Good Practices: Banking Sector

b. As there does not appear to be any tying of other products to banking services nor any requirement that additional services (such as insurance) be obtained, this issue has not arisen.

Recommendation	a. There is no indication that tying or bundling of differing kinds of banking services or of banking services and other products is currently a significant problem in Tajikistan and existing legal provisions appear to be adequate to the current situation on the market. NBT should monitor banking practices and issue more detailed instructions if this becomes necessary as banking services develop. b. Insurance purchases in relation to loans have been a particular problem in some other CIS jurisdictions, with widespread tying practices, bundling of insurance products with loans in ways that obscure the cost of both products, and collusion and kickbacks between banks and their “approved” list of insurance providers. With respect to insurance products, it would be appropriate for NBT and the insurance regulator to prevent problems by the development of appropriate instructions for both banks and insurance companies and joint monitoring of practices.
Good Practice B.5	Preservation of Rights Except where permitted by applicable legislation, in any communication or agreement with a consumer, a bank should not exclude or restrict, or seek to exclude or restrict: any duty to act with skill, care and diligence toward the consumer in connection with the provision by the bank of any financial service or product; or any liability arising from the bank’s failure to exercise its duty to act with skill, care and diligence in the provision of any financial service or product to the consumer
Description	Tajikistan’s laws do not rely on broadly worded duties or standards of care that are to be further interpreted in practice by courts and other authorities. This is a trait shared by most post-Soviet legal systems. Thus, there is no general provision requiring banks to act within such a standard, nor one that prohibits them from escaping such a requirement through contract or by unilateral statement. Although inclusion of such provisions in banking legislation might do no harm, it would also be unlikely to have significant practical effect at this time. Courts and other enforcement bodies are unfamiliar with consumer banking matters and are unaccustomed to applying broad behavioral standards to individual circumstances, and industry practices that could be relied upon to give substance to the standard of care have not yet developed. More effective protection is likely to be provided by the use of more specific rules concerning the treatment of consumers in particular circumstances. Article 6 of the law “On Consumer Protection” prohibits contract conditions that limit the rights of consumers or worsen their position in comparison to what is otherwise established by legislation. Article 16 of the same law provides that such conditions are to be held void. This would apply to the provision of financial services to consumers, and could be used to invalidate provisions that reduce duties or liabilities directly imposed on banking and financial services providers by legislation, including by rules duly issued by NBT under its legal authority. In order for this provision to apply, however, the rights, duties or liabilities in question would need to be clearly stated, particularly in areas that would otherwise be governed by civil law rules providing for freedom of the parties to determine the content of a contract. Moreover, the rules would have to be clearly designed to protect consumers. Banking laws and regulations do not, in most cases, clearly distinguish between banking services provided to individual consumers and similar services provided to businesses and other legal entities. Those that do distinguish do not have extensive provisions concerning individual consumers’ accounts or addressing the particular needs of individuals purchasing services for personal needs. NBT Instruction #186, for example, contains few provisions distinguishing the provision of consumer credit to individuals from the provision of credit to businesses and other legal entities. NBT Instruction #171 concerning the opening, transfer, and closure of customer accounts does have a separate section on the accounts of individual persons who are not registered individual entrepreneurs, noting that different documents will be required to open an account (since private individuals will not have some of those otherwise demanded) and requiring that the individual sign a statement that they have been informed about all of the conditions of the account and the fees that apply. But this is an exception, and there are few other provisions in the banking legislation or regulatory instructions designed to protect individual consumers or define their rights separately. This may result in fewer legal protections for individual consumers, as the laws may avoid mandatory provisions to promote competition among banks and to retain flexibility for the negotiation of differing terms as required by more sophisticated business customers with more complex needs. It may be appropriate for NBT to consider a separate set of instructions for banks on the treatment of individual consumers, or more detailed provisions within existing instructions. Rights, duties, and liabilities defined in such separate documents or provisions would clearly be designed to protect the rights of consumers and as such would fall under the general provisions of the law “On Protection of Consumers” discussed here. While this would have the benefit of clearly establishing identifiable “consumer protection” standards in banking legislation, however, it does raise some questions concerning when and how the same individuals should be treated differently by banks when opening personal accounts than when opening an account for their small-scale income earning activity. To the extent that individuals need greater protection in relation to banking services purchased as individual entrepreneurs, it may be necessary to add separate provisions to the laws and instructions governing the relevant banking activity.
Recommendation	Consideration should be given to the issuance of separate rules and/or inclusion of separate provisions in banking legislation and regulatory instructions that more clearly define the rights of individual consumers (as opposed to the rights of all banking customers) and the duties of banks toward them in areas that are of special concern or importance. This would provide additional protection to consumers, allow rules to be differentiated for banking customers with differing sophistication levels, and ensure that the general rules and protections in the law “On the Protection of Consumers’ Rights” could be applied in the banking context.
Good Practice B.6	Regulatory Status Disclosure In all of its advertising, whether by print, television, radio or otherwise, a bank should disclose the fact that it is a regulated entity and the name and contact details of the regulator.
