Good Practices: Banking Sector

Recommendation

An amendment to the law or instructions issued by NBT should clearly require written notice to consumers of any change in the fees, interest rates or other charges applicable to their accounts. In order to avoid disputes over actual receipt of notice or the inappropriate application of other forms of legal notice requirements to this function, the requirement should specify what constitutes acceptable notice (such as notice by mail to the registered address on the account or by another means specified by agreement between the bank and the consumer). As banking products offered to consumers develop, if variable rate contracts are offered to consumers for their personal needs, more complex rules will need to be in place concerning notices and the terms upon which the consumer may exit the contract.
Good Practice C.3	Customer Records A bank should maintain up-to-date records in respect of each customer of the bank that contain the following: a copy of all documents required to identify the customer and provide the customer’s profile; the customer’s address, telephone number and all other customer contact details; any information or document in connection with the customer that has been prepared in compliance with any statute, regulation or code of conduct; details of all products and services provided by the bank to the customer; all documents and applications of the bank completed, signed and submitted to the bank by the customer; a copy of all original documents submitted by the customer in support of an application by the customer for the provision of a product or service by the bank; and any other relevant information concerning the customer. A law or regulation should provide the minimum permissible period for retaining all such records and, throughout this period, the customer should be provided ready access to all such records free of charge or for a reasonable fee.
Description	a. There is no single provision in banking laws and regulatory instructions that defines the records to be kept about customers or the retention period for those records. Some regulatory instructions concerning specific types of products or services are very clear and specific on these issues. NBT Instruction #186, for example, contains very specific requirements concerning the information to be retained in the record of a credit agreement, which is to include all documents related to the credit agreement (client identification information, applications, supporting documents, contract, and all correspondence related to the credit, as well as all reports and internal bank documents required by the Instruction), and also notations on all of the meetings, conversations, telephone calls and other communications and discussions with the client (point 36). This list would cover most or all of the information listed in this good practice description. Recordkeeping requirements for other types of banking services and accounts are not as clearly detailed. The regulatory instructions on card services and on the opening and maintenance of bank accounts do not specify the information to be included in their records or the period for their retention. General provisions in the law “On Banking Activity” require that credit organizations retain specified records on every “transaction” for a period of not less than five years (Article 38). The records that must be retained are: -- identification information on the client; -- applications and all documentation on transactions (including credit agreements and provision of guarantees) and decisions on their approval; -- notes of transactions with partners (creditors, debtors, and guarantors) and any other documentary evidence serving as the ground for the approval of these transactions; --other documents as established by the NBT. The language of the provision refers to “transactions” while references in other parts of the same law refer to “operations” conducted by clients through their accounts (e.g. the provision concerning secrecy of such operations in Article 48). This raises some question about the coverage of the general recordkeeping requirement.^4 The listed information may (depending upon the interpretation of the term transaction) cover most of the financial movements in client accounts, it lacks some information that should be included in client records on specific accounts, such as records of complaints or errors and their resolution, record of closure of accounts, and records of loss or theft notifications on card accounts. b. Records on credit agreements are required to be retained for not less than five years after the repayment of the credit (point 37 of NBT Instruction #186). Records required under the more general provisions of the law “On Banking Activity” must be retained in relation to every “transaction” for a period of five years.
Recommendation	NBT should consider the development and issuance of a new instruction on bank records that would both contain a broader general description of the records that must be kept (the list could be similar to that contained in the good practice description in this section or could be based on the list in Instruction #186), and specific provisions concerning records related to particular kinds of accounts or services. Such a new instruction could, if desired, also address questions of the secrecy and security of bank records and information and the required procedures for their storage and for access to them. The need for further instructions on that issue is discussed below in section D.1. In the alternative, the NBT could amend the existing instructions on the various types of accounts and services to include a provision similar to that included in Instruction #186 on credit agreements, with appropriate specifics for the relevant type of account or service.
Good Practice C.4	Paper and Electronic Checks The law and code of conduct should provide for clear rules on the issuance and clearing of paper checks that include, among other things, rules on: checks drawn on an account that has insufficient funds; the consequences of issuing a check without sufficient funds; the duration within which funds of a cleared check should be credited into the customer’s account; the procedures on countermanding or stopping payment on a check by a customer; charges by a bank on the issuance and clearance of checks; liability of the parties in the case of check fraud; and error resolution A customer should be told of the consequences of issuing a paper check without sufficient funds at the time the customer opens a checking account. A bank should provide the customer with clear, easily accessible and understandable information regarding electronic checks, as well the cost of using them. In respect of electronic or credit card checks , a bank should inform each customer in particular: how the use of a credit card check differs from the use of a credit card; of the interest rate that applies and whether this differs from the rate charged for credit card purchases; when interest is charged and whether there is an interest free period, and if so, for how long; whether additional fees or charges apply and, if so, on what basis and to what extent; and whether the protection afforded to the customer making a purchase using a credit card check differs from that afforded when using a credit card and, if so, the specific differences. Credit card checks should not be sent to a consumer without the consumer’s prior written consent. There should be clear rules on procedures for dealing with authentication, error resolution and cases of fraud.
