Sep 11 , 2020

All the financial institutions in the country are required to establish an internal department tasked with handling complaints from customers, according to a new directive issued by the National Bank of Ethiopia (NBE).

The directive, which covers banks, insurance companies and microfinance institutions, was approved at the end of last month and is expected to be effective after six months.

The directive is aimed at protecting low-income and less experienced financial consumers, according to the 50-page directive.

"Innovation and development in the financial infrastructure, products and services sector would possibly increase the risk and challenges," it reads, "particularly those that low-income and less experienced financial consumers face."

The directive says an internal complaint handling unit has to receive grievances in any language and has to give a unique tracking number to every compliant. The unit has to wind down investigations and announce the result of the outcome within 10 working days. The summary of the complaints has to be submitted to the board of the financial institutions and the central bank on a monthly basis.

Consumers can appeal to the central bank if they are not satisfied with the decision provided by the unit or if the unit does not respond to the applicants. The resolution provided by the central bank will be binding to the service provider but optional to the financial consumer.

The directive contradicts the law of the country, according to a legal director working at one of the banks who wanted to remain anonymous.

"The lawmaker is the central bank, and the appellate body is the central bank as well," he said. "There should be an independent body that oversees these cases, and I assume it could cause problems in the future."

A senior executive at one of the insurance companies shares the view of the legal director.

"If the central bank is a regulator and decision maker," said this insurance executive, "what's the purpose of the court then? The decision is going to be binding for the financial service provider and an option for the customer, which means the customer can take the case to the court still."

With the existing proclamation of the National Bank of Ethiopia, it cannot enact this directive, according to Belay Tulu, insurance supervision director at the central bank.

"There will be a revision of the establishment proclamation to add a provision that mandates the National Bank to oversee consumer protection in the financial sector," Belay said.

When there is a federal agency that handles these kind of consumer protection rights, the meddling of the central bank in this is unnecessary, according to Zafu Eyesuswork, founder of United Insurance.

"The central bank should just adhere to what they are doing now and not just add an unnecessary workload," he said.

Normally, insurance companies have a lot of concerns, especially concerning claim repayment, and there are a lot of complaints in regard to that, according to Zufan Abebe, CEO of Nib insurance.

"We're doing analysis right now, and we have to finish that first before we get on board with the legal framework," she said.

The directive also prohibits financial service providers from calling or seeking out a borrower at his or her workplace in order to gather repayment; threatening to seize property which has not been provided as collateral; and disclosing the borrower's identity to the public.

"This isn't reasonable. How would we reach out to the customer then if they aren't picking up their phone?" said the legal director. "This is a borrower-centric directive and doesn't consider the position of the service provider."

Financial institutions are also required to explicitly list the features of the new services and products including the benefit, risk and customer rights, along with fees and charges when customers subscribe to the new services.

"There are fees that can't be predicted," said the legal director. "For example, on international banking, there are expenses that are not explicitly listed because of the working procedures."

Although the intention and the notion of the directive is unproblematic, the central bank cannot be the lawmaker, the interpreter and the decision maker, according to Aschalew Ashagre, a lecturer at Addis Abeba University's School of Law & Governance.

"If it's necessary to segregate the financial sector from being under the Trade Competition & Consumer Protection Authority," he said, "there has to be an independent body to manage this."

PUBLISHED ON Sep 11,2020 [ VOL 21 , NO 1063]

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