1. Monitoring risks faced by financial consumers
Consumers of financial products and services are confronted by a complex and varied landscape that presents a range of evolving risks. In this context, it is critical for policymakers, national authorities and international forums to actively monitor the risks to financial consumers, track consumer detriment and share effective approaches that can help address these risks and harms. The G20/OECD Task Force on Financial Consumer Protection has developed the Consumer Finance Risk Monitor to support these objectives and facilitate global dialogue. This chapter provides an overview of recent economic and financial trends and describes the development and methodology of the Consumer Finance Risk Monitor.
Consumers of financial products and services are confronted by a complex landscape with a range of evolving risks. These risks may stem from the broader economic context (i.e. risks arising from the operating environment), the characteristics and circumstances of consumers themselves (i.e. demand-side risks) or from the behaviour and actions of financial services providers (i.e. conduct risks). While recovering from the effects of a global pandemic, consumers around the world are facing ongoing supply chain crises, armed conflicts and natural disasters. At the same time, high inflation and elevated interest rates result in an increase of borrowing costs and erode consumer's purchasing power and the real value of their savings and investments. Alongside a rising incidence of financial scams and frauds, new business models and innovations are making riskier products more accessible. These risks are compounded by a lack of financial and digital capabilities, over-indebtedness and insufficient income. And while financial products and services have the potential to mitigate these risks and support the financial well-being of consumers, the conduct of financial services providers can exacerbate the vulnerability of consumers and destabilise their financial situations. Poor value financial products and services, ineffective disclosures, poor financial advice and dishonest sales practices comprise key risks faced by financial consumers in their dealings with firms.
In this context, it is critical for policymakers, national authorities and international forums to monitor the risks to financial consumers, track consumer detriment and share effective approaches that can help address these risks and harms. The G20/OECD Task Force on Financial Consumer Protection has developed the Consumer Finance Risk Monitor (the Monitor) to support these objectives and facilitate global dialogue. This publication synthesises the perspectives of 43 jurisdictions on risks facing financial consumers, focusing on the calendar year 2022.
Nearly four years after the start of the COVID-19 pandemic, economic recovery around the globe remained uneven.1 The pandemic’s significant impact on the global economy and labour markets highlighted inequalities, with many of the most vulnerable citizens of society worst affected. Especially in emerging market economies, experts foresaw that the pandemic would lead to economic scarring, defined by the International Monetary Fund as “diminished long-term output relative to pre-pandemic projections”, due to the pandemic’s adverse effects on capital, labour and overall productivity (International Monetary Fund, 2022[1]). Disruptions to schooling, for instance, led to learning losses that disproportionally affected poorer students. If unaddressed, these learning losses will diminish human capital and productivity in the coming decades.
One of the key continuing challenges as the global economy grappled with these longer-term effects of the pandemic was addressing supply chain issues so that goods and services continue to reach consumers.
In parallel, the war in Ukraine drove rising inflation, increasing prices of many common goods and services used by consumers around the globe. Given the effects of the war and ongoing impact of COVID-19, in June 2022 the OECD revised its economic projections downward, predicting global growth for 2022 to be around 3.0% (down from the 4.5% rate that had been estimated in December 2021). As of 2023, the OECD estimated that the global economy had grown by 3.3% in 2022 (OECD, 2023[2]), with a growth rate predicted of 3.0% in 2023 and 2.7% in 2024 (OECD, 2023[3]). As shown in Figure 1.1, annual inflation rates in 2023 remained elevated across global regions, most notably in Latin America and the Caribbean (13.8%), Middle East and Central Asia (18%), and Sub-Saharan Africa (15.8%) (International Monetary Fund, 2023[4]).
Source: IMF World Economic Outlook, October 2023.
Inflation pressures also prompted many central banks to start increasing their monetary policy rates and, in several cases, unwinding their asset purchasing programmes. As shown in Figure 1.2, these increases from 2020 to 2023 varied significantly across jurisdictions, and included no changes (e.g. Japan), increases from a base rate of zero or close to zero (e.g. Australia, Canada, euro area, Peru, United Kingdom and United States) as well as significant hikes of 1 000 basis points or more (e.g. Brazil, Colombia).
Inflation pressures, rising costs of goods and services, and increases in interest rates all contributed to a cost-of-living crisis that had a consequential impact on household finances and on households’ risk of financial hardship. According to an analysis by Moody’s Analytics, US households in 2022 were spending, on average, an extra USD 341 (United States dollar) per month to purchase similar goods and services (Fox, 2022[5]). In the United Kingdom, one in five individuals drew on their savings to cope with rising costs of living (Pickford, 2022[6]). In Canada, more than half of adults reported not being able to keep up with rising costs while three quarters of reported cutting back on discretionary spending (Angus Reid Institute, 2022[7]).
