European Banking Federation response to the European Commission consultation on bank accounts

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1 D0910C European Banking Federation response to the European Commission consultation on bank accounts Launched in 1960, the European Banking Federation is the voice of the European banking sector from the European Union and European Free Trade Association countries. The EBF represents the interests of almost 5000 banks, large and small, wholesale and retail, local and cross-border financial institutions. Together, these banks account for over 80% of the total assets and deposits and some 80% of all bank loans in the EU only. Key Points The EBF agrees that clear, easily accessible and comparable information on fees allows consumers to make an informed choice between payment account offers. EBF members therefore had invested a substantial amount of time and work in developing the draft EBIC Principles on transparency and comparability of personal current account fees. This work would have assisted European consumers in accessing, understanding and comparing information on bank account fees, thus achieving the desired goals. Hence, the EBF very much regrets that this work did not result in an agreement with the European Commission. Since then, some Members States and banking communities have taken a number of initiatives at national level. The EBF would strongly encourage the Commission to give these initiatives a chance to succeed, before further analysis is made. The EBF does not consider further EU legislative proposals at this stage to be appropriate. On switching, the EBF believes that the Common Principles on bank account switching agreed at EBIC level are the right approach. They simplify the bank accounts switching process. Noticeably, where the Common Principles are used, consumers consider the process to be running smoothly. This said, there is always the possibility to improve their efficiency. Indeed, this should be seen as an on-going effort since self-regulatory initiatives are medium-term projects. While acknowledging the potential to improve the efficiency of the process further, the EBF believes this will not be driven by legislation but by an enhanced awareness and communication between the interested stakeholders. Owing to the different conditions and particularities of the national markets in the EU, the EBIC Common Principles should remain voluntary. Therefore, EBF remains committed to promoting bank account switching and with this increasing consumer mobility. EBF members fully understand the objectives of financial inclusion and agree with the EU Commission on the need for consumers to access financial services to enable them to participate fully in the economic and social life of modern society. The recently adopted Recommendation, addressed to the Member States, is the right initiative at EU level. It allows Member States to take appropriate measures in order to facilitate, where necessary, access to bank accounts by taking into account their specific conditions. The EBF welcomes, in general, measures aimed at restoring confidence in the banking sector. However, we encourage the Commission to take an all encompassing view of the results of certain studies quoted in the consultation, as well as to consider all available findings, especially in the context of the current crisis faced by banks. In line with the principles of better regulation, it is expected that EU regulatory policy solutions are built on the strengths of evidence-based tools, particularly in the three areas under consideration, where the specifics in the national markets require more flexibility to be left to national level. EBF a.i.s.b.l 10, rue Montoyer B-1000 Brussels +32 (0) Phone +32 (0) Fax

2 Before responding to the detailed questions hereafter, the EBF would like to state that it also fully subscribes to the general and detailed comments of the EBIC response to the present consultation. ANSWERS TO QUESTIONS Question 1: Do you consider that the information provided by banks on bank account fees is presented to consumers in a sufficiently clear manner and easy to compare between banks? What good practices could you identify? What are the persisting shortcomings? Do you think that amendments to the transparency obligations in the Payment Services Directive (2007/64/EC) could address those shortcomings? The EBF holds the view that the EU legislation currently in force, coupled with national and self-regulatory measures provide a solid ground for improving the transparency and comparability of bank fees. Since these measures are relatively new, the EBF does not consider that, at this stage, further EU legislative proposals would be appropriate, within the framework of the PSD or otherwise. Should, however, further measures be foreseen as proven to be necessary, proportionate and cost-effective, sufficient flexibility should be left to national level. The EBF agrees that clear, easily accessible and comparable information on fees allows consumers to make an informed choice between payment account offers available on the market. Indeed, the developed draft Principles on transparency and comparability of personal current account fees were based on identified good practices and would have effectively assisted European consumers in accessing, understanding and comparing information on bank account fees. The recently published Market study of the current state of play in Member States regarding initiatives in bank fee transparency and comparability in personal current bank accounts of 19 January 2012 (the 2012 Study on bank fees) identified 486 relevant initiatives (an average of 18 per Member State). The study found that for all initiatives [i.e. initiatives on bank fees transparency and comparability analysed in that study, including glossaries, disclosure of lists of fees, comparison tools, financial education, market studies] an increase in their frequency in recent years has been observed 1. Further it is clarified that the period shows a particular development of these initiatives 2. On top of that, the consultants conclude that the analysis show that the effectiveness and efficiency of these tools is improved. The quality of information provided by banks to consumers on bank account fees has been on the rise over the last few years 3. As a first step, the implementation of the information requirements contained in the Directive 2007/64/EC on payment services (PSD) improved the accessibility of information for consumers on payment services. Several other European regulatory measures have Study on bank fees, p.7. 2 Idem, P Study on bank fees, p. 7 and 8. 2 P a g e

