Saint mary’s university

CONSUMER PROTECTION

Another goal of banking regulation is to protect consumer interests in various aspects of a banking relationship. Different regulatory objectives serve to protect consumers in a number of ways, most notably through safeguarding their deposits and promoting competitive banking services. However, there are many other ways consumers are protected in their banking activities. These additional forms of protection have been implemented through a series of legislative acts.
The first is to require financial institutions to provide their customers with a meaningful disclosure of deposit and credit terms. The main intent behind such disclosures is to give customers a basis for comparing and making informed choices among different institutions and financial instruments.
The disclosure acts also serve to protect borrowers from abusive practices and make them more aware of the costs and commitments in financial contracts. A second purpose of consumer protection legislation is to ensure equal treatment and equal access to credit among all financial customers. The equal treatment acts can be viewed as the financial industry’s counterpart to civil rights legislation aimed at ensuring equal treatment in such areas as housing, employment, and education. Other purposes associated with consumer protection include promoting financial privacy and preventing problems and abusive practices during credit transactions, debt collections, and reporting of personal credit histories.

3. Supervisory policies and performance

Given the interconnectedness of the banking industry and the reliance that the national and global economy hold on banks, it is important for regulatory agencies to maintain control over the standardized practices of these institutions, government regulation and supervision of banks promotes their safety and soundness in order to protect the payments system from bank runs that contract bank lending and threaten macroeconomic stability. Protecting the payments system frequently involves deposit insurance. To the extent that the insurance is credible, it reduces depositor’s incentive to run banks when they fear banks solvency.
Consequently, it reduces banks liquidity risk and, to the extent it is under-priced, gives banks the incentive to take additional risk for higher expected return (R. Barth, 2008).

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