Energy price hikes hurt household finances especially in Europe, where energy costs rose most dramatically (International Monetary Fund, 2022[8]). According to the European Commission, electricity prices in the first quarter of 2022 rose by 411% in Spain and Portugal, 343% in Greece and 336% in France (European Commission, 2022[9]).
Cost of living pressures have affected household finances across the income distribution. Figure 1.3 shows the estimated impact of the year-on-year increases in energy and food prices in April 2022 as a percentage of total household expenditures. For low-income households, defined as households in the first income quintile, the cost increases of food and energy represent a greater proportion of their total household expenditures compared to high-income households, defined as households in the fifth quintile. As Figure 1.3 shows, while price increases affect household finances across the income distribution, they are most acutely felt by low-income households.
Source: Bureau of Economic Analysis, Statistics Bureau of Japan, Eurostat, and OECD calculations published in OECD (2023[2]), OECD Economic Outlook, Volume 2023 Issue 1.
At the same time, inflation undermines real wages, which puts further pressure on household finances and exacerbates the cost-of-living crisis. According to estimates from the United Nations, the average household lost approximately 1.5% in real income due to price increases in corn and wheat alone (United Nations, 2022[10]).
The percentage change in real wages from 2021 to 2022 in eight regions and twelve OECD countries are presented in Figure 1.4 and Figure 1.5 below. Households and individuals who might not have previously been considered vulnerable may have found themselves in a more precarious situation in 2022.
Source: ILO Global Wage Report 2022-23.
Note: Data is based on compensation per employee deflated by the personal consumption expenditures deflator. The median is the median of all available OECD countries.
Source: OECD Economic Outlook 113 database; Federal Reserve Bank of Atlanta; Indeed; Ministry of Health, Labour and Welfare of Japan; Statistics Canada; Office for National Statistics; and OECD calculations, published in OECD (2023[2]), OECD Economic Outlook, Volume 2023 Issue 1.
The impact of these financial and economic trends on households is evident in demographic research. In the most recent edition of the OECD Risks That Matter (RTM) Survey, conducted biennially since 2018, personal finance was a top concern for responding individuals, and these worries appear to be growing over time (OECD, 2023[11]). Across the 27 000 individuals surveyed in 27 OECD countries, 75% of respondents said that they were somewhat or very concerned about their household’s finances and economic well-being. In the prior RTM survey, this figure was 8 percentage points lower, even though that edition of the survey was fielded in the middle of the COVID-19 pandemic. In 2022, almost 70% of respondents reported being worried about paying their expenses and making ends meet. The RTM survey also reveals that parents of dependent children and respondents in lower-income households were more likely to be worried about covering the costs of food, housing, energy and paying down debt.
The OECD Consumer Finance Risk Monitor is an output of the G20/OECD Task Force on Financial Consumer Protection (the Task Force). The Task Force is the leading international forum for international financial consumer protection policy, comprising representatives of G20, OECD and Financial Stability Board (FSB) jurisdictions as well as international organisations and standard setting bodies, including CGAP, FinCoNet, IOSCO, IAIS and the World Bank. Beyond G20, OECD and FSB jurisdictions, the Task Force frequently engages with emerging markets and developing economies, including through the consultative process to review the High-Level Principles (see below), global research on the impact of COVID on financial consumers, and the development of risk dashboards (which led to the Consumer Finance Risk Monitor).
Among other things, the Task Force is responsible for the G20/OECD High-Level Principles on Financial Consumer Protection [OECD/LEGAL/0394]. In 2021-2022, the Principles in the Recommendation were reviewed and updated via a comprehensive process to incorporate policy developments that evolved over the ten years since they were first adopted (see the Infographic below for an overview of the updated Principles). This update ensured that, as the leading international standard in this area, the Principles in the Recommendation would continue to reflect global best practices and are forward-looking.
The Task Force is also responsible for the Recommendation of the Council on Consumer Protection in the field of Consumer Credit [OECD/LEGAL/0453], which was most recently updated in 2019. The Task Force will report to the OECD Council in 2024 on the implementation and continued relevance and importance of the Recommendation.