3 been transposed into national law and concern not only requirements with regard to current accounts but also credit 4, which affects overdrafts. It must be recalled that the implementation work required from the banking industry in this respect was significant. Some Members States and banking communities are also taking a number of initiatives at national level (be it on a legislative or voluntary basis by banks). In light of the above, the EBF considers that the current PSD provisions, with the options for Member States on periodic disclosure, coupled with national legislative and self-regulatory measures and actions taken by public authorities and non-profit organisations, provide a solid ground for improving the transparency and comparability of bank fees. As many of them are relatively new (1-3 years old), the EBF would strongly encourage allowing those initiatives a chance to succeed, before further analysis considering any new regulation. Therefore, EBF does not consider that further EU legislative proposals at this stage would be appropriate, be it within the framework of the PSD or otherwise. Question 2: Do you think that standardising bank account fee terminology could help to provide more transparent and comparable information on fees? If terminology were to be standardised, should that standardisation cover all fees or only some of them? If only some of them, on the basis of which criteria should they be chosen? Should terminology be standardised at national or EU level? With the caveats expressed below, the EBF would agree that the use of same terms could be feasible (which does not mean easy). The services subject to the use of common terminology should be identified at national level, based on the particularities of the national markets. The use of common terminology should be limited to the most common services identified. In the EBF s view the use of the same terms comfort the most common services should occur at national rather than European and should be limited to the most common services, defined at national level. This said, first and foremost, the use of same terms should not mean standardisation of products. Second, the EBF does not consider that the use of same terms for bank account services would have as groundbreaking benefits for consumers as some stakeholders seem to believe. The EBF wishes to recall that bank accounts and related services were developed to some degree in isolation, within national markets or by different types of banks. This was completely justified given that the products were shaped in such a way as to respond to specific consumer s needs and expectations. Therefore, services subject to the use of same terms should be identified at national level depending on the range offered in the individual Member States. Hence, some degree of flexibility must be ensured. Open, competitive markets are the best drivers for innovation, consumer choice, and a well functioning internal market. In a word, businesses should continue to have the freedom to design products best suited to the consumers diverse needs. It should also be clarified what all fees would mean in practice, particularly when talking about such a specific product as a bank account. For example, in some Member States an overdraft is a standard bank account service, whilst in others it will rather be cheques. What is more consumer expectations within a Member State will vary. Standardising all terminology would mean including very rarely used services or unique services offered only by some individual banks. Even with the use of the same terms for the most common services, banks should be free to portray their identity towards the consumer by using brand names, especially for marketing and advertising materials. The importance of maintaining the ability to use brand names is also beneficial for consumers, who 3 P a g e

4 may be more familiar with these than the new harmonised terms. Each bank must be allowed to present their offer distinctly, so long as it is clear to the consumer what service is in question. Question 3: Do you think that glossaries of terms and standardised lists of bank fees would facilitate comparability? If so, what format and content should this information have? What body/forum would you consider appropriate to develop such a glossary/standardised list of fees? Glossaries of the main fee related vocabulary could be developed nationally, possibly in cooperation with other stakeholders, such as consumer organisations. They are helpful in improving the consumers understanding of the services related to a bank account. Nonetheless, in order to fulfill this purpose, they need to be concise. Their use should not impose any form of product standardisation. A continued freedom to develop and offer innovative products in innovative ways to customers is essential. A legal disclaimer will not be sufficient in all Member States. Consumers equipped with a clearer understanding of terms are likely to compare the various offers more effectively. This said, glossaries need to be concise to be useful. Thus, the EBF considers that any glossary should cover a limited number of the most typical services used by customers. The existing glossaries should be duly taken into account in order to act efficiently and not duplicate existing and well functioning solutions. In this context, the EBF would like to stress that in many Member States, the fact that glossaries are developed not only for current accounts should not be assessed negatively 5. Retail banks run on a universal consumer-bank style relationship whereby the bank account is ideally a gateway to other services the consumer may require. What is more, glossaries should be developed nationally, possibly in cooperation with other stakeholders, such as consumer organisations, depending on the general setting in each country. The best practice that had already worked in a given Member State should always be exploited. Furthermore, the entities responsible for making glossaries available, as well as the method of making them available, should be determined at national level, depending on the legal context and consumer expectations and habits. For example, in some Member States, under the existing legislation, the court is under the obligation to interpret contracts with consumers, taking into account all the elements, including glossaries, even if these are not directly linked to the contract 6. The problem cannot be solved in all Member States with a disclaimer stating that the proposed definitions are not contractually binding and are without prejudice to any legal definition. If the EU legislation on glossaries is put forward, it should make clear that glossaries are not meant to create any contractual obligation and that it must be possible for account providers to declare such a statement effectively by way of a disclaimer. 5 P. 3 of the commented Commission consultation document 6 By way of an example, under a Civil Code of one of the Member States (i.e. Germany), which deals with the issue of interpretation of a declaration of intent, when interpreting a declaration of intent the true intention shall be explored and not the literal meaning of the expression. In light of this, a glossary explaining the meaning of certain terms used in the contract will be seen as an interpretation of the contract, and the bank may be held liable for the content of the glossary. A disclaimer stating that the glossary is legally not binding, would not always solve this problem, as in case of doubts about the interpretation of general terms and conditions, those doubts shall be interpreted to the detriment of the provider (in other words, in favour of the consumer). Any contradiction between the contract form and the glossary would be interpreted at the expense of the credit institution. Further, a disclaimer would not solve the problem because it would be treated as a form of circumvention, which is prohibited. 4 P a g e

