Cross-border credit transfers within the EU

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1 Chamber of Labour for Vienna 23b/2000 Consumer Policy Department Prinz-Eugen-Strasse A-1041 Vienna, Austria Phone: /2721 ext. Fax: /2693 ext. Internet: Cross-border credit transfers within the EU Summary and assessment by the Consumer Policy Department of the Chamber of Labour for Vienna Foreign credit transfers still too expensive, legal regulations not being obeyed In the past, consumers encountered a number of problems when transferring small amounts of money to other EU Member States. High costs, billing of commission fees and charges on both ends, and the slow execution of transfers were the major barriers in this area to the completion of the Internal Market. Directive 97/5/EC of 27 January 1997 on cross-border credit transfers was intended to eliminate these barriers and set down standard rules for transparent and efficient cross-border payments. This directive was transposed into national law in Austria with the Credit Transfer Act (Ueberweisungsgesetz) of 13 August The goal of this study was to determine whether the legal framework has resulted in improvements in foreign credit transfers to other EU Member States and to pinpoint areas were shortcomings still exist. The Chamber of Labour for Vienna commissioned the Association for Consumer Information (Verein für Konsumenteninformation) to execute a total of 230 foreign transfers. Twenty-five transfers of EUR each were executed to banks in each of five EU Member States (Germany, Finland, Belgium, Spain and Italy) and 21 return transfers were then made by banks in each these five EU Member States.

2 The results: 1. Double levying of charges Although prohibited, charges were levied twice in some cases for transfers where the originator explicitly agreed to bear all charges under the conditions of the transfer order. + Despite explicit instructions that the originator would bear all charges, charges were deducted at the beneficiary s bank in 14.4 percent of the cases (18 of 125). In two of these cases, the transfer order was incorrectly filled out by the originator s bank despite explicit instructions from him. A second deduction of charges occurred with striking frequency (11 times) with banks in Spain despite instructions that the originator would bear all charges. Charges were also levied again at the beneficiary s bank in four of the transfers to Italy,. The charges deducted at the beneficiary s bank ranged from EUR 4.13 /ATS to EUR /ATS With the transfers from abroad to Austria, charges were deducted from the beneficiary s account in 21.6 percent of the transfers (19 of 88) although the originator had instructed that he would cover all charges. Thirteen of the transfers were from Spain, 6 from Italy. Charges were deducted again at the receiving end at least once at each of the beneficiary s banks except Bank Austria. This occurred five times at Erste Bank, four at Raiffeisenbank Niederösterreich-Wien, three at Creditanstalt and PSK, twice at BAWAG and once at Volksbank. The charges debited by the beneficiary s bank ranged from EUR 3/ATS to EUR 11.09/ATS This double deduction of charges by the originator s bank and the beneficiary s bank contrary to the instructions of the originator is not only in breach of the originator s order, it violates the provisions of the Credit Transfer Act (Ueberweisungsgesetz) and the Directive on crossborder credit transfers which stipulate that cross-border credit transfers be executed in accordance with the originator s instructions. A double deduction of charges contrary to the originator s order can very quickly create difficulties for the latter with the other party to the contract. If the amount billed is not credited in full to the beneficiary, the originator s debt is not settled in full and he finds himself in arrears with part of the payment. 2. Transfer charges still too high The charges levied for transfers of small credit amounts, such as the EUR 40/ATS in our case, continue to be excessively high and to pose a barrier to the free movement of goods cross border. The total charges billed for credit transfers from Austria to another country ranged from EUR 5.81/ATS 80 to EUR 28.34/ATS 390. The average cost of a credit transfer was EUR 11.3/ATS (i.e. the charges levied amounted to percent of the specified transfer amount). 2

