A reader asked for my advice on the following:
> He invested heavily in an investment-linked policy. He made many fund switches in past years.
> Recently, he asked to make a partial surrender. The company held back the payment of the surrender amount, to investigate his fund switches. The payment was not made after more than one month.
> The company did not specify in writing the reason for the delay and the nature of the investigation. The customer called the company, but was given verbal promises that were not kept.
>The customer also asked to switch from the equity fund to the money market fund. This was not executed. The customer went to the company the following day and submitted a new request. This company did not execute the switch. The company wrote a week later to state that the switching has been suspended due to irregularites. They did not specify the nature of the irregularities. The equity fund dropped by 30% over the next two weeks, causing great loss to the customer.
I advised the customer to lodge a complaint with MAS on the dreadful conduct of the insurance company. If this is not resolved, the customer should take up a legal case against the company for the losses that they have caused to him.
Saturday, September 13, 2008
Specific Unfair practices
Schedule 2 of the Consumer Protection (Fair Trading Act) lists down 20 specific unfair practices. They are listed here:
http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_legdisp.pl?actno=2003-ACT-27-N&doctitle=CONSUMER%20PROTECTION%20%28FAIR%20TRADING%29%20ACT%202003%0a&date=latest&method=part
Those relevant to financial products are:
7. Representing that a price benefit or advantage exists respecting goods or services where the price benefit or advantage does not exist.
11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.
12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.
14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.
20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.
http://statutes.agc.gov.sg/non_version/cgi-bin/cgi_legdisp.pl?actno=2003-ACT-27-N&doctitle=CONSUMER%20PROTECTION%20%28FAIR%20TRADING%29%20ACT%202003%0a&date=latest&method=part
Those relevant to financial products are:
7. Representing that a price benefit or advantage exists respecting goods or services where the price benefit or advantage does not exist.
11. Taking advantage of a consumer by including in an agreement terms or conditions that are harsh, oppressive or excessively one-sided so as to be unconscionable.
12. Taking advantage of a consumer by exerting undue pressure or undue influence on the consumer to enter into a transaction involving goods or services.
14. Making a representation that appears in an objective form such as an editorial, documentary or scientific report when the representation is primarily made to sell goods or services, unless the representation states that it is an advertisement or a promotion.
20. Using small print to conceal a material fact from the consumer or to mislead a consumer as to a material fact, in connection with the supply of goods or services.
Consumer Protection (Fair Trading) Act
Financial products are now governed by the Consumer Protection (Fair Trading) Act.
More details here:
http://app.mti.gov.sg/default.asp?id=84
Read this FAQ:
http://app.mti.gov.sg/default.asp?id=565
1. What constitutes an unfair practice under the Act?
It is an unfair practice for a trader, in relation to a consumer transaction-
> to do or say anything, or omit to do or say anything, if as a result a consumer might reasonably be deceived or misled;
> to make a false claim;
> to take advantage of a consumer if the trader knows or ought reasonably to know that the consumer
++ is not in a position to protect his own interests; or
++ is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction; or
> to do any of the 20 unfair practices listed in the Second Schedule of the Act.
The trader should provide the consumer with all relevant and material information so as not to mislead the consumer. The consumer can then make an informed decision. Traders should review their business practices; in particular, what information they provide to consumers and how they convey information.The court, in determining whether or not a trader has engaged in an unfair practice, would consider the reasonableness of the actions of the trader. The court would also take into account, in granting remedies to the consumer, whether the consumer tried to resolve the dispute with the trader first before commencing action.
My comment: Many of the complicated financial products offered in the market will not pass this test of "fair trading".
More details here:
http://app.mti.gov.sg/default.asp?id=84
Read this FAQ:
http://app.mti.gov.sg/default.asp?id=565
1. What constitutes an unfair practice under the Act?
It is an unfair practice for a trader, in relation to a consumer transaction-
> to do or say anything, or omit to do or say anything, if as a result a consumer might reasonably be deceived or misled;
> to make a false claim;
> to take advantage of a consumer if the trader knows or ought reasonably to know that the consumer
++ is not in a position to protect his own interests; or
++ is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction; or
> to do any of the 20 unfair practices listed in the Second Schedule of the Act.
The trader should provide the consumer with all relevant and material information so as not to mislead the consumer. The consumer can then make an informed decision. Traders should review their business practices; in particular, what information they provide to consumers and how they convey information.The court, in determining whether or not a trader has engaged in an unfair practice, would consider the reasonableness of the actions of the trader. The court would also take into account, in granting remedies to the consumer, whether the consumer tried to resolve the dispute with the trader first before commencing action.