5 Finally, bank account providers should not be obliged to provide glossaries to the consumer. As mentioned above, glossaries are mainly educational. Hence, it is enough to inform consumers that the additional information is easily available. This enables credit institutions to avoid unnecessary and disproportionate costs, while allowing, at the same time, glossaries to be easily accessed by interested consumers. Question 4: In order to further increase bank account fee transparency and comparability, which of the following tools should be considered: i) comparison websites managed by public authorities ii) standardised cost simulations to be provided by banks iii) standardised representative examples to be provided by banks iv) surveys by consumer organisations/financial ombudsman v) any other tools you consider relevant? Should any of them be made compulsory? What would be the likely costs? The EBF holds the view that comparison websites could indeed be run by public authorities, consumer organisations or other stakeholders. It is important however, that appropriate mechanisms are in place to monitor the quality of the comparison service. No additional reporting obligations should be imposed on banks. The EBF recalls that standardised cost simulations imply quite high costs with the risk that other important elements are not taken into account. It should be born in mind that examples could be representative for some consumers, but not for others. The EBF appreciates that consumer organisations are carrying out surveys to help consumers obtain general information easily. European retail banks are focused on providing quality service and are not purely orientated towards price-based competition. There are many more elements of service that may be important to the consumer and may add to their preferences, such as a close branch network, distribution structures, online banking services, quality of the service, other value added services, etc. Re i) Comparison websites The EBF recognises potential benefits of such websites and it believes that they could be further explored. Those could be run by public authorities, consumer organisations or other stakeholders, and appropriate mechanisms should be in place to monitor the quality of the comparison service provided. A recent publication 7 notes, in relation to the increased use of comparison websites in the EU insurance market, that there are significant differences in the types of comparison websites used and that significant drawbacks have also been identified with regard to over-reliance by consumers on the price of products, rather than understanding the underlying terms and conditions. Furthermore, the EBF would like to mention that although comparison websites could be useful for consumers, they should not be considered as a final oracle in assessing the quality of the offer of an individual retail bank. The latter promote competition based purely on price, which in the EBF view is not the right approach. Therefore, its opinion is that such websites should be accompanied by a clear explanation for all potential users that the ranking is based purely on price and does not take into account any other potential benefits, such as quality of service, reliability of the provider, etc. These aspects are at least as important to consumers as the price. Re ii) Standardised cost simulations provided by banks 7 EIOPA s Initial Overview of Key Consumer Trends in the EU, 1 February 2012, page 3 5 P a g e

