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Law on the protection of consumers of financial products and services
On May 6, 2022, Republic Act (RA) No. 11765, or the Financial Products and Services Consumer Protection Act, was signed into law. It aims to better protect consumers of financial products and services against abusive and fraudulent practices by strengthening the powers of financial regulators, defining the duties and responsibilities of financial service providers and granting financial consumers additional rights and remedies. The law applies to financial products such as deposit, credit, insurance, provident and health maintenance (HMO) products, securities, investments, payments, remittances and other similar products and services, including digital financial products.
Extended powers of financial regulators
Under Law No. 11765, the financial regulators, namely the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission (SEC), the Insurance Commission (IC) and the Cooperative Development Authority (CDA) received broad powers to formulate their own standards and rules of enforcement. Among these powers is that of determining the reasonableness of the interest and fees that financial service providers may charge on financial products and services. These regulators can prevent financial service providers from charging excessive or unreasonable fees and order the suspension of their operations. They may also conduct onsite or offsite monitoring to verify compliance with the law.
These financial regulators are also mandated to provide a complaints mechanism such as mediation, conciliation or other alternative dispute resolution methods to address consumer grievances. In accordance with this, the BSP and the SEC have been empowered to adjudicate on actions where the request is only for the payment of a sum of money not exceeding P10,000,000.00. In addition, they are empowered to bring an independent civil action on behalf of aggrieved financial consumers for violations of this Act and its rules and regulations.
Obligations of financial service providers
The board of directors and senior management of financial service providers are mandated to provide the means to identify, measure, monitor, control and manage consumer protection risks. They also continuously evaluate financial products and services and ensure that they are appropriate to the needs, understanding and capacity of their markets and customers. For credit granting purposes, the assessment should also include measures to prevent over-indebtedness. In addition, financial service providers are expected to adopt a chilling policy, if deemed necessary by the BSP, SEC, IC or CDA, to enable clients to assess the costs and risks of a product or financial service without pressure from their sales teams.
They must also have internal pricing policies and procedures that take into account the principle of reasonable pricing.
Part of the transparency and disclosure obligations of financial service providers is to disclose sufficient product information to the customer before availing themselves of a financial product or service. In their advertising materials, they must disclose the contact details of their consumer assistance unit providing assistance to consumers and must further disclose that they are regulated, identifying the relevant financial regulator.
Financial consumer protection
The law provides that, while financial service providers have the right to select their customers, consumers cannot be discriminated against on the basis of race, age, financial ability, ethnic origin, origin, gender, disability, state of health, sexual orientation, religious or political affiliation. filiation. In case of product bundling, where financial consumers are forced to buy another product as a precondition to benefit from a financial product or service, they have the possibility to choose the supplier of this product.
During the withdrawal period, the consumer can withdraw from the contract without penalty. For borrowers, RA 11765 grants them the right to prepay a loan or other accommodation of credit, just as in Title IV of the Consumer Act, which was repealed by the RA. 11765. However, unlike consumer law, fees and costs can now be charged to the borrower for such a prepayment, provided they are disclosed.
In addition, under RA 11765, customer data must be protected and their privacy respected, in accordance with data protection law.
This law codifies and strengthens existing regulations on consumer protection in the financial sector and strengthens the enforcement powers of regulators. It also addresses the insufficient transparency mechanism and price controls in the existing legislation, which are exploited by unscrupulous financial service providers. With its adoption, it is hoped that the sale of fraudulent or overvalued financial products will be curbed more effectively.
Sophia Francesca Z. Espinosa (Partner) assisted in the preparation of this newsletter.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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