BANKING AND FINANCE LAW UPDATE: WHAT SHOULD FINANCIAL SERVICE PROVIDERS KNOW ABOUT PROTECTION OF FINANCIAL CONSUMERS IN TANZANIA?
- Application of the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019.
- The basic standards required for consumer protection.
- How should financial service providers protect consumer’s data and information
- Required standard of consumer treatment.
- Handling of consumer complainants by financial service providers.
- The effects of non-compliance to the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019
Lawmakers and Central Banks all over the world have developed a concern on how to protect consumers of financial services. This follows an unprecedented development in the provision of banking services, reshaping the business models, channels, services, and market competition of the financial industry which as a result creates new risks to consumers.
In what we interpret as a measure to ensure Tanzanian financial consumers are protected from risks associated with the use of banking services, the Ministry of Finance enacted the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019 (“the Financial Consumer Protection Regulations”). Among other things, the Regulations seek to create a level playing field between financial services providers all the while protecting the consumers of such services.
Our Corporate Commercial Department at Breakthrough Attorneys has reviewed the Regulations and prepared this Article highlighting the important aspects of these Regulations and what financial services providers and consumers should know.
2.0 To whom do the Regulations apply?
All financial services providers in the United Republic of Tanzania are subject to the Regulations. Financial service providers include all institutions licensed, regulated, and supervised by the Bank of Tanzania (BoT). This means Banks, Financial Institutions, and Microfinance Services Providers (SACCOS and other community microfinance groups regulated and licenced by the BoT) must adhere to the consumer protection standards set in the regulations.
3.0 The Basic Standards Required in Financial Consumer Protection
The Financial Consumer Protection Regulations require financial services providers to adhere to the following basic standards namely;
- Disclosure of key information clearly, at appropriate points before, during, and after a transaction is completed (Disclosure and Transparency);
- Treatment of consumers fairly and ethically (Fair and Equitable Treatment of Consumers);
- Offering recourse mechanisms for effective resolution of errors, complaints, and disputes (Consumer Handling Mechanism);
- Safeguarding of consumer’s data, information, and assets (Protection of Consumer’s Assets and Information).
Financial services providers are required under the Financial Consumer Protection Regulations to adhere to the above standards as explained in this Article and which constitute the main discussion in this Article.
- Disclosure and Transparency;
Financial services providers are required to observe transparency and disclose to consumers all important information regarding their products and services. Such information shall be communicated to the consumer in a simple, plain, and clear written language. Information referred to here includes, 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, and any service charges.
Regulation 28 of the Financial Consumer Protection provides that every financial service provider is required to provide to its consumer a periodic statement of the consumer’s account(s) free of charge. In addition, the financial service provider must provide periodic financial statements at the beginning of each month by electronic means which shall be free of charge or at a charge if it is not by electronic means and requested by the consumer at any other time. This means that if a person requests for a financial statements more than once a month he will be charged, and if he requests a statement at any time by way of print he will also be charged.
Whenever the financial service provider changes the terms and or conditions which the consumer signed up for, notification of change must be given to the consumer in writing or electronic form. In specific a notification shall be given prior to changes in the interest rates, any charge on a consumer’s account, and any other key product feature.
- Fair and Equitable Treatment of Consumers;
As a standard, financial service providers are prohibited from discriminating consumers based on their social status, physical ability, race, gender, religion, tribe, or any basis whatsoever. In the same context, financial service providers are prohibited from threatening, intimidating, humiliating, deceiving, and unfairly inducing consumers. (Regulation 10).
The Financial Consumer Protection Regulation lists a number of practices that are unfair and thus prohibited, such practices include; abusive debt recovery practices, requiring payment of un accrued interest on the credit facilities, charging maintenance fees on dormant accounts, raising of interest to existing balances, bundling practices on products or services (the sale of two or more financial services or products as one combined product), and imposing fees and charges on services without opt-in consent by the consumer. (Regulation 11).
Regulation 13 Financial Consumer Protection Regulations, requires financial services providers to ensure that consumer’s ability to cancel a product or service is not unduly limited. To ensure that a service provider has to have in place comprehensive information about cancellation and portability procedures. However, the financial service provider is allowed to charge reasonable cancellation fees or penalties.
