When consumers have a voice in financial consumer protection regulation, it often makes regulation more effective. As my colleague Eric Duflos points out in a recent blog post, the financial inclusion community has at least three opportunities to elevate the collective consumer voice: empowering consumer groups, creating more forums for regulators to listen to consumers, and leveraging social media and other technology, such as interactive voice response (IVR), to connect consumers and regulators.
In Peru, regulators are putting all three of these ideas into practice in ways that may be instructive for other regulators that are working to protect vulnerable customers.
Since 2010, Peru’s consumer protection efforts have been guided by its Consumer Protection Code. This code designates the National Institute for Defense of Competition and Protection of Intellectual Property (Indecopi) as the principal authority for consumer protection across all sectors. Indecopi shares enforcement authority with the country's financial sector regulator and supervisor, the Superintendency of Banking, Insurance, and Pensions (SBS).
The code acknowledges the important role of the collective consumer voice and creates various ways for regulators and customers to interact.
Empowering consumer groups
Peru’s Consumer Protection Code includes a registry of 80 NGOs that are authorized as consumer associations, and it promotes roundtables where these associations and other stakeholders can engage with regulators.
The code also promotes an interesting solution to a common challenge for consumer associations around the world: sustainable funding. Peru’s code establishes a unique funding mechanism that is linked to bringing cases on behalf of consumers, individually or as a class. According to an UNCTAD report published last year, an NGO can raise a range of complaints and denouncements and ask the government to cover a portion of its expenses in those cases. This limited funding, capped at 50 percent of the award and no more than 5 percent of an association’s operating expenses, creates incentives to generate cases without generating perverse incentives to bring frivolous cases.
As of the end of 2019, however, only 16 out of the 77 consumer associations that were authorized at that time had signed an agreement with Indecopi to access these funds. One of the main reasons for the low percentage, according to the UNCTAD report, is that most consumer associations do not have the necessary resources to undertake such initiatives.
Indecopi is also exploring new funding models and ways to “professionalize” consumer associations. It recently met with consumer representatives about coordinating efforts to protect consumers, with an emphasis on the most vulnerable.
Creating more forums for regulators to listen to consumers
Consultative councils are a direct and efficient way to bring the perspective of women and other vulnerable groups into consumer protection policy making.
Peru’s code establishes a high-level policy making and coordinating body, the National Consumer Protection Council (NCPC), to propose, promote and coordinate consumer protection policies, strategies, systems and plans. The code ensures that three of the NCPC’s 16 members represent consumer associations. Being at the table with public officials from ministries, regulatory agencies and local governments has enabled consumer representatives to push for policy changes, such as the broadening of Indecopi’s mandate to include discrimination-related issues and cases.
However, SBS has no formal structure through which to engage the collective voice of consumers. This is despite the fact that the legal frameworks of other sectoral regulatory agencies have recognized user councils as a mechanism for engaging with consumers. A similar mechanism could help SBS develop more permanent and trusted relationships with organizations that represent women and other vulnerable segments.
Leveraging technology to connect consumers and regulators
Social media channels present an opportunity for regulators to engage with a broad range of consumers.
Indecopi uses radio and many other channels to spread information about consumer rights and enable consumers to make claims, inquiries and complaints. Its digital channels include a WhatsApp account called “Vigilancia Ciudadana" ("Citizen Watch"), through which consumers can inform the regulator about potentially abusive practices. Its “Citizen Report,” an online form, also allows citizens to express concerns, complaints and dissatisfaction with providers.
Such channels are powerful tools for listening to consumers and addressing their concerns. Back in June 2020, in the context of COVID-19, Indecopi received 10,280 consumer reports about FSPs regarding loan rescheduling and customer service. Indecopi ended up auditing 184 FSPs, issuing alerts to 14 providers and meeting with the five providers most frequently reported by consumers.
The SBS also maintains multiple customer service channels, including an online messaging app, Facebook page, email account and a toll-free hotline. Last year, SBS launched a project to monitor online and social media mentions of the SBS and a few supervised banks and financial companies. This data may complement consumer complaint statistics submitted by supervised entities and information generated by SBS’s online consumer portal.
CGAP is partnering with Indecopi and SBS on a pilot to improve their systems for collecting and analyzing customer inputs. We will also be collaborating to map regulatory enforcement processes and identify where consumer inputs are currently being considered versus where they may be strengthened. This will help Indecopi and SBS to lay the groundwork for stronger collaboration and relevant information exchange for consumer protection market monitoring.