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Draft Law on Protection of Rights of Financial Services Consumers in Ukraine


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm


The draft Law on Amendments to Certain Legislative Acts of Ukraine on Improving the Protection of Rights of Financial Services Consumers, which currently undergoes the second reading in the Parliament, is of great importance for the purpose of strengthening the protection of interests of clients of financial institutions from the illegal and fraudulent actions of the latter. Its provisions concern both contractual mechanisms of interaction between consumers and financial services providers and information disclosure, as well as advertising of financial services.

In particular, pursuant to this draft law, the terms and conditions of financial services agreement shall not restrict the rights of their consumers envisaged by the law, and if it still happens, such terms and conditions will be considered legally null and void. Any changes in the material terms of such agreements, including those of the accession agreements (ie those whose standard forms are developed by financial institutions and the client can only join the agreement as a whole or refuse to sign it), shall be communicated to the consumer by a special notice. In this case, the change in the fixed interest rate under agreement without the written consent of the consumer is considered to be null and void. Where the rights and obligations of parties under such an agreement may be interpreted ambiguously, they will have to be interpreted in favor of the consumer rather than the financial institution. Such provisions are quite logical as regards the consumer of financial services as the least protected party in such relationships (although this approach is rather controversial).

The disclosure of information on financial products is one of the cornerstones, on which the philosophy of regulation of financial services markets is based. It is only a well-informed consumer who can make a balanced investment decision on whether one or another financial product is worth investing in. Unfortunately, the unfair advertising of financial services has become a widespread phenomenon struggled against by financial regulators without much result. The said draft law clearly defines what exactly shall be the subject to such unfair advertising. Among other things, it defines the unfair advertising of financial services as the one in which the information is given in font which is 50% or more smaller than the font, in which the name of financial service is given, or (in the case of audiovisual mass media advertising) is read over more than 25% faster than the name of the relevant financial service. Indeed, the advertising of a loan at 0.1% per annum will be an effective marketing move if the cost of all additional services, imposed on the borrower when obtaining such a loan, is written in microscopic font, which few will read. Following the adoption of the said draft law this practice will be considered unlawful.

Financial regulators and, in particular, the National Bank of Ukraine, will have the right to determine the minimum amount of information that should be provided to the consumer of financial services, and the failure to provide it or the provision of misleading information is an offence punishable by fine. The failure to notify the consumer about the facts provided for in the law (for example, about the change of the floating interest rate or the assignment of claims under financial services agreement, if required by law), as well as failure to provide the client with a copy of the agreement, will also be punished by regulatory fines.
In general, this draft law should be evaluated fairly positively, since it significantly increases the responsibility of financial service providers and eliminates a number of loopholes for abuse and fraudulent practices with regard to consumers. The fact that financial regulators, as a result of the adoption of this draft law, will receive far more powers and influence on dishonest financial institutions, will, in our opinion, have a positive impact on the overall state of Ukrainian financial market and will increase the level of public confidence in the financial system as a whole, which is a prerequisite for economic growth.

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