Working Document on a possible legal framework for the Single Payment Area in the Internal Market OPINION

Transcription

1 Doc. No 2002/79/ Working Document on a possible legal framework for the Single Payment Area in the Internal Market OPINION Introduction The European Commission produced a working document on achieving a Single Payment Area. The Single Payment Area is intended to improve the functioning of the Internal Market by making it the new domestic market, to promote the use of efficient and secure systems, to enhance consumer protection and, in this way, to strengthen consumer confidence in all means of payment, as well as ensuring competition on equal terms in a level playing field. Justifications for an Initiative There are many problems connected with retail payments made in the Internal Market, which is why the existing legislation needs to be revised. The Finnish Consumer Ombudsman has come across the same problems as those referred to in the working document. Consumers have been particularly concerned about the high cost of cross-border payments as well as fearing that the new regulation will lead to an increase in the charges for in-country payments. As regards cross-border payments, it has also become apparent that the principle in the Credit Transfer Directive (CTD) whereby all the costs are primarily to be borne by the party sending the payment is not being acted on in practice. According to the information we have received from the banks, in virtually all cases the costs are split between the sender and the recipient. A further central concern for consumers is how secure payment systems are, particularly in connection with cross-border commerce. Key issues are eliminating the scope for abuses of payment systems, the legal liability of the party maintaining the system and how flexibly this operates in practice (for example, by limiting a consumer s liability on the basis of fair and clear rules; refund or recrediting arrangements in problem situations and so on). The new sorts of problems arising with the new means of payment should be prepared for in advance and consideration should be given to solutions that are fair to consumers. For example, with electronic money (electronic cash) there have been problems getting refunds or being recredited where the card is lost or broken. Growing cross-border commerce and the payment systems introduced by new technology call for uniform and clear regulation that adequately safeguards consumers rights. Regulated protection of consumers rights is also an ideal way of increasing consumer confidence in new means of payment and facilitating cross-border commerce. For there to be a single regulatory framework there also needs to be a single set of definitions.

2 2 General considerations The working document sets out the general considerations concerning the need for a single regulatory framework. The Finnish Consumer Agency agrees with the views put forward. Practice has shown that the development of a single payment area requires a single EU-level regulatory framework. Self-regulation has not yielded the desired outcome in the matter of payment transmission. Nonetheless, the regulatory framework should not make consumers in a given Member State worse off than they were before. Member States should therefore be allowed to keep legislation that is more favourable to the consumer. The effective development of the internal market also requires payment transmission to be equally easy, regardless of whether or not the payment is going abroad. However, a regulatory framework designed to achieve this should not also have the effect of raising the charges paid by consumers for payment transmission in their own countries. Common points for all payments The Consumer Agency takes the view that the initiative should deal with all means of payment and cover both in-country and cross-border payments. Consumer habits regarding the use of different means of payment vary from one Member State to another. The development of the internal market requires a single regulatory framework primarily for cross-border payments. A single regulatory framework for in-country payments would probably also promote crossborder commerce and create a genuine internal market for the whole area. However, one problem is the different payment transaction cultures in the different Member States and the considerable variation in the level of development of the payment systems. For people using more advanced cost-effective payment methods standardisation may be a step backwards, whereas for people using other methods a changeover to standardised up-to-date payment methods may not be realistic if it is introduced too quickly. To the knowledge of the Consumer Agency and Ombudsman there have not been any problems in connection with the threshold for retail payments. The use of the term customer is a good idea. Particularly when it comes to small-scale merchants, it is often difficult to tell whether the person has acted as a private consumer or in a business capacity. Small-scale merchants and consumers are in a very similar position marketwise and in order to promote healthy competition it is right that efforts should be made to eliminate the obstacles to cross-border trade for both consumers and small businesses. Non-banks providing payment services Outside credit institutions proper, there has to date not been much in the way of provision of payment services based on the receipt of funds from the public, since operating in the general payment transmission business requires, among other things, considerable investment in data systems and an extensive customer network. However, developments in technology may rapidly change the ways in which the industry operates. As a rule, market entry by new operators increases competition and is therefore welcome from the consumer s point of view too. Basically then there is no need to restrict operation in the payment transmission business exclusively to holders of a full-scale credit institution license. Yet

