12 November 2005

On Unfair Practices - Banks & Insurance Companies

Today, we learn from the Straits Times that the Fair Trading Act will be extended to cover banks and insurers. What does this mean for you, a member of the general public? Well, essentially, you will get a new channel to take action against any bank or insurer whom you think has treated you in some unfair or unscrupulous way.

ST Nov 12, 2005
Fair Trading Act to cover banks and insurers too
Customers will have new recourse to action against unfair practices
By Lorna Tan

RIPPED-OFF bank and insurance customers are finally being given the teeth to take action against unscrupulous finance-industry bad boys.

Banks and insurers will soon come under the scope of the Consumer Protection Fair Trading Act (CPFTA) - despite initial resistance to the idea by the financial services sector, said sources.

The Act, introduced in March last year, cracks down on a range of unfair practices, ranging from dodgy second-hand car sellers and fly-by-night furniture retailers, to high-pressure sales tactics for boost-your-bust beauty products.

But until now, the likes of dishonest insurance agents, financial advisers flogging inappropriate unit trusts, and bank officers pushing unsuitable investments have usually only encountered their day of reckoning when disgruntled consumers took them to mediation panels.

However, sources said yesterday that the Act would shortly be expanded to include the banking and insurance sectors.

I am frankly a little surprised by this move, and I am not sure whether it is a good thing. You see, the financial services industry is a complex one, and it has always been highly regulated. Singapore already has several statutes which apply specifically to financial institutions. For example, there is the Insurance Act; the Banking Act; the Securities and Futures Act; and the Financial Advisers Act. Apart from these Acts, the Monetary Authority of Singapore (MAS) has also created a huge body of regulations, notices and guidelines telling banks and insurers how to behave - see this and this and this, for example.

So I don't really see much advantage in imposing yet another layer of law onto the financial services industry. It's not as if it didn't already have several huge, thick layers. But here's what CASE thinks:

By including banks and insurers, consumers will have specific breaches of fair practice they can point to, said the Consumers Association of Singapore (Case).

It will give consumers a statutory right to take wrongdoers to court, by filing a civil suit.

It also means banks and insurers will feel the need to smarten up their act, to avoid such potentially costly and embarrassing disputes.

The move is a big victory for Case, which argues that financial institutions come under the Fair Trading Act - although insurers say there are already enough safeguards under present regulations, such as the Financial Advisers Act, and the Insurance Act.


But Case said more was needed, and pointed to the large number of complaints. It received a whopping 707 complaints against financial institutions - mostly involving insurers - for the first 10 months of this year. And for the whole of last year, it received 1,187 complaints.

These involved disputes over such matters as leaving out vital information about a financial product, pressure selling, and taking advantage of consumers such as the elderly, who have not understood the effect of a transaction.

Indeed, if financial institutions were included now, Case reckons they would catapult to be among the top 10 industries attracting complaints under the Act - rubbing shoulders with timeshare touts and beauty salon bunglers.
I do agree that if the Fair Trading Act is extended to banks and insurers, CASE will probably receive a huge number of complaints about banks and insurers. However, I actually think this is a bit sad and unfortunate, because it means that CASE will have much less time to devote to, say, the timeshare touts and the beauty salon bunglers - who are currently quite unregulated. Banks and insurers, on the other hand, are already regulated by MAS, which means that unhappy customers already have existing channels to file complaints.

But why does Singapore need Mr Wang to point that out? Didn't CASE already know about it? Let's take a look:
Case executive director Seah Seng Choon said that including financial services would benefit consumers, as other financial Acts do not cover market conduct, such as the omission of material facts when promoting a product, or using undue pressure to persuade someone to sign on the dotted line.
Well, what Mr Seah says here is not quite right. In fact, the relevant laws and statutes specifically relating to the financial services industry already address these issues in detail. Here's just one example (section 25 of the Financial Advisers Act):
Obligation to disclose product information to clients
25. —(1) A licensee shall disclose, to every client and prospective client, all material information relating to any designated investment product that the licensee recommends to such person, including —

(a) the terms and conditions of the designated investment product;

(b) the benefits to be, or likely to be, derived from the designated investment product, and the risks that may arise from the designated investment product;

(c) the premium, costs, expenses, fees or other charges that may be imposed in respect of the designated investment product;

(d) where the designated investment product is a unit in a collective investment scheme, the name of the manager of the scheme and the relationship between the licensee and the manager;

(e) where the designated investment product is a life policy, the name of the registered insurer under the life policy and the relationship between the licensee and the insurer; and

(f) such other information as the Authority may prescribe.

(2) The Authority may specify, in written directions, the information required to be disclosed under subsection (1) (a), (b) or (c), and the form or manner in which information relating to any designated investment product may be disclosed to any client of a licensee.

(3) The Authority may, in writing, require a licensee to submit to it —

(a) all written communication which sets out information relating to any designated investment product for the time being in use by the licensee; and

(b) where any written communication referred to in paragraph (a) is not in English, a translation of such written communication in English.

