Background

On May 8, 2020, the Lao Ministry of Justice published the Decree on Consumer Protection regarding Financial Services No. 225/GOV, dated April 6, 2020, in its online Official Gazette. The decree was drafted by the Bank of the Lao PDR (BOL), which is the central bank in Laos. In addition to supplementing the country’s guidelines on commercial banks’ obligations to their customers, the new decree bolsters the country’s consumer protection regulatory regime under its primary relevant piece of legislation, the Law on Consumer Protection No. 02/NA, dated June 30, 2010.

Scope of Application

The decree was drafted to elaborate on Article 57 of the Law on Commercial Banks No. 56/NA, dated December 7, 2018, which requires commercial banks to devise clear procedures for receiving and resolving consumer complaints. Besides its application to commercial banks as defined by the law, the decree also applies to a wide range of service providers, including microfinance institutions (deposit-taking or otherwise), deposit and savings cooperatives, leasing companies, pawnshops, and providers proposing other types of financial services under the supervision of the BOL (referred to collectively as “service providers”). Likewise, the decree addresses a spectrum of financial services, including:

• Monetary deposits and issuance of deposit certificates;
• Provision of credit;
• Card services;
• Hire-purchase and leasing;
• Mortgages;
• Payment services;
• Buying and selling currencies; and,
• Other services authorized by the BOL, which covers all types of banking services in Laos.

Fee Restrictions and Disclosure Requirements for Financial Services

The decree requires service providers to set a written policy determining the appropriateness of the selected product, official fee, service fee, representation fee, interests rate, and other fees, in accordance with the relevant law and regulations (if any), and to document the justification for the price of each product.

Service providers are also required to advise consumers on financial services through supporting documents and materials. Though the decree provides specific requirements for different types of financial services, it notes that all service providers must provide consumers with information on the following:

• Fees or service fees, representation fees (if any), interest and other fees—to be summarized in the relevant section of the material;
• Impact of a change of interest rate, exchange rate, or other factors that affect the price, remuneration, or other conditions relating to the financial service;
• The expected return of the product;
• Duration of the contract and payment plan;
• Conditions for termination of contracts with consumers if the consumers cannot fulfill their obligations;
• Risks to the financial service;
• Other similar products (if any); and,
• How the consumer’s confidential information will be kept private.

The supporting documents and materials, which must be written primarily in the Lao language, are to use terms that are easily understood and should be in an easily readable font size and color (especially the section on the consumer’s rights and obligations under the contract). Moreover, financial service advertisements should not mislead consumers. For instance, service providers cannot claim that they guarantee a return on investment for financial services that are deemed risky.

Consumer Data Maintenance and Other Requirements for Service Providers

The decree is also attentive to the manipulation of personal information, financial information, and card passwords. Service providers must not disclose the information of consumers, and if any information is leaked, the service provider must inform the relevant consumer and document the leak. If the leak affects a large number of consumers, the service provider must also report the situation to the BOL.

The decree also requires service providers to:

• Provide the financial services without discrimination concerning nationality, ethnicity, gender, or religion;
• Explain the financial services;
• When applicable, propose options that may be most appropriate for the selected consumer, so that the consumer can make an informed decision (e.g., by discussing the pros and cons of selected financial services);
• Not retain information that may harm the consumer for the benefit of the service provider;
• Provide services based on the disclosed or advertised information of the selected product, and not charge undisclosed fees;
• Provide consumers with all necessary documents, such as the unsigned draft contract, the original copy of the contract after being signed, and any accompanying documentation, and specify when the consumer has the right to terminate the contract; and,
• Set a reasonable time for the consumer to review a contract before signing or to cancel the contract (in which case the service provider may charge the consumer for the actual expenses incurred).

The decree also requires service providers to assist non-literate or visually impaired consumers, either by explaining or reading the relevant contract and other relevant documents before their signing, or by having the consumers’ respective representatives sign the contract on their behalf.

Contracts for Financial Services

All contracts related to financial services must include the following information:

• Names and addresses of the contracting parties;
• Terms and conditions of using the financial service;
• Rights and obligations of the consumer;
• Fees, service charges, and penalties (if any);
• Information on the confidentiality of the consumer’s information;
• Dispute resolution requirements;
• Rights, conditions, and methods for terminating the contract; and
• Consequences of terminating the contract.

The required content may also differ according to the type of financial service. For example, card services contracts must include information on withdrawal fees, using the card in Laos and internationally, and the credit granted and minimum monthly repayments, while contracts to provide credit must include interest rates and consequences of default.

Dispute Resolution and Penalties

In setting up a new unit or hiring an employee, service providers are required to set up communication channels to receive comments from and propose solutions to consumers’ feedback. The decree permits the service providers to administer these channels in writing, verbally, or electronically.

Upon establishing these communication channels, service providers must indicate the contact details of the unit or employee, and the relevant consumer protection department of the BOL, in every contract of services proposed. Service providers must also explain contact details and processes to the public by clearly displaying this information in their offices, branches, units, or websites.

The decree requires service providers to pay special attention to consumer complaints by recording them and, upon receiving the complete information of the source of the complaints, resolving them promptly. If the service provider cannot propose a solution to the relevant consumer immediately and requires further information on the corresponding issue, they must provide updates to the consumer every 15 days.

If the service provider’s solution is not satisfactory, the service provider and customer may then refer the dispute to the BOL (including cases involving multiple consumers). If the parties still cannot reach an agreement, the decree stipulates that they may then consult the Economic Dispute Resolution Center (a domestic arbitration center), the Lao People’s Courts, or both.

The decree provides only a broad outline of the penalties that may be triggered if its provisions are violated. It indicates that the particular sanctions will depend on the violation and may include disciplinary measures and civil compensation, but a sliding scale of the proposed fines is not given. As a result, the sanctions under the current decree may be difficult to implement, though future regulations may elaborate further.

Conclusion

By addressing financial services and their providers in Laos, this decree is an innovative regulation that is notable for its dedication to filling out the country’s consumer protection regulatory regime, as well as its transparent counsel and recommendations for service providers and their consumers. In particular, its obligations imposed on service providers, and its elaboration of the expected content of contracts for financial services, are significant steps. By clarifying the requirements of the contracts, the decree conveys its recognition of the surge of financial leasing services, which have become common for the purchase of various goods, such as cars, throughout the country in recent years, but which many had considered somewhat unregulated to date.

Overall, although the relevant sanctions have yet to be to clarified, this decree is another positive signal that the Lao authorities are expanding consumer protection in Laos after their publication earlier this year of other consumer protection-related decisions (including on the establishment of consumer protection associations, and consumer protection considerations for telecommunications and internet service providers). Moreover, the decree fulfills, in large part, its objective to elaborate on parts of the Law on Consumer Protection and the Law on Commercial Banks. Consequently, although the decree is not exhaustive, it has clearly made a positive contribution to Laos’ efforts to enhance the relationship between consumers, service providers, and financial services, both domestically and internationally.