3 3 given the huge importance of payment transmission for general economic stability, performance and growth and for customer protection, the industry needs to be regulated in a way that does not undermine the reliability of payment transmissions or customers financial safeguards. A good alternative would be the model adopted in Finnish government bill HE 33/2002 implementing the e-money directive, which aims to regulate payment transmission and the issuing of e-money using criteria that are as uniform as possible. The risks associated with the issuing of e-money are largely of the same type as in general payment transmission and in practice the issuing of e-money is in any case closely connected with payment transmission. Standardisation in the payment field There is no need to set up a new body as outlined by European banks in order to produce standards for payments, although payment standards to be applied at least throughout the Union area are definitely to be carved out for the industry. The development of standards should endeavour to make use of existing bodies, such as ISO and ECBS. In matters of this type resorting to legislation does not seem to be the most natural solution. Bank accounts The working document refers to various problems that make it more difficult for people to open and keep a non-resident account in some countries. According to the information we received from the Association of Finnish Banks, it is no problem for a foreigner to open an account in Finland. It may just take a bit more work to establish the customer s identity. Treating non-resident account holders differently is an obstacle to the operation of the single market. There are already many people working or studying temporarily outside the country where they normally live. Having a local bank account is in most cases essential or it at least makes it easier to handle day-to-day financial matters when a consumer is temporarily based in another Member State for a longish period. Payment value dates The working document highlights the enormous differences in value date practice between the Member States. The issue of payment dates has been raised by consumers in Finland too. Particularly in cross-border payments it may be several days before the transferred funds are available in the holder s account. From the consumer s point of view it would be desirable for the value date to be the date on which the transaction actually took place in all Member States. EU-level regulation is virtually the only way of making this happen. Portability of account numbers and customer mobility Portability of account numbers is an idea that should definitely be pursued. In Finland virtually the only time consumers shop around between banks is when taking out a mortgage. The most common reason consumers give for not changing bank is the inconvenience caused by the change of account number, which is why consumers do not necessarily check out what other banks are offering in terms of services even if they are not happy with their own bank.

4 4 A bill is currently being drafted in Finland that would make telephone numbers portable. The aim of the bill is to boost competition. To make it worthwhile in practice for people to take their number with them, the bill also states that the costs may not be passed on to the consumer. Being able to keep the same bank account number could well be viewed as an ever greater boon for consumers than keeping their telephone number, since it is generally much easier to find out somebody s new telephone number than their bank details. With today s technology portable account numbers should not be a problem. The working document also points out that banks often charge high fees for closing an account, which also works against customer mobility. In past decisions the Consumer Ombudsman found that making a separate charge for closing an account constitutes prohibited price-splitting. Banks in Finland do not make a charge for closing an account and, despite this, their ordinary bank charges remain very reasonable compared to most Members States. Since closing an account does not entail any appreciable costs for a bank, it is obvious that making a charge for this is an attempt to stop customers changing banks. Therefore, charges for closing an account should be explicitly prohibited. Security of payments As stated in the working document, consumers do not entirely trust electronic means of payment. If electronic business is to develop, common criteria need to be established for the security of the systems. However, what is technically required in terms of security may change rather quickly as new procedures come into existence. Improving the security of payment methods is also very much in the interest of businesses. Legislation is, therefore, not necessarily the best way of improving technical security. Greater security is likely to be best achieved by businesspeople taking on responsibility of their own accord. In contrast, safeguards for consumers do need to be backed up by legislation. If consumers have their financial security adequately protected by law, they will be less vulnerable to any potential security risks on the technical front. The powers that be should concentrate on ensuring legal safeguards in connection with payment transmission. Allocation of legal responsibility If consumers are to be able to trust electronic payment transmission systems, it is of the utmost importance that there should be clear rules on who is responsible when problems arise. Negligence aside, consumers should not be held liable for technical failures in the system. Consumer confidence in electronic payment systems would be increased if it were clearly stipulated that in the event of any problems the party with whom the consumer has the contract is the party liable for the service working properly and for any malfunctions in it. Burden of proof issues are a further matter in need of clarification. Information requirements for payment services If consumers are to be able to benefit in practice from competition in the payment services sector, it is essential for the requirements regarding information to be thoroughly reviewed and, in particular, for a single set of clear and consistent rules to be devised. At the moment competition often fails to operate even at national level because of the impossibility of making comparisons. The reason for this is not only shortcomings regarding the information