Description	Banks in Tajikistan are not required to indicate information about the bodies that regulate them and the means by which a consumer can contact those bodies. The NBT is the primary bank regulator and the body that produces and is familiar with all of the laws and regulations that specifically regulate banking activities. But the NBT does not currently take complaints from the public or have a response mechanism for such complaints, so a reference to the NBT in bank advertising would not currently be particularly useful to a consumer. The antimonopoly body does accept consumer protection complaints from the public, and in principal could accept and investigate complaints at its central body and its regional bodies. However, the antimonopoly body is poorly funded, is highly associated with control of monopolies rather than consumer protection, and has authority only in cases that involve a violation of the general competition, consumer protection or advertising laws. If a violation of the laws and instructions governing banking were found to injure consumers, it might well be considered a violation of the general law on consumer protection and within the jurisdiction of the antimonopoly body.
Recommendation	As a part of the improvement of the legal definition of responsibility for consumer protection in financial services (discussed above in section A.1.), responsibility for the antimonopoly body, the NBT, and/or any other bodies to receive and respond to consumer reports and complaints must be clearly defined and the appropriate institutional, procedural, and other supports put in place to allow it to begin to function. The law “On Banking Activity” and/or the regulatory instructions should be amended to indicate that body and to require banks to state the name of the body and its contact information in written advertising materials, as well as in other types of advertising where appropriate to the media involved. This information should also be required as a part of the package of materials that a bank customer must receive when purchasing a product or service from a bank.
Good Practice B.7	Terms and Conditions Before a consumer opens a deposit, current (checking) or loan account at a bank, the bank should make available to the consumer a written copy of its general terms and conditions, as well as all terms and conditions that apply to the account to be opened. Collectively, these Terms and Conditions should include: disclosure of details of the bank’s general charges; a summary of the bank’s complaints procedures; a statement regarding the existence of the office of banking ombudsman or equivalent institution and basic information relating to its process and procedures; information about any compensation scheme that the bank is a member of; an outline of the action and remedies which the bank may take in the event of a default by the consumer; the principles-based code of conduct, if any, referred to in A.2 above; information on the methods of computing interest rates paid by or charged to the consumer, any relevant non-interest charges or fees related to the product offered to the consumer; any service charges to be paid by the consumer, restrictions, if any, on account transfers by the consumer, and the procedures for closing an account; and clear rules on the reporting procedures that the consumer should follow in the case of unauthorized transactions in general, and stolen cards in particular, as well as the bank’s liability in such cases facilitates the reading of every word.
Description	Law and regulatory instructions do not specifically describe either a general or a specific “statement of terms and conditions” or contain a single list of information that is to be provided to all customers. There are, however, several provisions in law and regulatory instructions that require banks to provide information on the terms and conditions of the accounts or loans opened with the bank. In general, the requirements relate to information that is to be provided in the contract rather than information presented as a separate document. The law “On Banking Activity” requires generally that the relationship between the bank and customer be defined by contract, that the contract define the rates and fees to be charged, and that the bank inform the client about all requirements of the contract prior to beginning any services, including the rates, service fees, and any other additional costs to the customer (Article 55 (1)-(3)). This requirement would appear to cover the information referred to in points (i) and (vii) and the first item in (viii) in this good practice description. In relation to credit accounts, NBT Instruction #186 “On the Procedure for the Provision of Credit and the Calculation of Interest by Credit Organizations” requires that a client must be informed in writing, prior to signing the contract, about all of the available types of credit and their terms (point 15). It further requires that the credit contract state: the sum borrowed, the term, the currency of the loan, the interest rate, the date of conclusion, the form in which the credit is to be issued, the security for the loan, the procedure and sources for payments, the procedure that will be followed if the payment is not made on time, the contact information for the parties, and information on provision of information to a credit bureau (point 30). In addition, the bank is required to present a schedule showing the details of how the credit is to be repaid, including a detailed description of the procedure, amounts, and dates for payments. This schedule must be confirmed at the time that the contract is signed and attached to the contract (point 31). The contract is specifically required to envision all of the types of liability that may be imposed and the measures that may be taken in the case of the failure of either party to meet their obligations (point 33). Taken together, these requirements would appear to cover the information referred to in points (i), (v), (vii), and the portion of (viii) related to charges. NBT Instruction #171, which concerns the opening, transfer and closure of bank accounts, requires that a contract for a bank account contain information on the conditions for the provision of services by the bank and the procedure for the payment of fees, and the procedure and conditions for the closure of the account (among other terms discussed in point 12). This would cover points (i), and (viii) listed above. In addition, for accounts opened by natural persons who are not individual entrepreneurs, Instruction #171 requires that the client be made acquainted with all of the conditions of the bank account prior to the opening of the account and that the client personally make a note of this on the forms for the opening of the account and sign a statement that they have received this information (point 20). NBT Instruction #190, which concerns the treatment of card accounts (credit, debit and prepaid cards), requires that the contract concerning the card account contain conditions describing the type and amount of fees to be paid, the procedures for notification of unauthorized transactions or loss of a card, and the procedure for the resolution of disputes, among others (point ii). This would cover the information referred to in points (i), (ix), and the portion of (viii) that relates to fees. In