(4) If it appears to the Authority, after affording the licensee an opportunity to make representations orally or in writing, that any written communication submitted under subsection (3) contravenes any provision of this Act, or is in any respect likely to mislead, the Authority may, in writing, direct the licensee to discontinue the use, in Singapore, of the written communication immediately or from a specified date.

(5) Any licensee who —

(a) contravenes subsection (1);

(b) fails to comply with a requirement imposed by the Authority under subsection (3); or

(c) fails to comply with a direction of the Authority under subsection (4),

shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $25,000 or to imprisonment for a term not exceeding 12 months or to both.
But if we already have so many laws, regulations and guidelines for banks and insurers, then how come so many people are still complaining about their banks and insurers? Well, obviously, one reason is that there could be a significant gap between what these laws, regulations and guidelines say, and what bank employees and insurance agents actually do in practice with their customers.

And if there is a significant gap, then obviously we must take steps to address that gap. But I don't think that the gap will be addressed by adding yet another piece of law (the Fair Trading Act) to the already-huge body of law which governs financial institutions.

After all, the real issue is not that the necessary laws do not exist for banks and insurers - they already do exist - the real issue is more likely that these laws are not being sufficiently followed, and not being sufficiently enforced.

If I have described the situation correctly, then the logical next step is that MAS must do more monitoring and enforcing, rather than pass on that duty (or part of it) to CASE. And CASE should focus its efforts where its efforts are most needed - on people like the timeshare touts and the beauty saloon bunglers - people who currently aren't regulated by any government body or statutory board at all.


Thomas Loh said...

Dear Mr Wang

I beg to disagree that the current laws, regulations and guidelines are sufficient for the banking industry. If there are sufficient laws to regulate the banks, then why do you think that MAS and the Prime Minister are helpless in my case against the banks when I first brought up the said matter as far back as March 2003 and until today there is still no solution to the case?

MAS in a letter of September 2003 to me said that it is an individual matter between me and the bank and the PM in an email in March 2005 says that it is a civil matter.

Do you honestly think that this is a private matter between me and the banks? Not really because there are no laws and regulations in S'pore to control the bank's unfettered discretion in deciding on credit matter and in particular the unfettered and absolute discretion of the bank in deciding when to recall credit facilities and the consumer has no say in it including the govt.

We are a small country in the world and our economy is vulnerable to attack from the outside especially when banks operating here do not follow the rules of fair play. That is the reason why the govt have imposed so much laws and regulations to protect the public but not so much to protect the bank as they can fend for themselves.

To quote what Mr Wang says:

"After all, the real issue is not that the necessary laws do not exist for banks and insurers - they already do exist - the real issue is more likely that these laws are not being sufficiently followed, and not being sufficiently enforced."

The laws do exist but there are loopholes in the law which did not address the power of unfettered discretion of the banks. Even govt in the world do not have unfettered power of discretion and they have to work within the framework of the Constitution of the country.

MAS can only monitor and enforce within the current framework of the law but there are no laws in Singapore regulating the recall of credit facilities granted by banks to customers but purely regulated by contracts which the consumers has no say in it.

It is precisely because of this unfettered discretion given to bankers that a lot of people and businesses are destroyed by the banks when the banks can unreasonably recall credit within the shortest possible time or for no apparent reason at all leaving businesses being destroyed overnight and hurting the economy here. Unemployment would follow and a whole host of social problem would arise.

Minister Mentor Lee Kuan Yew once said that if he allows the SIA pilot's action to go unchecked and not put a stop to it, then hundreds of thousands of jobs would be put at risk and the Singapore economy could collapse.

The bank's action is tantamount to putting the whole economy at risk for if the discretion of recalling credit is not controlled, the result could be disastrous. That has happen to our case when OCBC Bank recalled all credit facilities without notice and for which there was no default on our part. What makes matter worse was it was done during the SARS period when the govt has called for banking restraint. Was it heeded by the banks. Remember no default in credit facilities and moreover there was a surplus of more than $200K to be returned to us from the sale of property by the bank.

Why do you think our PM and MAS had to say that this is an individual matter between the bank and customer. It is because the existing framework of laws and regulations do not empower them to step in. That is the reason why I am advocating a change in the law.

The implementation of the Fair Trading Act to include the banks and insurance industry is a small step forward in giving consumer a right to check on bankers not abusing their authority and shunning away when the products marketed by them met with problems.

Mr Wang says

"But why does Singapore need Mr Wang to point that out?"

With due respect, I have already raised several banking issues with the govt years ago but nothing has been done till todate. I have also invited Mr Wang in September 2005 to comment on my blog but Mr Wang was silent on all the issues I have raised.

Read my blog at http://sgpvictimise.blogspot.com

Gilbert Koh aka Mr Wang said...

Thomas, I refrained from commenting on your blog because I believe that you would be very unhappy to hear my opinions on your case. If this was a purely academic kind of discussion, I would have commented and shared my views, but since your personal life and losses are very much involved, I decided not to cause you any further aggravation or stress - I think you probably have had more than enough in recent times.

Suffice it to say that I have difficulty seeing how OCBC has done you any wrong in the way it handled your case.

