products. Additionally, the lack of sufficient competition for financial service providers and less awareness by consumers increases the degree of asymmetric information in underdeveloped financial markets, leading to a disadvantage on the part of consumers. Hence, an effective financial consumer protection framework is a key component of financial inclusion strategies.

In recent years, financial inclusion gained prominence in the development agenda. According to CGAP (2009), only 30 percent of adults in developing countries are estimated to have access to basic deposit services and even fewer to credit, insurance and other financial services. The consequence of this is that the poor have to rely on more costly informal financial services to save and to borrow. This inequality of opportunities represents an obstacle to economic development. Effective consumer protection regulations and strengthening of financial capability promote equal access to financial services for all by reducing information asymmetries, enhancing competition and innovation, and increasing consumer participation in the financial system.

The literature on the broad topic of consumer protection is abundant. Yet, there are only a handful of comprehensive studies on the topic of consumer protection in financial services.<sup>2</sup> This paper contributes to the debate by providing an overview of financial consumer protection issues in the existing literature, and by providing empirical analysis on the links between consumer protection and financial sector outcomes, drawing on the new unique cross-country data set on financial consumer protection. To the best of our knowledge, this study is the first to systematically collect and analyze cross-country data on consumer protection regulations and policies in financial services. The data used in this paper come from a survey of financial regulators from over 140 countries conducted for the annual _Financial Access_ survey by CGAP and the World Bank Group in 2010.<sup>3</sup> The survey and the paper only cover credit and deposit services, and do not include investments, pensions, insurance or other financial products.

Broadly, the results of the survey on financial consumer protection in deposit and loan services reveal that most countries have some form of consumer protection legislation in place, but these do not often address concerns specific to the financial services industry. We also find that enforcement mechanisms are weak, partially due to lack of resources, institutional capacity, and limited enforcement powers of regulators. Although effective third-party dispute resolution mechanisms are essential to implementation of the law, such mechanisms are not common. Additionally, we compile comprehensive information on the set of laws and regulations relevant for financial consumer protection based on the responses to the survey.<sup>4</sup> As part of the analysis we conduct a number of statistical tests and discuss the challenges related to the empirical research in the area of financial consumer protection.

> 2 For an overview, see Rutledge (2010) and Brix and McKee (2010).

> 3 See Ardic _et al._ (2010), CGAP (2009), CGAP (2010) and Kendall _et al._ (2010) for further information on the _Financial Access_ database.

> 4 For a comprehensive listing of all consumer protection legal frameworks, see Annex I.

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