Good Practices: Banking Sector

Banks should be legally responsible for all statements made in their advertising and sales materials (i.e. be subject to the penalties under the law for making any false or misleading statements)

Description	a. & b. Banks are required by law to provide consumers with information on the terms and conditions that apply to their products and services, and for some credit products consumers are required to sign a statement that they have been provided with this information. These requirements, however, are directed toward work with a customer of the bank rather than to advertisements for banks and banking services. Bank advertising is little addressed by banking law or regulatory instructions. No comprehensive review of bank advertising in the printed press or in other forms of mass media was undertaken for this diagnostic review. Advertising materials provided by banks in the form of brochures and information sheets suggest that some additional regulation may be required to ensure that consumers receive important information. The materials varied widely in their quality and the amount of information provided, ranging from very small photocopied sheets to glossy, professionally printed brochures with several pages. Many appeared to lack important information about the product being advertised. In particular, brochures on time deposits did not always state the consequences of early withdrawal of the deposit – which in many cases would be the loss of all of the expected interest payment. Loan advertisements ranged from those that included only the range of amounts that could be borrowed for a particular purpose (such as “travel credit” for labor migrants or mortgage credit) to more complete statements including interest rates. Only one clearly stated the ranges of available amounts, interest rates, and the types of security accepted. Materials provided appeared to be in reasonably plain and comprehensible language. c. The general law “On Advertising” prohibits false advertising and misleading advertising, including advertising that misleads by failure to state important information (Article 6, paragraph 4). Article 18 of that law addresses financial services, and specifically includes banking, but its provisions appear to be designed primarily for advertisements related to securities. Two provisions could be applied to banking services: a prohibition on the inclusion of numerical information that does not have a direct relationship to the advertised service and a prohibition on failure to include information on all of the conditions of the contract if the advertisement mentions any condition of the contract. No information was received during the diagnostic review that would indicate that the provisions have been applied to banking services. In the event that a violation of the law was found, a bank could be ordered to correct the problem and/or to undertake corrective advertising, and to pay a very modest fine. Individuals or legal entities injured by illegal advertising behavior have the right to seek damages in court, but this is not likely in the case of misleading bank advertising, as damages would be difficult to prove. In practice, the provisions of Article 18 would be difficult for courts and other enforcement bodies to apply to advertisements for banking services. Definitions of what information is not directly related to banking services may difficult, and the requirement that all conditions of contract be stated does not distinguish between significant and other conditions, thus literally requiring the impractical statement of every contract provision. The law does not distinguish, in relation to banking services requirements, between print advertisements, billboards and similar outdoor advertising, television and radio advertisements, and the advertising materials (brochures) produced by banks to be given to potential clients at the banking premises. Many advertisements for banking services, for example, include some information that could be considered a condition of the contract, such as the interest rate offered on a deposit account. If all provisions of the deposit account contract must be stated in all such advertisements, regardless of their type and placement, some kinds of advertising will simply become impractical for use. And if all conditions of the contract, including those that are important but do not define the particular product (e.g. privacy conditions, notifications requirements) must be included, this is likely to result in overly complex advertisements that are not clear to consumers and do not allow them to quickly and easily compare offers. Advertising can play an important role in the development of competitive markets for banking services by ensuring that consumers are made aware of more of the competitors in the market (not only the largest or most established) and of newer products or better terms that are being offered. A desire to protect consumers by requiring additional disclosure must be balanced against the practical limits of particular forms of advertising and the ability of consumers to absorb information presented in those forms. Appropriate advertising regulation for banking services will change as markets develop and must take into account the sophistication level of the audience, the specifics of products offered, the capacities of the advertising media, and the surrounding regulatory environment (e.g. requirements for information provided to a consumer at other stages of the process).
