FINANCIAL CONSUMER PROTECTION IN FINANCIAL INSTITUTIONS: THE CASE OF BANKING SECTOR IN VIETNAM45395

The paper is using the findings of a 103 surveys on consumer protection regulations with different measurements like Fair and equitable dealing, disclosure and transparency, financial ed

FINANCIAL CONSUMER PROTECTION IN FINANCIAL INSTITUTIONS: THE CASE

OF BANKING SECTOR IN VIETNAM

Phung Thi Thu Huong, Msc., Trinh Thi Phan Lan, PhD - University of Economics and Business –

Vietnam National University

Abstract:

Consumer protection and financial literacy can contribute to better efficiency, transparency, competition, and access in retail financial markets by eliminating information asymmetries and power imbalances between financial service providers and customers The main purpose of the study

is to examine commercial banks' financial consumer protection by analyzing the principles and regulation of customer protection in Vietnam The paper is using the findings of a 103 surveys on consumer protection regulations with different measurements like Fair and equitable dealing, disclosure and transparency, financial education and awareness, behavior and work ethic, protection against fraud, protection of privacy of information and complaints handling, existence of adequate competence As a result, the research concludes by recommending that the financial institutions' supervisory adopt a code of conduct for consumer protection, while banks should be required to include the concept of customer protection into their operational procedures

Keywords: financial customer protection, banks, financial literacy, regulation, Vietnam

1 Introduction

Consumer protection and financial literacy can contribute to better efficiency, transparency, competition, and access in retail financial markets by eliminating information asymmetries and power imbalances between financial service providers and customers Particularly since the start of the financial crisis in 2008, the issue of financial consumer protection has gained importance in policy debates (Mayer et al., 2014) There is a pressing need to protect consumers' interests in the current age prior to the growth of the network of financial companies, especially in the complicated emerging markets, international operations

Among developing countries, Vietnam is an example with sustainable economic growth that led Vietnam from a poor country to a middle-income country with an average annual growth rate of 6% (Worldbank, 2021) However, the concept of customer protection is not widely adopted in many nations, particularly in Vietnam, where various governmental and non-governmental organizations perform functions such as supervisory organ and voluntary institutions Due to numerous unique features, the Law No 59/2010/QH12 in Protection of Consumer Right Law (2010) with amended and supplemented in Law No 35/2018/QH14 in Protection of Consumer Right (2018) makes essentially no particular reference to issues relating to consumer protection in the banking and financial sectors The major source of consumer protection in Vietnam is found in the Law on Protection of Consumer Rights, which includes consumer protection based on legal precedence,

however there is no specific financial consumer protection regulation, especially in the banking system While credit institutions, securities firms, and insurance business Laws have rules to protect the rights of clients, they are still missing many detailed information and fail to supply instructions with problems As a result, a substantial segment of the population, especially those who are financially vulnerable and rural people, are unable to obtain financial services Moreover, until now, Vietnam still does not have institutions in place to administer consumer financial protection The country lacks a sufficient regulatory framework for financial consumer protection, and consumer financial literacy is rather inadequate When there is no comprehensive structure in place, customers' access to proper financial services is impeded, making it difficult to resolve concerns and making them unlikely to become victims of any fraudulent financial services

In this study, we organize the findings in the following manner: The following section features literature reviews from many sources, including marketing, law, and economics, to review consumer protection in the financial services industry, especially in banking sectors Section 3 presents the research method of the study Section 4 introduces the data and discusses the result of surveys The conclusion is presented in Section 5 as follows

2 Literature review

The 2007 subprime loan crisis was a good example of how the market failed to serve the financial interests of its customers, with predatory lenders engaging in unfair, self-serving behavior

in order to achieve commercial benefit for themselves rather than in the best interests of their customers (Mayer et al., 2014) As well as the necessity to safeguard customers, regulators are concerned because it is regarded as moral and ethical to do so (Consumer Protection on Fair Trading Law, 1992) As the markets for financial products and services get more sophisticated, the importance of protecting consumers of financial services in the banking system increases (Micklitz

et al 2010) Many countries all over the world recognized the general guideline (principles) of customer protection, which was produced by G20 nations, in order to judge the well-functioning of financial institutions (OECD, 2011) These principles are: fair and equitable dealing, transparency, financial awareness, work ethics, protection against fraud, protection privacy of information, complaints handling, competition, and third party

