Consumer choice for financial products and services is proliferating across global markets. The ability to reach consumers at any time on their mobile devices and tablets, or on their in-home computers has helped attract substantial capital investment in consumer financial services.1 Consumers in many diverse markets, with varying degrees of size, sophistication and modernisation, can now access myriad financial products and services with just a swipe, tap or click. Traditionally cash-based economies now also have a wide range of options for electronic payments, alternative lending and other banking and financial services.
The staggering capital investment has, in turn, attracted non-traditional providers to the consumer financial services marketplace. From garage-based start-ups to billion-dollar technology firms, companies that previously focused on delivering smartphones, social media platforms or internet-browsing capabilities are developing innovative approaches to meet consumers’ rapidly evolving demands. Traditional market participants, including banks and other non-bank financial service providers, have responded by innovating to improve their product and service offerings to retain and strengthen their customer relationships.
At the same time, there have been significant changes in the political landscape in various global markets, and these changes may affect cross-border investments and payments, broader investments in financial technology, and the nature of regulatory and enforcement oversight.
The increasing rate of innovation in consumer financial services, the changing profile of market participants, and the evolving political landscape have given rise to new legal questions or a different spin on longstanding legal theories. This country-by-country survey of recent developments in consumer financial services considers how these new and different legal theories are being addressed in 14 jurisdictions across the globe, with particular attention to payments, deposits, and revolving credit and instalment credit arrangements.
One fundamental question confronting policymakers around the world is what entity in the financial value chain should be viewed as the provider of the financial product or service. In the alternative lending context, for example, non-bank platform operators are partnering with banks to originate loans funded on the bank’s balance sheet, on the balance sheet of the platform provider, or through raising capital from investors of varying degrees of sophistication. These ‘marketplace lenders’ in many cases are not lenders at all, but merely technology service companies providing a platform that enables lenders to more efficiently source capital. In other cases, regulators and courts have taken the view that the marketplace lender is leveraging a bank partnership to take advantage of the special powers of a regulated bank, without itself being subject to such regulation. Courts and regulators are taking varying approaches to determine the rights and obligations of each entity participating in an increasingly disintermediated market.
In the payments context, policymakers have taken varying approaches to regulating electronic money schemes, as well as payment interfaces that rely on established payment networks, such as the payment card networks or batch processing networks. These approaches require careful consideration of the precise flow of funds to determine whether the payment provider accepts liability to one or more participating consumers.
In addition, increasing reliance on third-party service providers has led banking regulators to focus on banks’ vendor risk management programmes. Many regulators have created an expectation that banks have an effective process for managing service provider relationships, including thorough due diligence, review of policies and procedures, ongoing oversight and monitoring, and contractual provisions related to regulatory compliance. These expectations are imposing significant costs on banks and their downstream service providers.
Other legal issues are affecting payment providers, consumers and regulators as payment system stakeholders pursue faster payments. Jurisdictions around the world are at varying stages of developing or implementing a ubiquitous, secure and efficient electronic payment system. Stakeholders are pursuing faster payments as a means to make more convenient, timely and cost-effective payments, including cross-border payments. Well-established legal principles, including settlement finality and consistent consumer protections, must be considered anew in a faster payments context.
Established payment system stakeholders, including payment card networks, are also refining fraud protections and data security measures to address an evolving risk landscape. For example, tokenisation in the payment-card space is one fraud prevention measure that is being implemented by card issuers, card networks and mobile wallet providers. As another example, EMV chip cards, firmly entrenched in many jurisdictions, are still in the process of being deployed in certain large card markets.
The evolution of consumer demands also raises new and interesting legal questions. For example, consumers and service providers are seeking to access and aggregate account or transaction data from multiple financial institutions. Now, a number of apps on browser-based tools allow consumers to aggregate account information and receive financial advice and personal wealth management services. These services give rise to significant legal issues, including matters related to privacy, data security, data ownership and consumer choice.
Cybersecurity and data security are, of course, a core concern in consumer financial services, however they are delivered. Regulators in many jurisdictions are tending toward more prescriptive requirements, including specific security controls, as well as aggressive enforcement.
The entry of new market participants also raises questions related to fair access to financial services for consumers. For example, marketplace lenders are using new and alternative sources of data to evaluate potential borrowers. The data may not be as thoroughly tested or as demonstrably statistically sound as the credit data used by traditional lenders. As a result, lenders must carefully consider whether use of alternative data sources has any unintended adverse impact on classes of potential borrowers. In addition to considering the potential adverse impact of the use of alternative data on potential borrowers, regulators and courts in some jurisdictions are revisiting the classes of consumers that are protected by fair lending or equal credit opportunity laws.
Further, consumer protection authorities continue to focus on combating unfair trade practices, particularly with respect to new market entrants that may not have the same culture of compliance as traditionally regulated financial institutions. Prohibitions on unfair trade practices have been enforced on a broad range of market participants in consumer financial products and services, including payments, credit cards and other credit products, as well as deposit products.
Notwithstanding the many legal issues, this is a time of great choice for consumers and exciting opportunity for financial services providers. Advancements in technology have given consumers in developing markets, as well as unbanked or under-banked consumers in more well-developed markets, access to financial products and services previously unavailable to them. Therefore, regulators and consumer protection agencies are challenged to ensure financial stability and a level playing field, while also promoting consumer choice.
This survey of consumer finance law describes the legal and regulatory approaches taken in the jurisdictions covered. Each chapter addresses the key characteristics of, and current climate within, a particular jurisdiction. Although payments, lending and deposits are the focus of this survey, other financial products and services are discussed where relevant.
Richard Fischer, Obrea Poindexter and Jeremy Mandell
Morrison & Foerster LLP
1 See ‘Fintech and the evolving landscape: landing points for the industry,’ Accenture, 13 April 2016, available at: www.fintechinnovationlablondon.co.uk/pdf/Fintech_Evolving_Landscape_2016.pdf.