cesr and consumers March 7, 2008
Posted by Bradley in : consumers , add a commentCESR (which thus far has mostly focused its energies on consulting with financial market participants) today announced the publication of a new guide for retail investors on MiFID. The press release states:
The purpose of the guide is to explain, in clear and straightforward language, the new protections retail consumers will experience in buying financial services, following the introduction of this legislation across Europe. As a next step, this guide is expected to be translated into many languages by CESR’s Members, the national securities regulators. This is the first time CESR has developed a guide destined for consumers and it reflects CESR’s strong commitment to increase confidence amongst retail investors.
The guide states that a new consumer-focused website will be available later this year.
Rather oddly, the press release states that the guide’s objective is to increase confidence among retail investors and not to ensure that retail investors know their rights. And the guide is drafted in such a way that an investor would not really know what her rights are in a meaningful way by reading the guide. The guide chooses to be accessible to consumers by omitting the details. In one sense this is obviously necessary, but in another sense it is problematic. This is a perennial problem for those who communicate about complex rules to people who are not used to interacting with complex rules and raises the question whether we’d really be better off trying to make the rules simpler so we could avoid some of these translation issues.
The guide is published today in English and Hungarian and other versions are to follow. I don’t know about the Hungarian version but some of the English in the English version is a bit strange. For example the guide states:
Before providing you with an investment service, your firm is required to categorise you as a Retail
or Professional client. You will normally be categorised as a Retail client, a category which includes the majority of individuals.
I think that are trying to say that most customers will be treated as retail customers, and not that a customer will normally be classified as a retail customer, which suggests that under abnormal conditions she might be classified differently. And the description of the conditions under which a person may be classified as a professional client is unspecific:
Your firm will be able to categorise you as a Professional client only if you meet at least two of
the following conditions:
• you frequently carry out transactions;
• you have a large portfolio;
• you have worked in the field of investment services.
Here I think they would have been better off with more specificity. The directive states:
In the course of the above assessment, as a minimum, two of the following criteria should be satisfied:
— the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters,
— the size of the client’s financial instrument portfolio, defined as including cash deposits and financial
instruments exceeds EUR 500 000,
— the client works or has worked in the financial sector for at least one year in a professional position, which
requires knowledge of the transactions or services envisaged.
Does the vagueness of the guide really help the consumer to understand her rights. And even within the articulated aims of the document, which formulation would be more likely to enhance the consumer’s confidence?
odd press release headlines February 12, 2008
Posted by Bradley in : consumers , add a commentOn Safer Internet Day, the EU Commission published a press release with the headline “Let’s listen to children: They know how to make the Internet a safer place!” It seems that talking to children is only part of the story - really they will be talking to adults too. But given the hysteria about children and the internet, what an odd headline that is.
credit cards February 11, 2008
Posted by Bradley in : consumers , add a commentThe UK’s Office of Fair Trading (this month is scam awareness month over there) has published a credit card comparisons report. It seems that 70% of UK consumers do not shop around for credit cards, and, as usual, wealthier people are likley to be more effective at looking after their financial interests. The report encourages the FSA to add coverage of credit cards to its moneymadeclear website, which would:
have the advantage of having almost complete market coverage, be run by a trusted organisation, and allow consumers to list products by their ‘cost of credit’ based on their typical usage.
The OFT recognises that establishing the service doesn’t necessarily mean that consumers would use it:
We also identified that a price comparison website was not a complete solution, however, as approximately 39 per cent of UK households do not have access to the internet. Additionally, there is a danger that consumers might not use the website if it is not sufficiently well advertised or sign posted.
Not a complete solution, indeed. The report suggests that older people and people in lower socio-economic groups are less likely to shop around - but the same people are also less likely to be active internet users. This solution is least likely to reach those who need it most.
fsa and financial firms’ websites November 28, 2007
Posted by Bradley in : consumers , add a commentToday’s report from the FSA on its review of website financial promotions states that:
75% of the websites reviewed were of an acceptable standard; however, 25% fell short of our financial promotions standards. This is partly because firms are not placing enough emphasis on the customer journey and general website design when placing key information. In some instances general website maintenance was also lacking, resulting in out-of-date or incorrect information being provided to consumers.
The FSA has also identified problems with sponsored links on websites.
consumers and trust November 14, 2007
Posted by Bradley in : consumers , add a commentIncreasing numbers of voices are raising questions about how trusting consumers should be. Toy recalls have raised issues of trust for consumers: how can consumers be sure that products they buy are safe? Publicity about unscrupulous lending practices also harms consumer confidence (via creditslips). From a policy perspective both toy recalls and predatory lending involve information asymmetries. Consumers have not understood well the risks of buying certain products, whether they are buying toys or loans. And sellers of toys and loans haven’t always had the clearest incentives, in the market or from regulation, to make clear to consumers the risks involved in their purchases.