6 It is not very clear what is meant by cost simulations. If this is about web calculators, such tools are already made available to consumers by some providers, on a voluntary basis and the EBF believes that they should remain voluntary. There is also the fact that, as argued by the EBF in the context of the 2009 study on bank fees, there is no such thing as a average/typical/standard consumer. On the contrary, there are as many customer behavioural patterns as the customers themselves. Besides, cost simulations, which take into account the client s banking habits for estimating the likely costs of a personal current account, are useful only in the situation where more complex bank account fees structures are used, i.e. where fees for current personal bank account services are transaction-based. Thus, the utility of cost simulations, based on profiles, appears questionable in a number of circumstances and the estimated high cost, in countries where such tools do not exist, raise important concerns. In countries where the personal current account offering is typically package-based (all-inclusive flat-fee packages), standardised cost simulations will not have much added value for consumers. In this case, the bank account fee to be paid is exactly known by the consumer, or viewable on the (exante) product offering page on the bank s website, and remains the same irrespective of the actual payment behaviour. Re iii) Representative examples The EBF would assume that the idea behind the representative example is to provide indicative estimates of the costs of holding a bank account based on an account usage profile that tries to reflect typical client behaviour. The EBF would like to restate that the concept of an average/typical/standard consumer is an artificial one. While the example would be representative for some consumers, it would not be for others. Indeed, the attempt to build profiles on an EU level was made by the authors of the 2009 study. Subsequently, it was clearly demonstrated that the 2009 project was not feasible and the profiles were not reliable. Re iv) Survey tools Consumer organisations are always free to carry out surveys and other exercises to help consumers find the best deal. One point of concern, however, is the methodology of such surveys and the way in which the results are subsequently used. Surveys carried out by consumer organisations should, in the EBF opinion, lead only to general information provided for consumers, and not be used as a basis for policy actions, such as legislation. Legislation always requires fully-fledged market-based studies conducted on reliable and scientific methodology that can be audited, not to mention a full impact assessment. Question 5: What level of detail should the information on actual fees paid have and how frequently should it be provided to the account holder? Would having comparable information on the fees actually paid encourage consumer mobility, including on a cross-border basis? As observed above, the EBF considers that the current provisions of the PSD, with the options for Member States on periodic disclosure, coupled with national legislative and self-regulatory measures and actions, taken by public authorities and non-profit organisations, provide a solid ground for improving the transparency and comparability of bank fees. Cross-borders consumer mobility is mostly affected by language barriers, cultural differences and fiscal barriers Following the entry into force of the PSD, all banks now fulfill the requirement to provide exante and ex-post information. The PSD introduced an obligation on all payment services providers (PSPs) to provide the user (i.e. the consumer) with the information on the charges for payment transactions before and after the execution of the payment, including the information on 6 P a g e

7 actual fees paid and the frequency of the information provided. There is also a Member States option to require periodic provision of information about the charges 8. Several other European regulatory measures have been transposed into national law and concern not only requirements with regard to current accounts but also credit 9 which affects overdrafts. As already observed in the response provided to Question 1, this legislation and also other relevant legislative acts, adopted recently, improve the transparency of bank fees. So there is already a common European framework, which ensures that consumers are informed on the fees paid. On these grounds there is no need for any further obligations to be imposed on credit institutions. As a general comment, the EBF would like to mention that during the last few years, it has observed serious inconsistencies in the approach of policy makers towards the issue of the level of detail of information on fees. The EBF would encourage the policy makers to precede their decisions concerning the appropriate level of consumer information detail with a careful impact assessment of all costs and benefits. The EBF in general disagrees with the policy makers focus on the high number of services. Back in 2009 the EBIC argued that Measuring the relative simplicity of tariffs by the number of tariff components is not longsighted enough in our view 10. The level of detail of the ex-post information on fees should simply depend on how the fees are charged (if the consumer paid one flat fee for all services received logically the level of detail will be lower than if he/she paid for each and every service separately). Thus, in the EBF s view the discussion on the level of detail belongs rather to the consideration of ex-ante information. Any information of fees actually paid must be limited to the fees levied by the account-keeping bank only. This is due to the difficulties for banks to provide such information on amounts charged by another bank. For example, in the case in which a cash withdrawal is made by a European consumer in the US, this does not mean that the consumer will not be informed of such fees; the difficulty is merely to include this in a bank s own summary of fees charged. Finally, it must be remembered that ex-post information s comparability will always suffer an obvious limitation. This is because while elements such as frequency or graphic layout of the expost information could be to some extent harmonised (but still only at national level), the content will always be fully dictated by each individual consumer s level of consumption. Consumer mobility reflects primarily the level of client satisfaction. Cross-border consumer mobility is mostly affected by language barriers, cultural differences, fiscal barriers, variations in Member States legal systems. 11 Question 6: What other measures/instruments should be considered in order to improve the transparency and comparability of bank fees? Please describe and indicate at which level (national or EU) you consider they should be taken. The EBF is of the opinion that the EU legislation currently in force, coupled with national and self-regulatory measures provide a solid ground for improving the transparency and comparability of bank fees. Since these measures are relatively new, the EBF does not consider that, further EU legislative proposals, be it amending the PSD or otherwise, as appropriate at this stage. 8 E.g. Articles 36-37, and 47 of the PSD. 9 Directive 2008/48/EC on consumer credit (CCD). 10 c.f. EBIC Comments On The Study On Data Collection For The Prices Of Current Accounts ( ) 11 As reported by the Consultation Paper, one of the main reasons given by consumers [21%] for not purchasing financial products (such as current accounts) in another EU country was the lack of clear information. However, it is worth mentioning other reasons nonetheless relevant for delivering an enabling environment such as not knowing one s rights in case of problems (18%); language barrier (17%), worries about fraud or crime (15%), less consumer protection in other EU Member States (5%). 7 P a g e