general, banks do not appear to have formalized complaints procedures, and there is no requirement in law or regulatory instructions concerning information on complaints procedures or dispute resolution, except for the requirement in Instruction #190 concerning card accounts. (See section E.1 of this review, below.) There is currently no ombudsman or similar system in place in Tajikistan about which customers could be notified. (See section E.2 of this review, below.) A deposit guarantee system is in the process of formation, but it is not yet ready to function and banks are just beginning to inform customers about its existence. This information does not appear to be presented in any detail. (On guarantee schemes, see also sections B.10 and F.1 of this review.) There are no voluntary codes of conduct about which a customer might be informed. (See section A.2, above.) Thus, the information referenced in points (ii), (iii), (iv) and (vi) either does not exist or is not yet ready to be provided in detail to consumers. Although requested, no contracts or customer information packages were received from banks for review during the diagnostic, making it difficult to determine in what form, with what detail, and how clearly the information required by the various Instructions is presented. Overall, while the existing laws and regulatory instructions do contain some provisions intended to ensure that bank customers receive required information, the provisions are not detailed and vary in content from one type of account or service to another. For example, only the instructions concerning bank accounts require that the procedure and conditions for closure of the account must be covered, while those for a credit agreement and for card services do not. Only the instructions concerning card services require that the procedure for dispute resolution be specified. The instructions do not specify the form in which the information must be communicated to the customer – and in general only require that it appear in the contract. Individual consumers, who may not be sophisticated about banking services, would be better protected by clearer and more detailed requirements concerning the information to be provided to them by banks.
Recommendation	NBT should consider the development of a new instruction that would unify rules concerning the information that must be provided to consumers, the means by which it must be provided, any requirements concerning the form of the information, and model statements or notices where these are important in allowing consumers to understand their rights or to compare important aspects of banking services. This new instruction could be focused on the provision of information or could cover a broader spectrum of consumer protection issues (such as the requirement that banks have in place a dispute resolution system, discussed in section D.1., below). In the alternative, NBT could review the existing instructions governing bank accounts, credit agreements, card services, and other products and services and amend the instructions to add more detailed provisions regarding the information to be provided to bank customers in general, and to individual consumers in particular.
Good Practice B.8	Key Facts Statement A bank should have a Key Facts Statement for each of its accounts, types of loans or other products or services and provide these to its customers and potential customers. The Key Facts Statement should be written in plain language and summarize in a page or two the key terms and conditions of the specific banking product or service. Prior to a consumer opening any account at, or signing any loan agreement with, the bank, the consumer should have delivered a signed statement to the bank to the effect that he or she has duly received, read and understood the relevant Key Facts Statement from the bank. Key Facts Statements throughout the banking sector should be written in such a way as to allow consumers the possibility of easily comparing products that are being offered by a range of banks.
Description	a.- d. Banks are not legally required to use “key facts statements” or other forms of plain language explanations of terms and conditions and do not appear to do so, despite that fact that a number of the banks interviewed stated that their customers have difficulty in understanding financial products and that most complaints arise from a customer’s failure to understand their contracts or bank products generally. As discussed immediately above in section B.7, banks are required by law and regulatory instructions to provide consumers with certain information on the terms and conditions that apply to bank products and services or to include that information in the contract with the consumer. In a few instances, consumers are required to sign a statement that they have been provided with this information (e.g. at the opening of a deposit account for an individual consumer not acting as an individual entrepreneur). The time at which the information is provided (at the bank before application, during the application process, or simply within the contract) is not clearly regulated for most information, however, nor is the form in which it must be presented. In practice, provision of information to consumers seems to vary widely among banks and full information in an easily understandable form does not appear to be regularly available. Bank information sheets and advertising brochures varied considerably in their detail and most lacked some important information. Although a number of banks stated that copies of standard contracts were available to consumers to review before applying for loans or deposit accounts, no sample contract forms could be obtained in a small number of test visits to banks.
Recommendation	Further development of the applicable laws and instructions to more clearly define the time when information must be provided and the form in which it should be presented is needed to ensure that consumers have sufficient time to review and consider all of the relevant information and that they are able to properly compare the products and services offered by various banks. NBT should develop an instruction providing more detailed guidance to banks on this issue, including a requirement for “key facts statements” or similar standardized form of description of account terms in plain language that would ensure that consumers can easily understand and compare the terms of products and services offered. Such descriptions should be required to be available to consumers upon their request at bank offices, so that consumers are not in the position of being informed of important terms only after they are already in the application process. Legal rules specifying a “key facts statement” or other simple form and content requirements should also be considered in relation to other issues that are of importance to consumers, including in particular a plain language explanation of the risks inherent in use of a home as security for a loan and the procedures by which the bank may execute on that security in the case of default.
Good Practice B.9	Advertising and Sales Materials Banks should ensure that their advertising and sales materials and procedures do not mislead customers. All advertising and sales materials of banks should be easily readable and understandable by the general public.