The nature of uncommitted facilities is of course that they are uncommitted and can be recalled by the bank at any time (whether it's because the bank itself needs the money back, or whether they think that something has gone wrong with the customer).

If you do not like the disadvantages of uncommitted facilities, you can always ask for a committed facility, which means that the bank cannot ask for money back early unless one or more of certain defined events have occurred. Of course, you have to pay an extra fee to get a committed facility - this compensates the bank for the greater risk to which it is exposed.

I think that if you need someone to blame, the correct target would be the person whom you say was your partner and who embezzled funds and ran away. Everything else seems to have followed naturally from then onwards.

I don't think that the Fair Trading Act would have helped you then, and I don't think it would help you now.

Thomas Loh said...

Dear Mr Wang

It is OK with me on any comment made in my blog even if it is hard to swallow for me. I believe in arguing a case based on fact, evidence and logic and it matters not that your opinion differs from mine or that it will make me unhappy. Everybody is entitled to their opinion whether the other party accepts it or not. The question is how sound is the argument.

There is no such things as uncommitted or committed facility as banks can recall whenever they like whether you have breached their terms or not. The terms are drafted in such a way that the banks will always have a first say, right, because consumer never have any bargaining power unless you are super big.

My ex-partner CBT and my family business relationship with OCBC Bank is a totally seperate matter. The common thread is that it all came in at the same time when CDL decided to ask me to repay the CBT money in April 2003 when they have agreed on the instalment plan.

The Fair Trading Act would not have helped me because my case took place in 2003 and before. The Act only came in later. What I am saying is that the banks owed a duty to the public as their profits are made from the public and it is right that they are responsible to the public and their actions cannot go unchecked.

Do you often hear people saying the phrase that "Insurance Company cheat people". Why? Had insurance company not being in checked by the govt, a lot of people would not have faith in buying insurance and the insurance industry would not have grown to what it is today.

Whenever a claim is made against an insurance company, they usually tries to find fault for breach or things not covered. Imagine a person who has insured with the insurance for several years being told that they are not covered. How many consumer actually read the fine print except for lawyers, like you.

The public needs to be protected and that is why I am advocating for a change in the law governing banking discretion.

Gilbert Koh aka Mr Wang said...

Let's be very clear. There are actually two very different and distinct issues that we are talking about. The first issue is illustrated by this kind of scenario:

Old lady goes to a bank. Bank staff tells her to invest her money in a new kind of product eg some fancy structured deposit. Bank staff does not explain to her properly what this product is about. Old lady invests her money without understanding the risks and subsequently loses her money.

The 2nd issue is illustrated by this kind of scenario:

Businessman, say, in textile industry, borrows money from bank. Bank later feels that it does not want to lend money to this businessman (could be for any variety of reason - eg businessman is doing badly; or bank simply does not want to lend to textile industry any more). Bank says, "Please pay up." Businessman cannot repay money. Bank sues businessman.

These are very different types of issues. The laws and regulations I had discussed in my post deal with Issue 1 rather than Issue 2. Yes, I think that we have enough laws and regulations. The fundamental point is that investment products and insurance policies etc are increasingly complex and we need to make sure that members of the public know what they are buying.

On Issue 2, I think, yes, it is pretty much a private matter between bank & customer. Certainly the government should not step in - stepping in because it would be a major, harmful blow to Singapore, utterly against free market principles. How can a bank operate, if a government wants to control it by saying, "Oh, we insist that you must continue to lend to these customers, we insist that you must not ask for your money back, we insist that you must comply with our idea of what's reasonable, let me now design a repayment schedule for Mr X and *I* will decide when and how much Mr X needs to repay to you YOUR own money."

Banks would love it if all their customers do well. Because banks make money by lending. If their customers do well, then their customers will repay consistently with interest. If their customers fail, the bank is exposed. The bank is the loser. The bank is the one who coughed up all the money and it's going down the drain. Of course the bank must have the right to manage its own risks and decide who it wants to lend to, and how much, and when it wants to call back the loan. What's this got to do with the Prime Minister??

You probably have a credit card. In case you did not know it, your bank has the right to cancel your credit card at any time. No reasons are necessary. If you don't believe me, go read your terms and conditions. The thing is, banks are in the business of lending, so for as long as they feel you are a bankable risk, they would want to lend to you. They would want you to go on having the credit card. If for whatever reason, their opinion changes, they would want their money back. And don't forget, it's THEIR money. Not yours. You can't insist that they MUST lend you their money, or else you'll complain to the PM.

What if banks act unreasonably? I suggest to you that if banks do not want to act unreasonably. As commercial entities, if they can make money out of you, they would want to. They would want to lend to you as much of their money as they think it's safe to do so. If they went on frivolously demanding money back from their customers for no good reason, then pretty soon they would close down as a bank. What is the meaning of a bank that doesn't lend?

When they want their money back, it's because something's happened and they've done their credit assessment and they've become afraid of you. They're afraid that you're going to take their money and lose it all and all their money will be gone. Remember - it's THEIR money. Not yours. Of course they would want it back fast, if they think that their money is in danger.