5 5 given, but also the fact that payment services are sold in different service packages and it is common for discounts to be given for specific customer categories. Alternative dispute resolution mechanisms For consumers, going to court is often a too costly and too slow way of resolving a dispute. For consumers to actually be able to assert their rights, there needs to be some sort of effective alternative dispute resolution mechanism available for all consumer services. The cost of the mechanism should not be prohibitively high. To safeguard consumer rights, there should be legislation ensuring the existence of alternative dispute resolution mechanisms that are reasonable priced and suitably comprehensive. Payment revocability The working document states that in some Member States it is possible to cancel retail payment orders, which is liable to act as an obstacle to the development of cross-border commerce, since businesses cannot be sure of getting paid. Here there was no discussion of the payee s reimbursement liability or duty. The document asks about the situation in the different Member States. Under the Finnish Transfer Act (Sections 17 and 18), the person giving the payment order is not entitled to cancel it once the transfer is binding on third parties. A transfer is binding on third parties once the payee s institution has received the details required for paying the funds to be transferred into the payee's account and the funds have been paid into the account of the payee s institution or the conditions laid down by the payee s institution regarding the cover of a transfer have otherwise been met. The transfer is binding on the payer s creditors once the funds have been paid into the payee s account. The Finnish Financial Supervision Authority (Rahoitustarkastus) has issued a guideline on the cancellation of payments from customers' accounts. An unofficial English translation of the guideline can be found at: 12_12_2000.pdf. Where payment is made by credit card, the payer may cite an error in the transaction as grounds for entitlement to be recredited and cancel the payment or withhold the payment to the credit grantor. Revocability of payments may obstruct the operation of the single market, if payments can be cancelled without any reason having to be given. For the operation of the single market, at least for distance selling it would be best if the payment forwarders acted as a third party in the transaction, holding on to the payment until the payer has received the goods/services and checked them over, at which point the payment would then be transferred to the payee, unless there is some error in the transaction whereby the payer is entitled to get the money back. Sanctions/penalties It has become apparent in practice that even though the Member States have incorporated the EU legislation into national law in the required way, representatives of the industry are not acting on the rules.

6 6 There are advantages and disadvantages of applying penalties. Penalties are always an extreme measure and the rules should naturally be complied with even without the threat of a penalty. However, where it has been established that there is no other way the rules will be complied with, imposing a penalty is in order. The payment provider's liability to refund in customer-merchant disputes and the burden of proof The working document discusses a problem especially connected with distance selling, which is how to increase both customer and merchant confidence in distance selling by ensuring that merchants receive payment on time and that consumers get their money back if there is a problem. One alternative would be the arrangement outlined above, whereby the payment intermediary would not pass on the payment to the payee until the consumer had checked that the product corresponded to the contract. Here are our answers to the questions put in the working document: in certain circumstances it would be good if the payment provider had joint responsibility with the merchant regarding delivery of the product. However, generally speaking payment providers do not have any influence over whether the merchant delivers the product. Therefore, a better alternative would be for the payment to remain with the intermediary until the latter receives notification that the product corresponds to the contract or that it has been sent to or received by the consumer. For consumers it is largely irrelevant whether their entitlement to get their money back is based on the product never having arrived or on its not corresponding to what was ordered. Therefore, no distinction should be made between these considerations when it comes to the payment provider s liability either. In the arrangements governing credit grantors liability under the existing credit card system, no distinction is made between these grounds for liability and this has not given rise to any particular problems. Liability should cover all means of payment equally. At the moment, for example, consumers without credit cards are for one reason or another in a worse position than consumers with credit cards who are able to make use of chargeback arrangements. This imbalance puts consumers and payment providers on an unequal footing. The payment provider s liability is most important in the case of distance selling. However, even in other types of transactions payment provider liability may be justified, such as when there is a special contractual relationship between the seller and the payment provider. In such instances it is reasonable for the payment provider to be liable for the transaction too. Under the Finnish Consumer Protection Act, consumers who are entitled to a refund or to some other payment from the seller can also turn to the credit-granting party that financed the transaction, if the financing was based on a contract between the credit grantor and the seller. In this way, the credit grantor too is liable for the transaction when, for example, payment is made in instalments or by credit card. It follows from the contract between the payment provider and the seller that the payment provider has the possibility of affecting the seller s activity. As stated in the working document, the holder of the payment instrument is not generally in a position to prove that there has been an error in the payment transmission. Moreover, payment transmission is a service that the provider sells. The situation is comparable to the

