You are in the car and your mobile rings. It is another annoying text message from a bank offering you a loan at X.X percent. You look up at a billboard and another bank is offering a loan at an equally preferential interest rate so you can fund that dream boat, vacation, nose job or any other burning desire. With Lebanese banks’ assets having reached $144 billion, equivalent to around 370 percent of gross domestic product, the banks are highly liquid and looking to lend, hence the marketing barrage touting consumer loans.
While the banks’ greater willingness to lend is no doubt a boon for the economy, borrowers could well be stung if they have not looked closely at the “conditions apply” section and read the small print; a loan at a rate of say 7 percent could well end up being in the double digits. What’s more, you will certainly not get that kind of information from a text message or billboard advertisement.
But it is not just on loans where the banks can hit you with unexpected costs. The same can apply to hidden costs on credit cards and on certain accounts, such as in foreign currencies, where the banks should tell you about incurred fees but more often than not don’t until you query a charge you’ve already paid and it is too late. High interest rate accounts are another potential trap, such as in Lebanese lira — where the rate is much higher than say the US dollar — but the bank charges you an amount for holding the account in the first place, which can put a dent in returns, even if only marginally.
The problem is that while Lebanon has a consumer protection law, which includes an article on misleading advertising, it has not been applied with much vigor since it was enacted in 2005. Furthermore, Banque du Liban (BDL), Lebanon’s central bank, has not issued circulars to require greater transparency when it comes to loans, even though the BDL governor, Riad Salameh, is reportedly keen on consumer protection.
There is a pressing need for the consumer protection law to be applied and for the establishment of small courts to deal with such issues cheaply, swiftly and impartially. This is an issue which concerns not only Lebanon. Throughout the world, with few exceptions, consumers are not adequately protected or fully aware of their rights. Just last year, non-profit organization Consumers International launched a set of recommendations to the G20 countries on consumer protection in financial services. And lest it not be forgot, it was cheap and easy credit, as well as highly complex financial products, that triggered the 2008 financial crisis that the world is still reeling from.
Lebanon may be in danger of following the same route if consumers are not adequately protected and have legal recourse, while for banks a slew of bad loans could seriously disrupt the balance sheets. Admittedly, Lebanese banks are by nature conservative and do not make taking loans easy — it has not reached the stage it did in the West where the unemployed, students and low-wage earners were offered ridiculously high loans that were nigh on impossible to pay back. But with so much liquidity sloshing around the banks, diligence is required and easy credit should not be the solution to economic woes and low consumer confidence. It would be supremely ironic if the Lebanese banking sector was hit further down the road by a credit crunch or the like after having successfully weathered the fallout from the global financial crisis due to conservative banking policies.
As for false advertising, such enforcement is sorely needed beyond banking fees. Supermarkets tout value you can trust, yet the same products are available in corner stores at cheaper prices. And when it comes to food, there have been more than enough food poisoning scandals going around to make you not want to eat outside your home.
Ultimately, rigorously enforcing the law would not only be beneficial to the consumer but would also be a good revenue earner for the government, with perpetrators of false advertising able to be fined, under article 11 of the consumer protection law, “from LL 10 to 50 million ($6,666 to $33,333).”
PAUL COCHRANE is the Middle East correspondent for International News Services