There are numerous studies researched on FCP in recent times (Ahmed & Ibrahim, 2018; Bekele, 2015; Gaganis et al., 2020; Johan & Ariawan, 2021; Mikheeva & Dolkova, 2020; Mohamad

& Hassan, 2019; Pasiourasa, 2018; V & M, 2019) Ahmed & Ibrahim (2018) explored the regulatory framework for consumer protection in Malaysia with legal infrastructure and typology of laws The result showed that the different laws, rules, and supporting organizations are all needed in order to comprehensively protect consumers' financial interests in the country Besides, Johan & Ariawan (2021) have focused on consumer protection of non-bank finance companies with the conditions from the inception of the loan to the repayment of the loan based on the existing law and regulations

In this research, Johan & Ariawan also amended to improve and update the role of regulation in protecting the consumer in the financial industry The studies of Bekele (2015); Gaganis et al., (2020); Mikheeva & Dolkova, (2020); Mohamad & Hassan, (2019); Pasiourasa, (2018); V & M,

(2019) also mentioned the necessary of FCP in banking systems on different aspects like cost of financial intermediation, bank profit efficiency, regime, etc These studies suggested an emergence insight on the initiatives taken particularly in the banking industry to protect the financial consumers Despite a considerable body of literature about legal and regulatory challenges with FCP existing in established economies, there is a lack of research focused on how FCP is comparable to emerging and developing countries, particularly in Vietnam Mainly much research about the banking system in Vietnam is related to risk management on behalf of bank point of views (Bình & Chi, 2021; T V Dũng & Chí, 2021; Sơn, 2019; Thọ, 2018; Thọ & Thủy, 2020) These papers mainly absorbed on analyze the risks in Vietnam banking system and suggested solution to improve the effectiveness and efficiency of banks rather than investigating in aspects of customers For further examination, H T T Hiền et al., (2020) and N T Hiền (2017) have investigated in FCP with the experience from Canada, USA, Germany as well as the situation of financial inclusion development These researches mainly focused on basic economy that proposed to create a Department to incharge FCP and increased financial literacy for further request Furthermore, Cao & Hà, (2020); Dũng (2017); Hà (2020) and Tính (2016) indicated that the regulations in Vietnam did not protect the interest of customers in banking sectors, such as protecting the borrower's rights in the credit contract

or when using bank cards or other services They also found that it would be more effective and efficient if the Government had amended and improved FCP Law in detail, particularly law for customers when participating in transactions and services of the banking system in Vietnam Consequently, it it essential to explore more about the role of FCP in Vietnam, especially in banking sector

3 Research method

Source of Data

The study are utilized both in primary and secondary data The sources of primary data are collected from customers of different banks in Vietnam In order to collect the desired information the opened question has been used as the primary source of information

Question Development

The survey questionnaire includes two sections: In section one, we collected demographic data from respondents, such as gender, age, and major information The other section is to measure constructs’ items related to customer protection To ensure validity of the measurement, all questions were obtained from previous studies The time to conduct the survey lasted 2 weeks, from July 14th

to July 30th , 2021

The questionnaire utilized the five point Likert scales because it was easy and simple to understand for the respondents to rate each question The respondents who reply agree and strongly agree implying that the practice of customer protection is acceptable in the bank, whereas the respondents who replied disagree and strongly disagree means the bank is not practicing customer protection

For the purpose of analysis and interpretations, the questions have been categorized into eight sub-topics as below:

Figure 1: Variable on Financial Customer Protection

Sources: By Authors

Ethical Consideration

The informants had been informed that any confidential information acquired from respondents would be kept in secret unless they allow it, and not to be used for purposes other than the objective

of the study The respondents identity would not be disclosed, and proper acknowledgement have been made to their contribution to the study

4 Result and Discussion

4.1 Demographic characteristics of the respondents

According to 103 surveys, the majority of the respondents is female (69, 6%) and the rest is male (30,1 %) The most of the respondents’ age group falls in the range of 31-40 years (46.6%), followed by the age group of 18-30 years (27,2%), and the lowest frequency age group registered were the age above 50 years (3.9%)