A key focus of the Task Force is the identification and consideration of issues and risks that affect financial consumers and therefore policymakers and oversight bodies responsible for financial consumer protection. The Task Force is committed to measuring and monitoring such risks via data collection and empirical analysis. To facilitate this, in March 2022 the Task Force approved a proposal to develop a periodic report on risks facing financial consumers globally, known as the Consumer Finance Risk Monitor. This is the first edition of such a report.
Note: Text in green colour denotes revisions made through the 2021-2022 review and update of the High-Level Principles on Financial Consumer Protection.
Source: OECD (2012[12]), “Recommendation of the Council on High-Level Principles on Financial Consumer Protection”, OECD Legal Instruments, OECD/LEGAL/0394, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0394.
The objectives of the Monitor are to:
1. Identify and track trends over time
One of the roles for the Task Force is to identify and monitor global risks to financial consumers that may require the attention of financial consumer protection policymakers, regulators or supervisors. The Monitor supports this role by taking the pulse of bodies responsible for financial consumer protection on their perception, understanding and measurement of financial consumer issues and risks. The Monitor acts as a global repository which can assist with the identification of common concerns. Envisaged as a recurring data collection exercise, it will also track trends over time to see which risks are increasing, staying the same or decreasing.
The Monitor, along with other inputs, can help inform the development of the Task Force’s Programme of Work (including resource allocation) and help the Task Force prioritise research or conduct deep-dives on areas that are most relevant. It may also be used to help to inform efforts to measure the effectiveness and implementation of the High-Level Principles on Financial Consumer Protection. In addition, national supervisors can also look to the Monitor to inform their risk-based supervisory activities and market monitoring by mixing a deductive approach (i.e. based on risk assessments of their own markets) with a top-down approach (i.e. referring to the Monitor to anticipate and prepare for global risks that may not yet be present in all markets).
3. Elevate the perspective of financial consumer protection policymakers and authorities in international policy debates by contributing to the available evidence base
The Monitor also serves the purpose of providing a systematically collected evidence base to support the “retail” or “consumer” perspective and call attention to the most important risks faced by consumers, based on the assessment of authorities responsible for financial consumer protection. By sharing this evidence in international – as well as national – policy debates, the Monitor elevates the consumer perspective and complements work carried out by other international bodies (e.g. FSB, IMF, G20) to build a holistic and global picture of the risks facing consumers in the financial services market.
The findings in this report are based on analysis of primary data collected from 43 jurisdictions representing the views of 82 government ministries and regulatory and supervisory authorities on ongoing and emerging risks to financial consumers, complemented by secondary data sources collected via desk research.
To facilitate primary data collection, the Task Force developed a reporting template with inputs from a Working Group of Task Force Delegates, which first met in July 2022. A draft reporting template was shared with the Task Force for comments at the October 2022 Meeting. After integrating the Task Force’s feedback and sharing a final draft of the reporting template with the Working Group, the finalised reporting template was then distributed to Delegates of the Task Force (i.e. G20, OECD and Financial Stability Board [FSB] jurisdictions). In parallel, the reporting template was shared with members of FinCoNet, the International Organization of Securities Commissions (IOSCO), the European Insurance and Occupational Pensions Authority (EIOPA) and the Association of Southeast Asian States (ASEAN).
The process of designing the reporting template benefitted from the Task Force’s previous experience tracking consumer risks through a pilot project on Consumer Risk Dashboards and through the G20/OECD Report on Financial Consumer Protection and Financial Inclusion in the Context of COVID-19 (OECD, 2021[13]).
The reporting template collected information on three key types of risks to financial consumers. The three categories of risks to financial consumers are those stemming from the broader economic context (i.e. operating environment risks), the characteristics and circumstances of consumer themselves (i.e. demand-side risks) and the behaviour and actions of financial services providers (i.e. conduct risks). For each of the three categories, jurisdictions were asked to choose the three most significant risks to financial consumers in their jurisdiction in 2022 and indicate if they anticipated that the risk would increase, decrease, or remain the same in 2023. For each conduct risk selected, jurisdictions were further asked to identify the regulatory and supervisory actions they had taken in response.
It was important for the reporting template to also capture granular information across product sectors. Not only would this provide more detailed insights, but it would also facilitate sectoral regulators and supervisors to respond to the reporting template from the perspective of their specific market. The reporting template therefore included certain questions that split out possible responses across the following categories: banking and payments; credit; insurance; investments; and pensions. For each product market, jurisdictions were asked to identify the three products and services giving rise to the most consumer detriment in 2022 and indicate whether such detriment was expected to increase, decrease or stay the same in 2023.