7 7 new rules on goods transactions whereby during the first half-year it is up to the seller to prove that the goods were not flawed, if the consumer makes claims based on a flaw. In the case of payment services too, the burden of proof should lie primarily with the service provider. Consequential damage The working document states that the differences between the Member States regarding compensation for consequential damage may hinder the operation of the single market. The situation would be made clearer if the EU legislation took a stance on compensation for consequential damage. In Finnish law on damages it is for the most part only direct damage that is eligible for compensation, although consequential damage may also be compensated in certain cases. Liability for consequential damage may be based on wilful or gross negligence on the part of the party causing the damage or on a special commitment. For example, under the rules governing faulty goods, the seller is also liable for certain consequential damage, if the fault appears within a stipulated guarantee period. Payment transmission has become extremely important in Western society for the smooth running of daily life, which is why the legal shortcomings in connection with this activity need suitably comprehensive regulation. At least a basic single framework should be laid down for consequential damage liability too. Different means of payment Credit transfers In accordance with the Credit Transfer Directive, transfer charges for cross-border payments may be allocated in three ways, whereas for in-country payments it is the general rule that the costs are met by the sender. With the new regulation on cross-border payments in euros, the national rules on allocation of costs are to be extended to cover euro transfer charges too. This will eliminate the problem of senders not generally paying all the charges for crossborder credit transfers, even though this was the primary alternative under the Credit Transfer Directive. From the consumer point of view it is extremely important that when the prices and the way the costs are allocated for cross-border transfers are brought in line with those for in-country transfers, this should not lead to an undue increase in transfer charges. Payment practices vary from one Member State to another, but the general trend is towards bank transfers replacing other methods of payment, such as cash payment. Bank services are becoming more and more essential for all consumers, which is why availability of reasonably priced basic banking services needs to be safeguarded. In Finland transfer costs for in-country transfers have been quite reasonable, but because of the regulation on crossborder payments in euros the banks have been threatening to increase charges. The Credit Transfer Directive provides for a default execution time for cross-border credit transfers of 5+1 days. The Commission has proposed shortening the period to three days. In Finland too there has been a certain amount of consumer concern about how long crossborder transfers take. As mentioned, the banks value date practice may also needlessly delay the payee s receipt of the payment. Therefore, rules should be issued governing value date practice as well as the time taken for the credit transfer. From the consumer s point of

8 8 view, the best thing would be for the funds to be available to the payee as soon as the transaction has been made to the payee s bank. The "money-back-guarantee" in case of "lost" cross-border credit transfers The working document asks about whether the ceiling on the originator s bank s liability should be raised from to In the same connection it is also noted that the guarantee is not applied in the Member States as it should be. It should be possible for banks, as merchants, to be held liable by the consumer for the systems they use for making credit transfers, which is why the Commission s proposal is welcome. It has also come to the Consumer Ombudsman s attention that banks may charge their customers high fees for checking whether cross-border credit transfers have reached their intended destination. Consumers should not have to pay any charges on account of an error having been made with a product they have bought. The same applies to payment services, so customers should not be charged for sorting out an error. Card payment and other electronic payment instruments Getting the electronic payment recommendation into legislation would be extremely good for consumers, because the recommendation as it stands is not generally complied with. The regulatory arrangement should be sufficiently general to cover the payment instruments of tomorrow, but at the same time the specific characteristics of the different payment instruments need to be taken into account as far as possible. However, taking account of specific characteristics should not lead to the scope of the rules being unclear. Specific characteristics should be taken into account only in the form of unambiguous classifications and only where divergence from the general rules for a particular payment instrument type is justified from the consumer point of view or necessary for practical reasons. The rules in the recommendation regarding the responsibilities and obligations of the contracting parties are not generally known or applied. For the purposes of the development on the single market, the obligations and responsibilities need to be made legally binding. It would be reasonable to require the holder to promptly report the loss or theft of the means of payment or of the means that enable it to be used. It is possible for the use of the means of payment to be blocked, so the holder should no longer bear any liability once he or she has reported the loss or theft. The holder should have only limited liability even before reporting the loss or theft, as in fact stipulated in the recommendation, so that the means of payment really are adequately safe for users. Cardholders should be notified of changes to the terms of use at least one month in advance, so that they have enough time to familiarise themselves with the changes and compare them with the terms of similar products. Under the Finnish Consumer Protection Act, the terms of credit card contracts may not generally speaking be changed unilaterally, since credit contracts occupy a special place in a consumer s finances. On the whole, a merchant s entitlement to make unilateral changes should be limited in all areas. At the very least, where unilateral changes are made, the customer should be sent clear notification

9 9 sufficiently in advance and the changes should not be such that the whole nature of the contract is altered. As already stated, it must be possible for merchants to be held liable for the service they are selling. Therefore, it must be possible for the issuer to be held liable for the non-execution or defective execution of a holder's transaction? In Finland it has been stipulated that issuers must offer the possibility of reporting lost cards 24 hours a day or the issuer is liable for any unauthorised use of the card during such time as the loss could not be reported. There have not been any problems offering this service round the clock. Direct debit is easy and often the cheapest way of making regular payments. Efforts should, therefore, be made to promote the possibility of using direct debit for cross-border payments too. Cheques Cheques are not used in consumer transactions in Finland. Director Erik Mickwitz Jurist Ilona Kurki-Suonio