on their mobile devices, no matter how short and well written they are.
Lastly, we should be cautious about the alleged competition benefits of cross border digital financial services, as past experience suggests that a strong concentration could follow, leading to winner-takes-all outcomes.