Consumer detriment (see Chapter 5) was defined in the reporting template using the definition provided in the OECD Recommendation on Consumer Policy Decision Making [OECD/LEGAL/0403]. The definition is as follows:
the harm or loss that consumers experience, when, for example, i) they are misled by unfair market practices into making purchases of goods or services that they would not have otherwise made; ii) they pay more than what they would have, had they been better informed, iii) they suffer from unfair contract terms or iv) the goods and services that they purchase do not conform to their expectations with respect to delivery or performance.
Separately, jurisdictions reported data on consumer complaints and financial scams and frauds.
Most of the reporting template requested data in relation to calendar year 2022 (i.e. from January to December 2022). The rationale behind this decision was that using specific beginning and end dates would facilitate easier comparisons and aggregations of data, rather than asking respondents for data from “the past year,” for example. In some places, as noted above, the reporting template asked jurisdictions to describe their expectations or anticipated trends for 2023.
Data collection took place between April and August in 2023. Of the 43 jurisdictions who submitted responses, 26 of these responses represent OECD Member countries. Figure 1.6 presents a list of participating jurisdictions grouped by region. A full list of participating jurisdictions including the authorities that contributed data can be found at Annex A.
The remainder of this report is structured in the following chapters:
References
[7] Angus Reid Institute (2022), Falling Behind: 53% of Canadians say they can’t keep up with the cost of living, https://angusreid.org/canada-cost-of-living-inflation/ (accessed on 8 September 2022).
[9] European Commission (2022), “Quarterly report on European electricity markets”, Vol. 15/1, https://ec.europa.eu/info/sites/default/files/energy_climate_change_environment/quarterly_report_on_european_electricity_markets_q1_2022.pdf (accessed on 8 September 2022).
[5] Fox, M. (2022), What’s more expensive as inflation costs families extra $341 a month, CNBC, https://www.cnbc.com/2022/05/12/whats-more-expensive-as-inflation-costs-families-extra-341-a-month-.html (accessed on 8 September 2022).
[4] International Monetary Fund (2023), World Economic Outlook, April 2023: A Rocky Recovery, https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023 (accessed on 14 September 2023).
[1] International Monetary Fund (2022), G20 Background Note on Minimizing Scarring from the Pandemic, https://www.imf.org/-/media/Files/Research/imf-and-g20/2022/g20-minimizing-scarring-from-the-pandemic.ashx.
[8] International Monetary Fund (2022), Surging Energy Prices in Europe in the Aftermath of the War: How to Support the Vulnerable and Speed up the Transition Away from Fossil Fuels, https://www.imf.org/en/Publications/WP/Issues/2022/07/28/Surging-Energy-Prices-in-Europe-in-the-Aftermath-of-the-War-How-to-Support-the-Vulnerable-521457 (accessed on 8 September 2022).
[11] OECD (2023), Main Findings from the 2022 OECD Risks that Matter Survey, OECD Publishing, Paris, https://doi.org/10.1787/70aea928-en.
[3] OECD (2023), OECD Economic Outlook, Interim Report September 2023: Confronting Inflation and Low Growth, OECD Publishing, Paris, https://doi.org/10.1787/1f628002-en.
[2] OECD (2023), OECD Economic Outlook, Volume 2023 Issue 1, OECD Publishing, Paris, https://doi.org/10.1787/ce188438-en.
[13] OECD (2021), G20/OECD Report on Financial Consumer Protection and Financial Inclusion in the Context of COVID-19, OECD, Paris, https://www.oecd.org/daf/fin/financial-education/g20-oecd-report-on-financial-consumer-protection-and-financial-inclusion-in-the-context-of-covid-19.htm (accessed on 8 September 2022).
[12] OECD (2012), “Recommendation of the Council on High-Level Principles on Financial Consumer Protection”, OECD Legal Instruments, OECD/LEGAL/0394, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0394.
[6] Pickford, J. (2022), UK households feel the pain of inflation, Financial Times, https://www.ft.com/content/269bcf8d-7ee1-4050-9947-12fbb321ff03 (accessed on 8 September 2022).
[10] United Nations (2022), Global impact of the war in Ukraine: Billions of people face the greatest cost-of-living crisis in a generation, https://unctad.org/webflyer/global-impact-war-ukraine-billions-people-face-greatest-cost-living-crisis-generation (accessed on 8 September 2022).
Note
← 1. This section is adapted from an unpublished background paper prepared for the October 2022 Meeting of the G20/OECD Task Force on Financial Consumer Protection [DAF.CMF.FCP(2022)11].