Recommendation	More specific rules governing bank advertising are needed in order to ensure that consumers are receiving important information about banking products and that they are able to compare the products offered. With input from banks, the consumer protection association, and the antimonopoly body, NBT should develop and pass an instruction on bank advertising that establishes some basic requirements. These requirements should take account of the current sophistication of Tajikistan’s consumers, the products offered, and the capacities of the various advertising media. Banks should be required to retain copies of their advertisements and these should be reviewed by NBT as a part of its supervision of bank behavior. The NBT or the antimonopoly body (or any other body taking responsibility for consumer protection in banking services) should monitor bank advertising to determine whether it meets the standards set in the NBT requirements and whether it is otherwise false or misleading.
Good Practice B.10	Third-Party Guarantees A bank should not advertise either an actual or future deposit or interest rate payable on a deposit as being guaranteed or partially guaranteed unless there is a legally enforceable agreement between the bank and a third party who or which has provided such a guarantee. In the event such an agreement exists, the advertisement should state: the extent of the guarantee; the name and contact details of the party providing the guarantee; and in the event the party providing the guarantee is in any way connected to the bank, the precise nature of that relationship.
Description	Consumer deposits in the state bank are fully guaranteed by the state and this fact is, according to bank representatives, well known by the public and noted in at least some advertising materials of the bank. The extent of public faith and reliance on the guarantee, however, is uncertain. The current state bank is the legal successor to the Soviet state savings bank. Representatives of banks and a number of individuals noted the history of loss of value of savings deposits and significant consumer disappointment about the very low value of older savings deposits retrieved from the bank after long periods marked by economic dislocation and two currency reforms. Other deposits are now protected by a law of August 2011 that created an insurance scheme for losses by individuals that result from the bankruptcy or other liquidation of a bank or MDO. The Fund has been organized and staffed and is now at the stage of building up its resources through periodic obligatory payments by banks and MDOs and creation of the procedures for payment of insured amounts in the case of necessity. Banks do not yet appear to be consistently informing their customers about the existence of the Fund and the nature and extent of insurance on interest-bearing accounts. This is quite appropriate at present, since the Fund has not yet built up its assets to the required levels and is still developing the procedures by which it will make payments on the insured accounts. The Fund is not yet in a position to execute its functions effectively, and as the majority of consumer deposits are for short terms, advertisement of insurance coverage might be more misleading than informative at present. A few banks do appear to be informing their customers or displaying a notice about the insurance in their premises. Displayed notices do not list all of the limits of the insurance coverage or discuss any of the excepted categories of accounts. There are some legal questions related to the definition of the categories of accounts that are not protected by the Fund’s guarantee (listed in Article 24 of the relevant law). Banks have been interpreting these exceptions broadly and deducting the corresponding deposits from the base upon which their contribution to the Fund is calculated (thus lowering their payments to the Fund). However, deposit holders that fall into the stated categories would not receive the benefit of the Fund’s guarantee, and this would need to be clearly stated in bank materials for consumers. Broad interpretation of these categories could make this disclosure complex and difficult to understand. As the Fund becomes established, banks will need to inform their customers about the Fund and the limits on its insurance. In order for this information to be communicated clearly and to avoid any confusion concerning the possibility that different banks are offering different terms of guarantee, it may be appropriate for the NBT, guarantee fund and/or Association of Banks of Tajikistan to develop model language for the notations to be included on bank advertising materials and the longer explanation that should be provided to customers opening accounts.