Description	a. – f. inclusive Customers are currently offered a limited range of products and services by banks, which do not appear to include use of paper or electronic checks. This eliminates any immediate need for detailed regulation of their use. As additional services are offered more widely by banks, the legislator, banking regulator and other bodies involved in consumer protection will need to expand rules and instructions as required to supplement the application of general rules to new products and services. This should not, however, be a priority at this time. The first order priority should be significant improvement of consumer protection in respect to the payment card, deposit, and loan accounts that are currently available to consumers.
Recommendation	General rules protecting consumers of banking services, including additional rules recommended for adoption in this document, should apply to protect consumers using any paper or electronic check services that begin to be offered by banks, as well as to other new forms of banking products. As those products become more widely available to consumers, NBT and bodies protecting consumers should monitor bank performance and any problems revealed by consumer complaints, and NBT should adopt more detailed rules concerning the terms, authentication methods, fraud prevention measures and other matters as required.
Good Practice C.5	Credit Cards There should be legal rules on the issuance of credit cards and related customer disclosure requirements. Banks, as credit card issuers, should ensure that personalized disclosure requirements are made in all credit card offers, including the fees and charges (including finance charges), credit limit, penalty interest rates and method of calculating the minimum monthly payment Banks should not be permitted to impose charges or fees on pre-approved credit cards that have not been accepted by the customer. Consumers should be given personalized minimum payment warnings on each monthly statement and the total interest costs that will accrue if the cardholder makes only the requested minimum payment. Among other things, the legal rules should also: restrict or impose conditions on the issuance and marketing of credit cards to young adults (below age of 21) who have no independent means of income; require reasonable notice of changes in fees and interest rates increase; prevent the application of new higher penalty interest rates to the entire existing balance, including past purchases made at a lower interest rate; limit fees that can be imposed, such as those charged when consumers exceed their credit limits; prohibit a practice called ―double-cycle billing‖ by which card issuers charge interest over two billing cycles rather than one; prevent credit card issuers from allocating monthly payments in ways that maximize interest charges to consumers; and limit up-front fees charged on sub-prime credit cards issued to individuals with bad credit. There should be clear rules on error resolution, reporting of unauthorized transactions and of stolen cards, with the ensuing liability of the customer being made clear to the customer prior to his or her acceptance of the credit card. Banks and issuers should conduct consumer awareness programs on the misuse of credit cards, credit card over- indebtedness and prevention of fraud.
Description	a. Credit cards do not appear to be widely used in Tajikistan, although some banks are just beginning to offer them. Instruction #190 of the NBT “On the Procedure for the Provision of Services By Means of Bank Payment Cards” does envision the issuance of credit cards, as well as prepaid cards and debit cards attached to an account. The provisions of Instruction #190, however, are quite general and as currently written apply more to the latter two types of cards than to credit cards. Chapter 2 of Instruction #190 covers requirements for both debit and credit cards, and requires that the terms for the issuance and use of the card be defined by contract. The contract must include provisions concerning: -- the size and type of commissions to be paid; -- the means and period for provision of statements concerning the card account; -- basic requirements for security (use of a code, withdrawal limits, and actions to be taken in the case of theft or loss of the card); -- procedure to inform the issuer about loss or theft; -- liability of the parties in the case of loss, theft, or unauthorized use; -- conditions under which the card may be blocked or withdrawn; -- the procedure for the resolution of disputes; -- the procedure for ending the contract. The issuer is required to inform the potential customer about the fees and conditions for use of the card before the card is received, as well as about the risks of fraudulent use and measures that should be taken to avoid it. The issuer is likewise required to provide to the cardholder, in writing, rules for the use of the card and a statement of effective tariffs and rates. (This may also be provided in electronic form if the consumer agrees.) There are no requirements stated in the instructions concerning the content of the required provisions of the contract. f. Credit card contracts were not available for review to determine whether requirements for customer information and for the inclusion of contract terms on dispute resolution and on the liability of the parties in cases of theft, loss, or fraud are sufficient to meet the standard of the good practice described in this section. b. – e. & g. Instruction #190 does not regulate the substance of billing practices, calculation of interest, advertising or provision of credit cards to minors, or any of the other issues listed in items (b)-(e) and (g) of the good practice description. It is possible that a credit card might be treated as accessing a credit line extended under the terms of Instruction #186 on the issuance of credit, but many of the terms of Instruction #186 are poorly designed to apply to a credit card account, so this would not resolve the lack of appropriate legal regulation.