8 Should further measures be foreseen because proven to be necessary, proportionate, and cost-effective, sufficient flexibility should be left to national level. In addition to the comments provided to the previous questions, the EBF would like to stress that there is already a large number of initiatives and legislation on transparency and comparability of bank fees, all of them relatively new. The 2012 study on bank fees found that for all initiatives an increase in their frequency in recent years has been observed 12, the period shows a particular development of these initiatives 13, and the effectiveness and efficiency of these tools is improved. The EBF would therefore strongly recommend not proposing any further initiatives until the ones already in place are fully assessed. If after some time it is still considered that further initiatives are necessary, the EBF would encourage the Commission to carefully analyse what is missing and where, and design measures targeting specifically those deficiencies, rather than regulate across the board. If any at all, the EBF would have a strong preference for solutions and flexibility at national level. Based on the analysis of the EBIC inventory of the existing measures on bank account fees transparency and comparability 14, it is clear that there is a wide variety of situations in Member States. Those differences on the how and what of the solutions in the different banking communities is the best testimony to the differences in the national circumstances, which can be explained by important differences in: (i) the structure of the banking industry which in turn results from factors driving the economic development strategy of different countries such as: centralised versus decentralised governance; density of population, etc; (ii) behavioural patterns which have developed in accordance with consumer preferences over time; (iii) choices made by Member States in the transposition of one or other European directive; and (iv) individual legal initiatives taken by different Member States. In addition, it is worth recognising that while in some communities the issue concerning transparency and comparability of bank fees is not considered to be problematic, in others perhaps there is more demand for relevant initiatives. The EBF had welcomed the fact that a national approach addressing the retail banking issues was taken by the Commission representatives during the 2010 European Consumer Summit. Not least, in the Commission s letter of 20 October 2010, in which the Commission explains its expectations of the EBIC self-regulation, where it is stated that the solutions should be developed and implemented at national level. The EBF strongly recommends maintaining this line of thinking since during the work which followed this invitation it became even more apparent that finding a common denominator at EU level would not be possible. The exercise is already challenging when dealt with at national. On this occasion, the EBF would like to stress that consumer and other non-profit organisations also have an important role to play in parallel to the efforts made by the banking industry, and actions taken by legislators and enforcers. The 2012 study on bank fees finds that they [consumer organisations] appear well informed about the personal current account markets, consumer behaviour. Thus, while banks fully appreciate their responsibilities, the tasks of consumer organisations and public authorities should not be neglected. The EBF would also agree with the suggestion of the 2012 study consultant to keep up the studies on consumer behaviour 15. Finally, the EBF would also like to stress the need for financial education and general financial advice to consumers. This element is an essential part of the grand scheme of improving transparency and comparability for consumers. 12 P.7 of the 2012 study on bank fees 13 Idem, P which were presented to the Commission on P a g e

