1. institut finanzdienstleistungen institute for financial services Responsible Lenders and Responsible Consumers Prof. Dr. Udo Reifner institute for financial services (iff), Germany www.iff-hamburg.de Presentation at the 2009 OECD Corporate Responsibility Roundtable “Consumer Empowerment and Responsible Business Conduct” 15 June 2009 (Monday), Paris Parallel Session 3: Protecting and Educating Consumers in the Financial Sector

2. institute for financial services 2 Theses Consumer Power is derived from –Consumer Rights Rules, Access to courts, –Consumer Cartels Public opinion, corporate image, comparison –Consumer Complaints Exit, Voice and Science Consumer Information and Education may help CSR can only offer opportunities for more consumer power

3. institute for financial services 3 CRC CRC Coalition for Responsible Credit Community Reinvestment Coalition www.responsible-credit.net Further the idea of responsibility in credit & banking and promote a set of principles for responsible credit & fair lending. Organise and maintain a continuing dialogue among consumer & money advice organisations, social welfare organisations & trade unions, alternative financial institutions and other NGOs. Influence bank thinking, strategies, products and services to benefit underserved and excluded groups. Promote the production of research and transparency. Organise conferences and other forums that increase people’s and NGO understandings and abilities to promote fair access to lending products and services. Act as a collective voice for underserved people to the public with respect to financial services.

4. institute for financial services 4 European Coalition for Responsible Lending (ECRC) Principles for Responsible Lending P1: Responsible and affordable credit must be provided for all. –a. Credit is essential for people to participate fully in society b. Banks should not discriminate and should provide real access. c. Credit to Consumers and Small Businesses must be supervised. P2: Credit relations have to be transparent and understandable. –a. Competitive transparency requires a standardized mathematically correct form of “one-price” disclosure (the Annual Percentage Rate of Charge or APRC). b. Social transparency requires a standardized pre- contractual payment plan.c. Consumers should be provided with adequate time for reflection and with access to independent advice. d. Consumers should have access to independent financial, credit and debt advice. e. Both parties in the credit markets have to take part in a mutually productive process of financial education P3: Lending has at all times to be cautious, responsible and fair. –a. Credit and its servicing must be productive for the borrower b. Responsible lending requires the provision of all necessary information and advice to consumers and liability for missing and incorrect information. c. No lender should be allowed to exploit the weakness, need or naivety of borrowers. d. Early repayment, without penalty, must be possible. e. The conditions under which consumers can refinance or reschedule their debt should be regulated. P4: Adaptation should be preferred to credit cancellation and destruction. –a. There is a need for effective protection against unfair credit cancellation. b. Default charges should be adequate to cover losses only. P5: Protective legislation has to be effective. –a. Credit regulation has to cover all non-commercial users. b. Credit regulation has to cover all commercial forms of credit provision. c. Credit regulation has to cover the whole process of credit extension as experienced by its users. d. Credit regulation has to encourage efficient social and economic effects of credit extension. P6: Overindebtedness should be a public concern. –a. Profit-driven systems cannot cope with over-indebtedness. b. Consumers should have a right to discharge. e. Bankruptcy procedures should lead to rehabilitation and not to retorsion. P7. Borrowers must have adequate means to defend their rights and be free to voice their concerns. –a. There should be adequate individual as well as collective legal procedures to enforce borrowers’ rights. b. Critical public awareness is crucial for the development a fair and responsible distribution of credit and this requires disclosure of bank services and consumer credit lending patterns to disadvantaged communities.

5. institute for financial services 5 Students learn to… understand the central functions of financial services and the most important terms behind financial services, recognize the key criteria in choosing financial services, know where to get relevant information from, and how to compare and judge them, comprehend one’s own situation and circumstances, and be able to relate it to offers of financial service, know how to deal with financial difficulties,

6. institute for financial services 6 Financial education is not about learning… to listen to banks, to think and act like a banker, to understand economic cycles, to get to know the financial alphabet (“financial literacy”), to be a good saver, to get to know which products do exist on the market.

7. institute for financial services 7 Mutual Learning Students learn to ask questions –learn to critically reflect on offers of financial services –ask for better conditions –Ask for good advice and understandable explanations Bankers learn to listen –Learn to answer only if they are asked –Get to know the conumers problems interests and needs –Learn to respond to the consumers questions and needs Teachers and partners improve their knowledge of financial services Project partners learn about young peoples needs, interests and requirements concerning financial services and how to improve financial services to better suit their needs

8. institute for financial services 8 Didactic Independent study in working groups From concrete case studies and products to an applied knowledge through practice Working on particular cases that refer to the problems, needs and interests of the students Real life situations: banks as learning areas =>Students ask, bankers answer