On the other hand, the contract of financial service must be constituted with fair terms. In that regard, the language shall not include technical terminologies, and where used shall be explained to the consumer. Terms of the contract are considered unfair under the Regulations if there is an imbalance in terms of rights to one party to the detriment of the other. In that regard the terms of the financial service contract shall not; limit the financial service provider’s liability in the event of non-performance of contractual obligations, it shall not bind the consumer while the corresponding liability on the service provider is conditional. The contract must not in any manner limit the consumer’s right to take legal action against the service provider (Regulation 15 and 16). This leaves a big room for consumers to test and question terms of financial services contracts on regulatory avenues before commercial ones.
- Financial Service Providers to have a Consumer Complaints Handling Mechanism;
The Financial Consumer Protection Regulations require each financial service provider to have a consumer complaints handling mechanism. The mechanism shall be free, fair, accessible, timely, transparent, and independently capable of acknowledging complaints, giving feedback, and keep records of such complaints. Such mechanisms shall be made known to the consumers in detail. The mechanism shall ensure fair redress and compensation to aggrieved consumers. The Regulations further requires timely handling of complaints (from 6 hours to 48 hours depending on the complaint). (Regulation 42 to 45)
Furthermore, the Financial Consumer Protection Regulations allow a consumer to file a complaint with the Bank of Tanzania in case he has not received a response from the financial service provider, or if he is not satisfied with the decision of the financial service provider. In essence, the BoT acts as an appellate forum for consumer complaints which have not been satisfactorily handled by the financial service provider. The Bank may determine the complaint and issue an award which shall be enforceable against the financial service provider. The BoT has a supervisory mandate of enforcing its award and this includes the imposition of Tanzanian shillings One Million(1,000,000) per day as a penalty for a financial service provider who fails to comply with its award. (Regulations 50 to 55)
It should be noted that the Bank of Tanzania may deal with any matter regarding financial consumer protection either upon a complaint being lodged or on its own initiative. However, the Regulations provides for an avenue for applying for revision to the Governor of the BoT, and further for judicial review to the High Court of Tanzania. Please stay in touch for our more expansive article on regulatory dispute resolution on financial services to come soon.
- Protection of Consumers Assets and Information;
Any asset of the consumer which is administered by the financial service provider shall be protected from fraud, misappropriation, or misuse. If such happens the financial service provider is required to take disciplinary action against the responsible employee and further report the same to the Bank of Tanzania. Also for any loss occurring as a result of misappropriation, misuse, or fraud the consumer shall be refunded promptly (Regulation 35)
In terms of the protection of consumer’s data and information, financial services providers are required to have in place appropriate security measures to protect the same. Also, a financial service provider must not share with a third party any information without the consumer’s consent except pursuant to Anti Money Laundering law. (Regulation 36, 37)
Lastly, under this part, the financial service provider must treat with confidentiality and integrity, all consumer’s data regarding the following; personal information, accounts records, deposits records, transactions, and deposited properties. In case the financial service provider needs to use such information it must obtain a prior consent of the consumer in writing. To ensure this protection, financial service providers are required to have in place data protection measures, and training of staff to prevent unauthorized access, alteration, disclosure, and loss of consumer data. Financial services providers must monitor their agents and representatives to ensure confidentiality as they shall be held liable for their agents’ liabilities. Therefore the financial services providers must have rules for the release and use of consumer information by an authorized third party as required under the Regulations. (Regulations 38 and 39)
Provisions of Financial Consumer Protection Regulations must be adhered to by financial service providers accordingly. There are implications for failure to comply. Financial Consumer Protection Regulations provides for a list of sanctions in case of non-compliance of the same. The Bank of Tanzania may impose any of the following sanctions:-
- suspension from operations for a period not exceeding one year;
- suspension of management staff;
- conditions, restrictions or cancellation of registration or license provided; and
- imposition of fines, and any other sanction as the Bank of Tanzania may deem fit.
Breakthrough Attorneys reminds Banks, Financial Institutions, and Microfinance Services Providers to strictly comply with these Regulations. On an equal footing, we urge financial services consumers to be aware of their rights and the availed opportunity of enforcing the same in accordance with the Regulations.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.