9 Question 7: Do banks in the Member State where you have a bank account offer a switching service? If yes, is it in line with the Common Principles on bank account switching described above? Is information on the conditions of switching presented in a consumer friendly manner? The approach outlined in the EBIC Common Principles, in its substance, is the right approach which simplifies the bank accounts switching process. Progress has already been made in some areas and in others, where concerns remain, progress is still ongoing. In January 2008, the European Commission invited EBIC to develop principles for banks conduct in the case of consumers wishing to switch personal current accounts. The EBIC responded to this request through the creation of a special Task Force, consisting of national experts from the banking industry. The Common Principles were formally adopted by EBIC, acknowledged by the European Commission and effectively implemented on 1 November Since then, EBIC has regularly informed the European Commission and European consumer associations on the operation of the Common Principles. In 2010, EBIC published a Report on the Implementation of the Common Principles. Furthermore, the Consumer Market Study on consumers experience with bank account switching in light of the Common Principles was recently published. The Study states that the approach outlined in the Common Principles is correct and one which simplifies the bank accounts switching process. Importantly, where the Common Principles are used, consumers consider the process to be running smoothly and therefore they remove all obstacles. There is always the possibility of improving the Common Principles efficiency, and the process should be seen as an on-going effort since self-regulatory initiatives are medium- term projects. In some areas, progress has already been made and in others, where concerns remain, progress is still on-going. The Common Principles aim to ensure that bank account switching is not onerous to consumers and that their mobility shall not be constrained by unnecessary delay or lack of support from their banks. The Common Principles further seek to increase the awareness of consumers by providing clear information on the necessary tasks and steps involved in switching. In addition, they define the respective roles and responsibilities of banks and consumers thereby reducing the obstacles faced when switching bank accounts. Question 8: If a switching service in line with the Common Principles is offered by banks in the Member State where you have a bank account, does it remove all obstacles to bank account switching? If not, what obstacles remain? Provide examples of good practices and persisting obstacles encountered. By providing clear information on the necessary tasks and steps of the switching, the EBIC Common Principles further seek to increase the awareness of consumers. By laying out the respective roles and responsibilities of banks and consumers they reduce the obstacles with respect to bank account switching and facilitate effective switching solutions for consumers. However, making the switching service easier does not necessarily translate into significant customer mobility. The EBF recognises the role of bank account switching as part of the competitive environment in the European retail banking markets. This said, the assessment of mobility rates in the banking sector is a delicate exercise. Banks and customers build a long-term relationship which often results in a low mobility rate given the mutual satisfaction of both parties 16. What is more, the new bank 16 See for example: Commission Staff Working Document, SEC (2007) 106, 31 January 2007: it is likely that a large proportion of banking customers probably the majority in most Member States would describe themselves as satisfied with their current bank. ; additionally see Expert Group on Customer Mobility in Relation to Bank Accounts where studies concerning customer satisfaction are illustrated, allocating a customer satisfaction up to 94%.. 9 P a g e

10 often becomes an additional partner rather a replacement of the usual one. Indeed, developments in recent years have led to an increase in multi-banking. Therefore, making the switching service easier does not necessarily translate into significant customer mobility. It can simply be owing to consumers banking habits and their preference for holding multiple bank accounts This said, the EBF would argue, that it is owing to the longstanding relationships between consumers and their bank, based on, as well as determined by, consumers trust in, and satisfaction with their bank. The EBF also noted shortcomings 17 in the methodology published by the European Commission and used in conducting the mystery shopping exercise. It reports that 8 out of 10 mystery shoppers faced difficulties when switching bank accounts. Among these: i) a very low number of respondents for large countries; ii) questions asked which go further than the Common Principles; and iii) contradictions between the results of the Consumer Market Study and those of other studies, including a recent Eurobarometer study (February 2012). It is worth acknowledging that the latter study covers a much larger sample of the European population than the former and is expected therefore to provide more reliable conclusions. Its main findings are as follows: Among European current account holders, 85% have not switched or tried to switch as they do not need to, while 7% say they switched and it was easy and [only] 3% say they have not switched or tried to switch as it is too difficult or too much hassle. Just 1% switched and found it difficult, with another 1% saying they tried to switch but gave up Question 9: Should the Common Principles remain voluntary? What do you consider are the advantages or disadvantages of making them compulsory at EU level? What would be the likely costs? The efficiency of the process could still be improved upon by an enhanced awareness and communication between the interested stakeholders, rather than imposed legislation. Owing to the different conditions and particularities of the national markets in the EU, the EBF Common Principles should remain voluntary. There is always the possibility to improve the efficiency of the Common Principles. This should be seen as a continuous effort since self-regulatory initiatives are medium-term projects. In some areas, progress has already been made and in others, where concerns remain, progress is still on-going. This said, the principle undeniably facilitates effective switching solutions for consumers. The efficiency of the process could still be improved upon by an enhanced awareness and communication between the interested stakeholders, rather than imposed legislation. Due to the different conditions and characteristics of the national markets in the EU, the EBIC Common Principles should remain voluntary. The EBF remains committed to promoting bank account switching. A decision to impose unnecessary costs on credit institutions, particularly in the current situation of the banking industry, should be carefully evaluated. In the daily business of banks, the importance of consumer mobility has long been recognised. Since current account switching has always been a national issue, it has been approached from different angles in the various Member States. As a result, in a number of Member States, current account switching is facilitated by a wide range of independent switching arrangements grown out of banking practice. Against the background of diverse national switching arrangements, the European banking industry has been careful to ensure that the present set of Common Principles shall be compatible with the existing switching services. Furthermore, it has taken into account the different legal and technical constraints in individual Member States. Although there are countries that go above and beyond the level of service specified in the Common Principles, caution should be exercised regarding compulsory Principles. The marked differences in banking and payments 17 EBIC preliminary observations on on the Consumer Market Study on consumers experiences with bank account switching 10 P a g e