Recommendation	While the Fund that will guarantee some deposits is still in the process of formation and development of effective procedures, it may be appropriate for banks not to advertise guarantee of such deposits in order to avoid misleading holders of short-term deposit accounts. Once the Fund is fully functional, however, banks should be required to clearly inform their customers about the existence of the Fund and the nature and limits of the insurance provided, including all exceptions and conditions that might result in a refusal to pay. Banks should likewise be required to state the limits of the insurance in any advertising in which the insurance of the accounts is mentioned. In order to ensure clarity and uniformity, it may be appropriate for the NBT, the Fund and/or the Association of Banks of Tajikistan to develop model language for these customer notifications. The law on liquidation of credit organizations should be amended to give depositors priority over repayment of monies provided to a bank by the Government or NBT. Exceptions to this rule may be appropriate for bank owners or stockholders that hold deposits in the bank. The exceptions provisions in Article 24 of the law and their interaction with the legal requirements for payments into the Fund should be reexamined and any necessary amendments made to improve clarity and reduce the incentive for banks to exempt as many accounts as possible from the guarantee. One option to be considered would be payment of a lesser percentage on the basis of all deposits in the types of account subject to insurance, without subtraction of those that may be subject to exceptions under Article 24.
Good Practice B.11.	Professional Competence In order to avoid any misrepresentation of fact to a consumer, any bank staff member who deals directly with consumers, or who prepares bank advertisements (or other materials of the bank for external distribution), or who markets any service or product of the bank should be familiar with the legislative, regulatory and code of conduct guidance requirements relevant to his or her work, as well as with the details of any product or service of the bank which he or she sells or promotes. Regulators and associations of banks should collaborate to establish and administer minimum competency requirements for any bank staff member who: (i) deals directly with consumers, (ii) prepares any Key Facts Statement or any advertisement for the bank, or (iii) markets the bank’s services and products.
Description	a. & b. The law “On Banking Activity” establishes specific requirements for the professional qualifications of senior bank staff, including educational background, experience in banking, and a requirement for attestation. It does not, however, address the knowledge or qualifications of bank staff members dealing with the public or those who may be involved in marketing or advertising activities, nor are specific standards established by regulation or instruction, or by any project of the association of banks. Banks interviewed stated that they have specific internal guidelines for the behavior of their staff and for the presentation of information in regarding to each of the types of products or services offered and some stated that they test their employees on their knowledge of bank products. As there is little or no specific information on consumer complaints to banks and complaints outside of the banking system to other bodies are nearly unheard of, there is no means to determine how often consumers feel that they have been given inaccurate or incomplete information about bank products and services.
Recommendation	At the present time, priority should be given to the establishment of institutional structures and institutional responsibility for consumer protection in banking, and to the creation and enforcement of basic rules, such as those concerning consumer receipt of information. Regulatory and association programs for the education and testing of bank employees may be helpful and should be encouraged, but should not be a first order priority until and unless there is indication of a systemic problem with inaccurate statements to consumers. The NBT should include a general review of a bank’s programs and processes for the training of its employees as a part of its general supervision and review of bank activities. To the extent that this process, or the receipt of complaints by the antimonopoly body or consumer association, reveal significant problems or insufficiencies in training processes, NBT may wish to take further action. This could include issuance of more specific instructions on employee training and testing procedures or proposal that the Association of Banks of Tajikistan undertake such an initiative, together with one or more of the educational institutions that are now beginning to organize professional training in banking matters.
SECTION C	CUSTOMER ACCOUNT HANDLING AND MAINTENANCE
Good Practice C.1	Statements Unless a bank receives a customer’s prior signed authorization to the contrary, the bank should issue, and provide the customer free of charge, a monthly statement of every account the bank operates for the customer. Each such statement should: (i) set out all transactions concerning the account during the period covered by the statement; and (ii) provide details of the interest rate(s) applied to the account during the period covered by the statement. Each credit card statement should set out the minimum payment required and the total interest cost that will accrue, if the cardholder makes only the required minimum payment. Each mortgage or other loan account statement should clearly indicate the amount paid during the period covered by the statement, the total outstanding amount still owing, the allocation of payment to the principal and interest and, if applicable, the up-to-date accrual of taxes paid. A bank should notify a customer of long periods of inactivity of any account of the customer and provide a reasonable final notice in writing to the customer if the funds are to be treated as unclaimed money. When a customer signs up for paperless statements, such statements should be in an easy-to-read and readily understandable format.