Recommendation	NBT will need to develop and issue appropriate regulatory instructions governing the issuance and use of credit cards and the requirements for bank billing and notification practices. Such instructions could be issued separately, or as an addition/amendment to Instruction #186. These instructions are important and should be in place before bank offers of credit to consumers through credit card agreements become common, but their development and passage should not take priority over issues related to the kinds of accounts and services that are currently being widely used by consumers.
Good Practice C.6	Internet Banking and Mobile Phone Banking The provision of internet banking and mobile phone banking (m-banking) should be supported by a sound legal and regulatory framework. Regulators should ensure that banks or financial service providers providing internet and m-banking have in place a security program that ensures: data privacy, confidentiality and data integrity; authentication, identification of counterparties and access control; non-repudiation of transactions; a business continuity plan; and the provision of sufficient notice when services are not available. Banks should also implement an oversight program to monitor third-party control conditions and performance, especially when agents are used for carrying out m-banking. A customer should be informed by the bank whether fees or charges apply for internet or m-banking and, if so, on what basis and how much. There should be clear rules on the procedures for error resolution and fraud. Authorities should encourage banks and service providers to undertake measures to increase consumer awareness regarding internet and m-banking transactions.
Description	a. – f. Internet banking services and mobile banking are not offered to consumers in Tajikistan at this time. A few banks have begun to offer internet banking services for business clients, and at least one bank has begun to offer account-monitoring services through text messages to a consumer telephone. Other forms of mobile banking are not yet available. There are not yet any legal rules or regulatory instructions in place specifically governing these forms of banking services. General rules on banking activity and banking services apply, including rules on data protection, information provided to customers, and other matters.
Recommendation	The priority at the present time should be improvement of consumer protection in relation to the types of accounts and services that are currently offered to consumers in Tajikistan. However, it is clear that the types of services offered are likely to expand to internet and mobile banking functions in the not-too-distant future. The NBT should begin to develop instructions regulating the provision of these services to consumers and standards for data protection and other relevant requirements. In the meantime, the general rules concerning banking services (including additional rules recommended here on provision of information, identification of avenues for complaint and other matters) should apply to protect consumers of these services as they begin to be offered.
	Electronic Fund Transfers and Remittances There should be clear rules on the rights, liabilities and responsibilities of the parties involved in any electronic fund transfer. Banks should provide information to consumers on prices and service features of electronic fund transfers and remittances in easily accessible and understandable forms. As far as possible, this information should include: the total price (e.g. fees for the sender and the receiver, foreign exchange rates and other costs); the time it will take the funds to reach the receiver; the locations of the access points for sender and receiver; and the terms and conditions of electronic fund transfer services that apply to the customer. To ensure transparency, it should be made clear to the sender if the price or other aspects of the service vary according to different circumstances, and the bank should disclose this information without imposing any requirements on the consumer. A bank that sends or receives an electronic fund transfer or remittance should document all essential information regarding the transfer and make this available to the customer who sends or receives the transfer or remittance without charge and on demand. There should be clear, publicly available and easily applicable procedures in cases of errors and frauds in respect of electronic fund transfers and remittances A customer should be informed of the terms and condition of the use of credit/debit cards outside the country including the foreign transaction fees and foreign exchange rates that may be applicable.
Description	There is a significant market for the transmission of remittances from Tajikistan’s large migrant labor population, and money transfers are one of the most commonly used banking services. The market appears to be quite competitive, with services available through a number of money transfer systems. a. Legal and regulatory provisions concerning money transfers are limited. They do not define the rights, responsibilities, and liabilities of the parties in detail, nor do they address consumer protection questions such as the kind of information that must be given to users of the services and in what form it should be provided. Transfers may be made into and out of existing bank accounts, or may be made directly through a money transfer system without the opening of an account. Transfers made through existing accounts are governed by the rules concerning banking services related to bank accounts and the conduct of operations within them. Transfers made without the opening of an account are also governed by some general rules relating to “banking activities” and or “banking services,” as well as by specific provisions related to money transfers. General banking rules that refer to “accounts,” however, do not cover direct transfers made without the opening of an account. NBT Instruction #162 “On the Procedure for the Conduct of Money Transfer Operations by Natural Persons Without the Opening of Foreign Currency Accounts” governs foreign currency transfers. It is primarily concerned with the documents that are to be completed by the senders and receivers of transfers, the keeping of records on transfers, and the restrictions on the purposes of foreign currency transfers made without a foreign currency account (they may not be made within the country and must be for personal use and not be associated with entrepreneurial activity or investment). It does not contain any provisions concerning the information that must be provided to a consumer or the rights and responsibilities of the parties.