11 systems in different Member States may make it difficult to implement compulsory switching Principles at EU level. Question 10: Should switching principles/measures also cover cross-border switching of bank accounts? The Common Principles should not be extended to cover cross-border switching of bank accounts. It is felt that because of the nature of account switching, it should only apply at national level. This is particularly so given the absence of any data suggesting that there is a latent need for cross-border switching. Importantly, implementing a set of common principles for cross-border switching in the future would require significant cost-benefit evidence in order to be justified. Question 11: According to you, how important is the risk of having receipts, bills and payments misdirected when switching bank accounts? What measures could be considered to make the switching process safer? The EBIC Common Principles imply that the consumer informs ordering parties of incoming credit transfers (employer, allowance institutions, etc.). Any problems that may occur on account of misdirected receipts, bills, and payments when switching bank accounts, may be owing to the errors committed by the consumer s counterparties and the pace of change in the accounting system of employers or service providers. The EBF believes that the principles facilitate effective and safe switching solutions for consumers. However, the EBF recognises that sharpened awareness and better communication between the parties (banks, customers and providers) could improve both the efficiency of the process and the perception of customers about switching. Question 12: What obstacles, if any, are still faced by account providers that are smaller or established in another Member State to expand their client base or to enter new markets? Are these connected to problems with switching facilities? It seems that the problems for the smaller service providers in their expansion into other markets include for example: on-line account opening procedures; the high costs of building a brand; trust and a branch network; and the necessity of translating documentation for the consumers. These concerns are much wider than those related to bank account switching. Question 13: What other measures should be considered to improve bank account switching? Please describe. The Common Principles have been implemented effectively as from November For the first time, they set out common standards for the role of banks in facilitating domestic current account switching, thereby creating a common benchmark for supporting consumers in all Member States. As the Consumer Market Study on consumers experiences with bank account switching (the Consumer Market Study) correctly points out, the approach outlined in the Common Principles is the right approach in terms of simplifying the switching process. Noticeably, where the Common Principles are used, consumers consider the process to be running smoothly GfK Final Report Consumer Market Study on the consumers experiences with bank account switching with reference to the Common Principles on Bank Account Switching, p P a g e

12 In some areas progress is still on-going and further work is being conducted. Therefore, the EBF considers that no further regulatory measures are necessary or have to be considered to improve bank account switching. Question 14: Do you dispose of information on consumers encountering difficulties in access to a basic bank account? What types of obstacles are signaled by the consumers preventing them from having access to a basic bank account? The EBF fully understands the objectives of financial inclusion and agrees with the European Commission on the need for consumers to access financial services to and participate wholly in the economic and social life of modern society to today. Social and cultural factors related to financial exclusion cannot be easily removed through legislation. Therefore, national authorities, in cooperation with the relevant stakeholders, including banks, are best placed, in respect of the principle of subsidiarity, to take adequate measures adapted to their local situations. In the EBF s view, financial exclusion forms part of a much wider social exclusion. However, it is appropriate to differentiate between consumers unable to obtain access to a bank account, and those who do not wish to have one. The EBF acknowledges 19 that the access to a basic payment account is seen as an essential condition to participation in economic and social life and therefore welcomes the adoption of a soft-regulation measure, notably the European Commission Recommendation. National authorities, in cooperation with the relevant stakeholders, including banks, are best placed, in respect of the principle of subsidiarity, to take adequate measures adapted to their local specific situations. In addition, it is appropriate to differentiate between consumers unable to obtain access to a bank account, and those who do not wish to have one, leading to self-exclusion. In such cases, not having a bank account should not be considered as social exclusion. In some Member States, for instance, pensioners represent one of the biggest unbanked groups because they prefer not to use such kind of services. As a result, it is necessary to distinguish, within the total number of unbanked EU consumers considered by the Commission, those who are excluding themselves because they prefer for whatever reason not to have a bank account from those who cannot access basic banking services. Any national initiative can only be targeted at the latter group. The voluntary exclusion, on the other hand, should be targeted through measures such as financial education and the more general reform encouraging the use of a bank account for daily transactions (e.g. under some national laws an employee s salary must be paid by a bank transfer or in cash). Question 15: Are you aware of any measures taken by banks or other institutions in the Member State where you have your residence to facilitate access to a basic payment account? Have these initiatives been successfully enforced? It is first important to acknowledge that industry initiatives meet the needs of the different market conditions across Europe by taking into account the different rates of market penetration and levels of financial inclusion of the population. In addition, many Member States have already adopted measures to increase the percentage of consumers with bank accounts, or are currently doing so. Nonetheless, the EBF believes that social and cultural factors related to financial exclusion cannot be easily removed through legislation. Banking penetration levels in Member States are very different, and range from 49% to 100% 20, and there is no proven correlation between the existence 19 European Banking Industry Committee observations on the Recommendation on access to a basic payment account and the IMCO Working Document Study on the costs and benefits of policy actions in the field of ensuring access to a basic bank account. 12 P a g e