Table 1: Demographic Information of the respondents

Fair and equitable dealing

Disclosure and Transparency

Financial Education and Awareness

Behavior and work Ethic

Protection against

fraud

Protection of Privacy of information

Existence of adequate competent

Complaints Handling

41-50 23 22.3%

Days visiting the bank for

services

Sources: Survey result (2021)

As shown in Table 2, the educational backgrounds of the respondents were categorized into 3 groups Out of total participants, 61.8 % had bachelor degree, 36.3% had master degree or above The survey results show that the respondents do not frequently visit the bank The number of people who visit the bank every week accounted for only 4.9%; mostly they go to the bank a few times a year (68.9%) This is also quite understandable, because the development of technology makes e-banking services develop very quickly and customers can also transact with the bank at home

Figure 2: Bank services used by respondents

Sources: Survey result (2021)

According to statistics from the figure 2, money transfer service accounts for the largest proportion (90.1%), followed by deposit (68.1%), loan (27.5%) and other (34.1%)

68.10%

27.50%

90.10%

34.10%

Deposit

Loan

Transfer

Other

4.2 Results

Fair and equitable dealing

Table 2: Fair and equitable dealing

Statement Strongly

agree Agree Neutral

Dis-agree

Strongly Disagree Total

Customers of the

bank receive

impartial and

honest treatment

from

the bank

The amount of

prices that the

bank

fixes for different

services are fair

Sources: Survey result (2021)

As described in Table 2, two questions related to fair and equitable dealing were presented to respondents To be more specific, the percentage of respondents who replied agreed and strongly agreed that Customers of the bank receive impartial, honest treatment at all stages of relationship they do have with the bank are respectively 21.5% and 51.5% About 8.8% of respondents disagree and strongly disagree respectively by the type of service they get from the bank

In the second statement of fairness of the prices that the bank fixes for its different services, the percentage of strongly agree and agree dropped to 9.7% and 38.8% respectively if compared to the first statement About 33% of respondents reacted neutral The remaining of the respondents disagreed and strongly disagreed with the fairness of price that the bank charges for the services were 12.6% and 5.8%

This implies that in both statements, the majority of the answers (which means 51.5% and 38.8%) confirmed by strongly agree and agree respectively that there is fairness and equitable service dealing practice in the bank Moreover, 3.95 and 5.8% of the total answers showed the disagreement with the statement

Disclosure and Transparency

Information transparency is important to the banking system From a management perspective, international banking practices (Basel II) and national central banks always set requirements on

information transparency for banks to protect consumers and avoid the risk of failure system From

a micro perspective, increasing information transparency is very important because it helps banks easily access financial resources in the market, reduce capital mobilization costs, thereby expanding market share, increasing competitiveness (Tùng, 2020) The result of Transparency and disclosure

of banks in Vietnam are as below:

Table 3: Disclosure and Transparency

Statement Strongly

agree Agree Neutral Disagree

Strongly Disagree Total

The bank provides

advice and copy for

the benefits, risks,

terms and

conditions to

customers

Charges of different

services of the

bank are kept in a

transparent way

The bank has

practice of

notifying in

advance for change

made on interest rate

and service charge

to the customers

Percentage 14.6%

The advertising and

promotional

materials that the

bank is applying

does not mislead to

the customers

Sources: Survey result (2021)

Table 3 consists of 4 statements which show the level of disclosure and transparency found in the bank In all 4 statements, the respondents who chose the “neutral” option were always more than 30%, except the information about the fees

Thus, overall, the transparency of information of Vietnamese banks has been improved, but still about half of customers do not trust the transparency of information provided by banks This result is also similar to some previous studies of Bushman & Williams (2012) and Hương & Tùng

(2018) pointed out that Vietnam has the second lowest quality of information transparency in the sample, just ahead of Kenya

However, more than 30% of respondents had no idea that this statement noticed that they might not have access to information or had a looker's attitude In order for banks to become more transparent, customers must pay attention to and require transparency before receiving services