My comment: Many of the complicated financial products offered in the market will not pass this test of "fair trading".
Are Consumer Protection Initiatives Meeting Expectations
This paper gives an interesting explanation of the approach adopted in Canada, UK and Australia:
http://www.isis.org.my/files/pubs/papers/AreConsumerProtection.pdf
It explains the approach taken in Singapore as follows:
In the case of Singapore, financial services (excluding money lending and pawn broking) have now been brought within the ambit of the Consumer Protection (Fair Trade) Act of 2004. Consumers now have the option to pursue remedies under the Act for unfair practices and unconscionable conduct (such as high-pressure selling) by financial institutions. Dispute resolution is delegated to the Financial Industries Disputes Resolution Centre Ltd although only cases of up to S$50,000 will be heard. Interestingly, in 2004 the President of the Consumer Association of Singapore, who is also a Member of Parliament, raised the issues of high pressure sales tactics, the high rates of interest charged on credit card balances and the ‘cartel-like manner’ in which banks maintained interest rates of 24 per cent when other financial borrowings incurred interest of less than 5 per cent.
The Second Minister of Finance responded by saying that the Monetary Authority of Singapore does not consider its role to include directly settling commercial disputes between financial institutions and their customers. The Authority also does not interfere in the setting of interest rates and prices or what terms and conditions should govern commercial transactions. Rather, he Authority provides the regulatory framework for the necessary disclosure and the proper business conduct standards to be undertaken so as to ensure that the consumer is fairly treated.
In the light of the above, how might one evaluate Bill Knight’s conclusion that “the importance of
the consumer to a vibrant and healthy economy has moved non-prudential/market conduct regulation to a place at the table beside prudential regulators in the financial services regulatory structures around the world”? This might be true of OECD countries generally but significant developments in other parts of the world seem less apparent. Could one possibly envisage conditions where governments “move forward to adjust regulatory structures (and) pay close attention to the consumer and their needs”? Consumers are unable to generate any degree of countervailing weight while governments still seem be too protective of, and too hesitant to ‘fetter’ their financial institutions, to do anything dramatic in this direction. One may not be far wrong to say that most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be.
The key message from this paper is quoted in the last line, "most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be."
http://www.isis.org.my/files/pubs/papers/AreConsumerProtection.pdf
It explains the approach taken in Singapore as follows:
In the case of Singapore, financial services (excluding money lending and pawn broking) have now been brought within the ambit of the Consumer Protection (Fair Trade) Act of 2004. Consumers now have the option to pursue remedies under the Act for unfair practices and unconscionable conduct (such as high-pressure selling) by financial institutions. Dispute resolution is delegated to the Financial Industries Disputes Resolution Centre Ltd although only cases of up to S$50,000 will be heard. Interestingly, in 2004 the President of the Consumer Association of Singapore, who is also a Member of Parliament, raised the issues of high pressure sales tactics, the high rates of interest charged on credit card balances and the ‘cartel-like manner’ in which banks maintained interest rates of 24 per cent when other financial borrowings incurred interest of less than 5 per cent.
The Second Minister of Finance responded by saying that the Monetary Authority of Singapore does not consider its role to include directly settling commercial disputes between financial institutions and their customers. The Authority also does not interfere in the setting of interest rates and prices or what terms and conditions should govern commercial transactions. Rather, he Authority provides the regulatory framework for the necessary disclosure and the proper business conduct standards to be undertaken so as to ensure that the consumer is fairly treated.
In the light of the above, how might one evaluate Bill Knight’s conclusion that “the importance of
the consumer to a vibrant and healthy economy has moved non-prudential/market conduct regulation to a place at the table beside prudential regulators in the financial services regulatory structures around the world”? This might be true of OECD countries generally but significant developments in other parts of the world seem less apparent. Could one possibly envisage conditions where governments “move forward to adjust regulatory structures (and) pay close attention to the consumer and their needs”? Consumers are unable to generate any degree of countervailing weight while governments still seem be too protective of, and too hesitant to ‘fetter’ their financial institutions, to do anything dramatic in this direction. One may not be far wrong to say that most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be.
The key message from this paper is quoted in the last line, "most countries are, to some degree or other, behind the best-practice curve and perhaps Asian countries are further behind than where they ought to be."
Avoid investing with leveraged money
Dear Mr. Tan,
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.
Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.
How can I reduce my loss, especially from the leveraged investment?
REPLY
Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.
It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.
Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.
How can I reduce my loss, especially from the leveraged investment?
REPLY
Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.
It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).
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