In the EU today, Commissioner Meglena Kuneva announced that the EU Commission had taken action on misleading advertising and unfair practices on airline ticket selling websites. And in the financial markets there is uncertainty about how much of corporate pr can be trusted (via Information Arbitrage):
Now if investors had the confidence that what was coming out of corporate PR departments was the truth, the whole truth and nothing but the truth (and not until the next time they release a new version of the truth), I believe the amplitude of the ups and downs we’ve witnessed would be muted. Why? Because trading would be based on fundamentals, not on persistent uncertainty. And if one adjusts cash flow discount rates to take into account these extreme uncertainties, models become very, very sensitive to changes in perception. And these perceptions, given the lack of investor confidence in the information they’re receiving, are changing literally by the minute. This is no way to run an organized, orderly market. Things have got to change, and corporate managements and their Boards hold the keys.
Even the EU Commission, in a publication called Wise Choices, which contains a lot of paternalistic advice across a wide range of issues and is sent to many many schools around the EU, raises some questions about business practices:
We all like to get a bargain and save money on clothes, food and electrical appliances. But in Europe we don’t believe in trade at any price. Would you be happy to buy a pair of cheap trainers if you knew that they were made by a child who should have been at school? Would you be pleased to find a TV at a bargain price if you knew that the factory worker who packed it had been injured because he was working in an unsafe environment?
The problems are evident, but the solution(s) less so.
aqua dots recall November 7, 2007
Posted by Bradley in : consumers , add a commentSpinmaster made this announcement today:
Following notification by Moose Enterprises of a recall in Australia of a product called Bindeez, which is similar to the line of toys we distribute for them in North America under the Aqua Dots brand, we are requesting that retailers remove the Aqua Dots toy from retail shelves and sale in North America.
Out of an abundance of caution, we have stopped shipping this item and are working with the Consumer Product Safety Commission and Health Canada.
Spin Master considers all safety issues to be of a serious nature including the media reports with Moose Enterprises’ Bindeez product. In addition to notifying our customers and the appropriate authorities, our company is working diligently to identify any shipments that could potentially be included in a recall by the CPSC and Canadian officials.
Spin Master has always been a trusted company and distributor of children’s products and we have made the safety of children our foremost priority.
We will continue working to ensure that this standard is strictly upheld. We are grateful that this issue was brought to our attention so that we can quickly address it to ensure both the quality and safety of every product that we distribute.
In something of a contrast, Bloomberg has the story as “Spin Master Recalls Toys That Made Children Comatose”.
another mattel recall November 6, 2007
Posted by Bradley in : consumers , add a commentA new recall by Mattel, just days after Mattel (The World’s Premier Toy Brands”) disputed criticisms of one of its products in a Consumer Reports article, saying:
Fisher-Price takes toy safety very seriously and we will continue to design and develop toys based on the established international toy safety standards.
The new recall relates to a “learning kitchen” manufactured in Mexico: small pieces may break off and pose a choking hazard.
Mattel’s most recent Form 10-Q identifies 17 class actions which have been initiated in the US following the earlier recalls, together with litigation in Canada, Brazil and Colombia.
germaine greer on pink November 5, 2007
Posted by Bradley in : consumers , add a commentNothing beautiful was ever pink.
uk credit card issuers are guarantors of liabilities of foreign suppliers October 31, 2007
Posted by Bradley in : consumers , add a commentThe House of Lords today interpreted the Consumer Credit Act 1974 in OFT v Lloyds TSB to the effect that issuers of credit cards to customers in the UK are liable under s 75(1) in respect of misrepresentations and breaches of contract by suppliers in relation to transactions financed by a credit agreement which take place and are performed outside the UK and are subject to foreign law. Lord Mance’s judgment, with which the other Law Lords concurred, points out that arrangements for credit card usage have changed since 1974 so that the decision means that credit card issuers have potential liability in respect of the actions of suppliers who just happen to be part of a credit card network. The Law Lords’ decision is consciously protective of consumers on the basis that the intention of the statute was to protect consumers. For example, Lord Mance states:
In relation to overseas transactions, there would be likely to be an even greater discrepancy between the card holder’s ability to pursue suppliers on the one hand and the ease with which card issuers could obtain redress through the contractual and commercial ties which Crowther contemplated would link them and suppliers. Card issuers’ ability to bear irrecoverable losses and so “spread the burden” exists in relation to both overseas and domestic transactions.
fighting scams October 12, 2007
Posted by Bradley in : consumers , add a commentRegulators sometimes try to fight scams using similar techniques to the scamsters. This week’s example involves OFT scambusters and trading standards officers hanging around airports trying to protect travellers against holiday club scams:
After spending thousands of pounds, consumers often find they have bought little more than access to an internet booking service offering no more than they could get at any high street travel agent. To fight back against the scammers, the OFT will hand out thousands of fake holiday club scratchcards at Glasgow, Manchester, Luton and Bristol airports in October. The card, which asks ‘have you won a luxury holiday?’, is scratched off to reveal three ‘winning’ matching symbols whilst a second strip, revealing the prize, explains the consumer has in fact ‘won a trip to a lengthy sales presentation and a chance to pay thousands of pounds for membership to a bogus holiday club’.
Another, older, example is the SEC’s use of fake web sites, such as the McWhortle web site.