Financial education and awareness

Table 4: Financial education and awareness

Statement Strongly

agree Agree Neutral Disagree

Strongly Disagree Total

The bank helps

customers to

develop their

knowledge,

skills and

awareness to

take

informed choices

and effective

decisions

Most customers

have good

understanding of

the essence of

customer

protection

Sources: Survey result (2021)

Table 4 shows the practice of the bank providing financial education and awareness of customer protection for customers about 25.2% and 8.7% from the first statement showed that bank help customers in creating of awareness for customers in the area of banking industry, and 25.2% and 11.7% respondents from the second statement that most customers have the concept

of customer protection replied strongly agree and agree respectively The other 39.8% and 36.9%

of the total respondents indicated neutrality in the first and second statement The remaining respondents 6.8% and 19.4% from the first statement and 5.8% and 20.4% from the second statement noted disagree and strongly disagree respectively

Mr André Laboul, OECD Senior Counselor, noted that improving financial education and consumer protection are important priorities in APEC (Bank Times, 2017) In the meeting, he also emphasised that it was not only about knowledge but also about skills, attitudes and behaviors because the best way for each person to increase financial awareness is to work towards all of the

above factors From the results of the survey, it is clear that the financial education and awareness

of bank customers are still at a low level and banks have to have the responsibility to improve financial education for their customers in order to protect not only customers but also the banks

Behavior and work ethics of employees

Table 5: Behavior and work ethics of employees

Statement Strongly

agree Agree Neutral Disagree

Strongly Disagree Total

The bank provides

its services with

well trained,

qualified,

professional

and ethical

employees

Frequency

Sources: Survey result (2021)

As indicated in Table 5, from the total respondents 15.5% and 41.7 % assured by strongly agree and agree respectively that the bank has a practice of rendering its service with well trained, qualified, and ethical employees The other respondent 32% noted neutral to the statement The remaining 7.8% and 2.9% respondents disagreed and strongly disagreed with the statement respectively

Practice of the bank in protection of customers’ deposit (asset) from fraud

Table 6: Practice of the bank in protection of customers’ deposit (asset) from fraud

agree Agree Neutral Disagree

Strongly Disagree Total

Controlling system

employed by the

bank to protect

deposit of customers

from different type

of fraud or misuse

Percentage

Sources: Survey result (2021)

Table 6 indicated the practice of the bank protecting customers’ deposits or assets from different types of fraud or misuse Accordingly, more than half (9.7% and 54.4%) of the total respondents strongly agree and agree respectively with the statement The other respondent 13% noted neutral or indifference to the statement

The other 29.1% of the respondents noted indifference for the statement, and the remaining 2.9% and 3.9% of the total respondent indicated that they disagreed and strongly disagreed with the statement

Protection of customers’ privacy information

Table 7: Protection of customers’ privacy information

Statement Strongly

agree Agree Neutral Disagree

Strongly Disagree Total

The bank has

tough

practice of

keeping

secrete

customers’

personal and

financial

information

Sources: Survey result (2021)

From the above table 7, the major share of the respondents in question one is assured by strongly agree and agree respectively that the bank has a practice of keeping secret customers’ personal and financial information from any kind of misuse Accordingly, 19.4% and 43.7% of the total respondents expressed their reflections by strongly agreeing and agreeing respectively with the statement

The other 18.4% respondents indicated neutral, and the remaining 12.6% and 5.8% of the

respondents disagreed and strongly disagreed respectively to the statement

Regarding this issue, the State Bank of Vietnam (SBV) has recently issued many legal documents on ensuring the safety of information technology activities in the industry Along with that, commercial banks invest in many advanced security solutions such as: new generation firewalls, data loss prevention solutions, biometric authentication, payment using QR code in electronic transactions

However, according to statistics from the Ministry of Information and Communications, in the first 10 months of 2020, the number of cyber-attacks causing incidents was 4,161 incidents, on average one day the authorities warned and handled them (Anh, 2020) Over the past time, the Ministry of Public Security has discovered hundreds of domestic and foreign cybercriminal groups that have carried out hacking activities - attacking bank accounts or cards to appropriate hundreds of millions of dollars

On the other hand, customers also need to protect themselves Customers need to be more careful in providing personal information, be careful when transacting on the network, not reveal