13 of a legal obligation to provide access to a bank account and the number of bank account holders. In some countries, there is no regulation in place but the number of unbanked citizens is very low because of the highly competitive environment in the banking sector. Question 16: Do these measures also facilitate access to a basic payment account for nonresidents? In general, it is important to make a distinction between the social (access to BPA) and internal market (cross-border access for EU residents) policy approaches. Accounts to unbanked customers should be opened and maintained in conformity with the European Union s anti-money laundering legislation. As an observation to the currently adopted European Commission Recommendation and any future initiative in this regard, the EBF believes it is important to make a distinction between the social (access to BPA) and internal market (cross-border access for EU residents) policy approaches. In the EBF s view if the very purpose is to combat financial exclusion, the right to a basic bank account should be granted only to consumers, resident in their respective country. The EBF recognises that one of the principal advantages of the single market for EU citizens is the right to move throughout and reside anywhere within the European Union. It should be noted that, in general, citizens may live in any State for up to three months, without any formalities other than the possession of a valid identity card or passport. In fact, residence for periods of more than three months can be granted to workers/the self-employed, and their families, and students including for the purposes of vocational training. The IMCO Opinion on access to basic banking services states that every consumer legally resident in the European Union should be entitled to open and to keep a basic payment account in the respective Member State. It further recognises that this right should also apply to those who need a bank account in more than one Member State owing to vital links with each of those Member States. The EBF notes that, as a general rule, accounts to unbanked customers should be opened in conformity with the European Union s anti-money laundering legislation. More importantly, the payment service provider should be able to terminate the basic payment account contract in exceptional circumstances under the relevant anti-money laundering legislation. Additional difficulties may arise in the case of cross-border opening of accounts. For instance, it should be noted that, for the purposes of the anti-money laundering due diligence requirements, and for payment services providers in specific Member States, the verification of the status of legally resident in the European Union, might well be challenging. As regards transactions in euro, it is also appropriate to note that within the Single Euro Payments Area (SEPA) (EU/EEA countries), consumers, companies and other economic actors are able to make and receive payments in euro with the same basic conditions, rights and obligations, regardless of their location. By the end of the SEPA migration, all euro payments will be treated as domestic payments and the current differentiation between national and cross-border payments will cease. In practical terms, once access to a BPA has been granted at national level, consumers will also be able to operate the account easily cross-border which should, in turn, limit the interest of having multiple account in different Member States. Question 17: If consumers still have difficulties in opening a bank account, what are the reasons for that? Please refer to the answers provided to Questions 14 and 16. Question 18: If more needs to be done what additional measures should be envisaged? Should the problem be tackled at national or EU level? 13 P a g e

14 In the EBF s view there is no need to adopt additional measures. The form and content of any future EU initiative to combat social exclusion, through the promotion of financial inclusion, should be taken in compliance with the principles of subsidiarity and proportionality. What is more, it should allow Member States to take into account their local situations and ensure due care for preserving the diversity of the banking sector. The EBF suggests that the EU should encourage Member States to follow through its Recommendation. National authorities, in cooperation with the relevant stakeholders, including banks, are best placed, in respect of the principle of subsidiarity, to take adequate measures adapted to their local and specific situations. Contact Person: Sébastien de Brouwer (S.deBrouwer@ebf-fbe.eu); Tatyana Ferragallo (T.Ferragallo@ebf-fbe.eu). Related documents: European Commission Consultation on Bank Accounts. * * * 14 P a g e

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