NIK on protection of financial market clients

Unclear split of duties among institutions responsible for consumer protection discouraged the injured clients from asserting their rights. The practically non-functioning arbitrary courts were also an issue. According to the survey made by the European Commission, the level of consumers’ confidence in public institutions which should protect Polish consumers was one of the lowest ones in the European Union.

Development of the financial market in Poland has been very dynamic in recent years. The great number of new financial services and instruments as well as their increasing complexity make clients unaware of threats awaiting them in the financial market. As a consequence, they may experience unexpected costs or losses. FM entities usually force clients to accept their terms and conditions of using the services offered. They use adhesion agreements which means that the most important contractual terms are defined by entrepreneurs. As a consequence consumers have very limited possibilities of negotiating them.

The consumers who want to assert their rights can seek help with a range of public institutions. Their competences, though, are dispersed and unclear for market participants being unfamiliar with the financial market. As a result, the way to receive help is very long which discourages people from taking next steps.

The audited entities provided support to the FM clients by reviewing complaints filed by them within the scope of their authorities. In case some irregularities were identified in a given institution it took required efforts to eliminate them.

The Office of Competition and Consumer Protection, Consumer Ombudsmen, the Office of the Polish Financial Supervision Authority and the Insurance Ombudsman conducted educational and informational campaigns addressed to the FM clients in line with their mandates. These entities conducted training programmes, organised seminars, lectures and workshops, issued brochures and publications, placed important information on their websites and on Facebook. Besides, the institutions covered by the audit properly performed (within their competencies) tasks related to the legislative process of draft normative acts ensuring protection to the FM clients.

Nevertheless, the FM client protection system did not operate effectively. The scale of irregularities on the market contributed to a significant fall in the consumers’ confidence in public institutions responsible for consumer protection. According to the survey made by the European Commission in 2012, Poland was among six EU countries which received the lowest ratings  in that respect. Only 46 percent of Polish respondents declared their confidence in public institutions which should protect their rights, whereas the average for the whole European Union was 59 percent.

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NIK identified the following irregularities in the audited area:

1. arbitrary courts, which were supposed to facilitate quick and inexpensive settlement of cases, in fact did not function at all. Entrepreneurs had the right to withdraw from this type of proceedings and they regularly did so. At the same time they forced consumers to take part in long-lasting and costly proceedings before the court of general jurisdiction. In the audited period, 366 requests to settle a dispute were filed with arbitrary courts at the Financial Supervision Authority and the Insurance Ombudsman and only 17 entrepreneurs agreed to participate in the proceedings. NIK already noted that issue earlier, after its audit in 2010. Although that task was included in the Consumer policy for the years 2010-2013, no efforts were made to improve effectiveness of arbitrary courts.
2. over 60 percent of agreement templates used by the financial market entities in trade relations with consumers included illegal clauses or the ones that violated consumer interests. It points to high risk of irregularities on that market. Due to limited possibilities of individual institutions not more than 10 percent of agreement templates being in use were subject to reviews. The small scope of reviews did not guarantee effective consumer protection and paved the way for irregularities.
3. penalties for entrepreneurs did not lead to any decrease in the scale of breaches of the FM clients’ rights. The body authorised to penalise the FM companies was mainly the President of the Office of Competition and Consumer Protection (other entities had limited possibilities in that respect) who used his right in the audited period only in 128 cases. Actions taken by the Insurance Ombudsman and the Financial Supervision Authority to eliminate non-allowed practices were not severe enough to prevent the consumer right violations by the FM entrepreneurs.
4. functionality of the register of banned contractual clauses was limited. A significant expansion of the register (at the end of the first half of 2013, it made up nearly 5300 records) made it difficult to use it. Until the end of the audited period considerable improvements were not made in that respect.  
5. low level of para-bank clients’ protection which resulted from the absence of appropriate provisions governing the activity of those institutions and the lack of supervision over their functioning. The Financial Stability Committee made a complex analysis of the para-banks sector only after the scandal of Amber Gold company[1] was disclosed. The Minister of Finance and the Financial Supervision Authority took measures aimed at strengthening the protection of para-bank clients. The bodies responsible for consumer protection developed draft law changes to improve effectiveness of audits and monitoring of the activity of para-banks (it was mainly about the act changing the act on the competition and consumer protection). These draft regulations are being worked on by the Sejm Committees at the moment.

NIK addressed the following recommendations to the President of the Office of Competition and Consumer Protection:

1. to perform the task specified in the Consumer policy for the years 2010-2013 related to the improvement of transparency and functionality of the register of agreement templates;
2. to take measures to improve effectiveness of arbitrary courts and strengthen the consumer’s position in cases where disputes are solved in an alternative way;
3. to introduce a formal procedure precisely defining activities related to the FM monitoring with the view of the FM consumer rights protection;
4. to take actions to make sure proceedings in cases related to violation of collective consumer rights are conducted on the dates specified in the Act on the competition and consumer protection.

Apart from the above, NIK suggests the consumer rights protection system can be strengthened by taking the following steps:

• intensified preventive impact on entrepreneurs in order to limit practices violating consumer interests (e.g. by popularising penalties, emphasising their inevitability or tightening cooperation among individual institutions in terms of transferring information on practices subject to sanctions);
• intensification and popularisation of inspections (e.g. in terms of agreement templates) and results of the market monitoring pointing to irregularities;
• enhancement of tools supporting consumers in the pursuit of their claims;
• establishment of an easily identifiable and specialised institution supporting consumer protection in all financial market sectors.