Description	a. Banks do not routinely provide statements of any kind showing the activity in individual consumer accounts and are not required to do so by law or regulations. This may in part be a function of the simple nature of the banking products that have been available to individual consumers. The ability to make payments from a bank account is a relatively new service for consumers, who have traditionally used cash for most purposes and banks only for a savings account accessed with a traditional passbook. Banking products are now developing and becoming more complicated, making timely information on consumer accounts more important. Electronic card accounts that are now being offered by some banks (and required for receipt of some kinds of state payments) can be used for payment in some stores and for some utility and other charges. Banks offer a number of different kinds of interest-bearing deposits and consumers may wish to ensure that interest is being correctly calculated and timely deposited in the account. Without regular information on their accounts, it will be difficult or impossible for consumers to manage their accounts and their personal financial positions, to recognize when problems or errors have occurred, and to take timely action to correct them. Banks asked directly stated that they would provide account statements if a customer requested it, but most continued on to say that their customers did not want this service. A few banks have recently begun offering monitoring services for an extra fee, such as text messages indicating transactions in a card account. This is, however, the exception rather than the rule and most customers keep track of their accounts through their own record keeping and calculations, on the basis of ATM balance information only (for card accounts), and with notations or receipts from periodic visits to the bank (such as in connection with receipt of monthly interest on an account). b.- f. Statements are not provided, and therefore do not contain this information.
Recommendation	Banks should be legally required to provide customers with periodic statements of account that are sufficient for customers to manage their finances and monitor all of the account activity. If cost considerations prevent an immediate implementation of a requirement for paper statements for all accounts, the requirement could be phased in over a period of time and/or with a longer period for statements concerning accounts with limited activity. The only exception to this should be for customers that directly request not to receive such statements.
Good Practice C.2	Notification of Changes in Interest Rates and Non-interest Charges A customer of a bank should be notified in writing by the bank of any change in: The interest rate to be paid or charged on any account of the customer as soon as possible; and A non-interest charge on any account of the customer a reasonable period in advance of the effective date of the change. If the revised terms are not acceptable to the customer, he or she should have the right to exit the contract without penalty, provided such right is exercised within a reasonable period, unless variable rates are included in the contract and the terms vary within the parameters set by the contract. The bank should inform the customer of the foregoing right whenever a notice of change under paragraph a. is made by the bank.
Description	a.-c. in general: The banking products currently offered to consumers in Tajikistan do not appear to include variable interest rate products, such as variable rate deposits or adjustable rate loans. Loans are for fixed interest rates (and relatively short terms), as are time deposit accounts. The terms of these products are set by contract and both general civil law rules and Article 55(8) of the law “On Banking Activity” prevent a unilateral change unless the contract specifically provides for it. Banks do charge fees for some kinds of services, including the use of ATM machines and currency conversions, and they do pay interest on balances in some kinds of accounts that are not time limited. (These include savings deposits without term that pay monthly interest and the residual balances left in payment accounts accessed by electronic cards.) Although they were requested both at diagnostic review meetings with banks and in a few test visits to banks, copies of standard contracts for deposit accounts or loan accounts could not be obtained for review. It is therefore not clear whether those contracts contain provisions on periodic adjustment of fees or interest rates on accounts that are not subject to a time limit and whether other adjustments may be envisioned. a. There do not appear to be any clear rules requiring written notice to consumers concerning changes in rates or fees or governing the terms of a consumer’s withdrawal if the changes are not acceptable. b. In practice, most of the types of consumer accounts to which such unilateral changes would be likely to apply would not involve penalties for consumer withdrawal in any case. However, in the absence of timely notice, consumers may be surprised by unexpected fees and changes in costs. c. As there is no legal requirement specifically concerning changes in accounts, no notification is being made to consumers of such rights. As no contracts were obtained for review, there is no indication of whether the legal possibility to envision unilateral changes is being used by banks to include such provisions in contracts.