3 The cheapest foreign credit transfer was from a PSK account to an account at the German Postal Bank and cost the originator EUR 5.81/ATS 80. The most expensive were two credit transfers from Raiffeisenbank Niederösterreich-Wien to Italy and Spain. The credit transfers cost the originator EUR 28.34/ATS 390 (i.e. the charges levied amounted to percent of the amount specified for transfer). Average costs for credit transfers to Belgium were the most reasonable at EUR 9.96 /ATS ; the most expensive average costs for credit transfers were those to Spain at EUR 13.58/ATS In credit transfers executed by Bank Austria, Creditanstalt, P.S.K. (exception: credit transfer to the German Postal Bank amounted to only EUR 5.81/ATS 80 instead of the usual EUR 9.45/ATS 130) and Österreichische Volksbanken AG, the actual charges borne by the originator were identical with the posted standard charges. In two credit transfers to Spain and Italy, Raiffeisenlandesbank NÖ-Wien levied EUR /ATS 250 more in charges instead of its standard EUR /ATS 140. For three credit transfers, Erste Bank also charged EUR 13 /ATS more than its usual EUR 10/ATS BAWAG also deviated from its usual charges for European credit transfers. Only 7 of a total of 15 credit transfers were executed at the posted standard charges of EUR 9/ATS In 4 cases the credit transfer cost only EUR 8/ATS In two others, charges of EUR 17/ATS were levied, and in two further cases all charges were levied against the beneficiary contrary to the instructions in the order. The charges incurred for credit transfers from abroad to Austria ranged from EUR 7.3/ATS (at Bank 24, a German bank) to EUR 25.95/ATS (at Leonia Bank, a Finnish bank). The average charges for credit transfers back to Austria amounted to EUR /ATS (i.e. the charges levied amounted to percent of the specified transfer amount), which meant they were EUR 3.35 /ATS higher than the average cost of credit transfers from Austria. Charges levied for credit transfers (charges for originator and beneficiary) Credit transfers from Austria Credit transfers from abroad to a foreign country to Austria Transfers in % Charges Transfers in % Charges for 28 % Up to EUR 10 for 27 % to EUR 10 for 56 % From EUR 10 to EUR 15 for 31 % from EUR 10 to EUR 15 for 11.2 % From EUR 15 to EUR 20 for 27 % from EUR 15 to EUR 20 for 1.6 % From EUR 20 to EUR 25 for 4 % from EUR 20 to EUR 25 for 3.2 % Over 25 for 11 % over EUR 25 3

4 Average total charges (charges for originator and beneficiary) per country compared with overall average figure: Comparison by Receiving Country ? 13.58? ? ? 9.96? 10.04? Germany Italy Belgium Spain Finland Average Germany Italy Belgium Spain Finland Average Average charges Average total charges (charges for originator and beneficiary) at the individual originator s banks compared with the overall average figure: Comparison of Originator s Banks 14 12,59 13,06 13, ,92 10,30 9,88 10,81 11,30 Bank Austria Creditanstalt Raiffeisen PSK Bawag Erste Volksbank Average 2 0 Bank Austria Creditanstalt Raiffeisen PSK Bawag Erste Volksbank Average Average charges 8,92 10,3 12,59 9,88 13,06 13,06 10,81 11,3 4

5 Average total charges (charges for originator and beneficiary) by country compared with the overall average figures: Comparison by Originator s Country 25,00 20,00 18,84 19,67 Deutschland Italien 15,00 13,57 14,65 Belgien 10,00 11,06 10,13 11,30 Spanien Finnland Overall charges Average phase 1 5,00 - Deutschland Italien Belgien Spanien Finnland Overall charges Average Phase 1 Average charges 11,06 13,57 10,13 18,84 19,67 14,65 11,30 Average total charges (charges for originator and beneficiary) levied by foreign banks of the originator compared with the overall average Comparison of originator's banks abroad 30,00 25,00 20,00 15,00 10,00 5,00 - Deutschland 15,37 7,30 10,51 Italien 15,99 14,14 Belgien 10,57 8,85 7,51 14,02 22,71 Spanien 18,53 15,29 12,31 Finnland 25,95 20,76 14,65 Deutsche Postbank AG Deutsche Bank 24 Ag Dresdner Bank Sanpaolo IMI COMIT Cariplo Banque Bruxelles Lambert KBC Generale de Banque BBV Banco Bilbao Vizcaya La Caixa Banco Santander Merita bank plc Leonia bank plc Keski Uudenmaan osuuspankki Gesamtdurchschnitt Deutsche Postbank AG Deutsche Bank 24 Ag Dresdner Bank Sanpaolo IMI COMIT Cariplo Banque Bruxelles Lambert KBC Generale de Banque BBV Banco Bilbao Vizcaya La Caixa Banco Santander Merita bank plc Leonia bank plc Keski Uudenmaan osuuspankki Gesamtdurchschnitt 5

6 3. Time taken for credit transfer On a positive note, 94.3 percent of all credit transfers from Austria to foreign countries arrived at the beneficiary s institution within five business days as stipulated in the Credit Transfer Act and in the Directive on cross-border credit transfers. Only seven of the credit transfers took longer than five business days to arrive at the beneficiary s institution. Of these seven, the entry and crediting of the sum to the beneficiary s account was backdated for four transfers at the beneficiary s banks in Italy. For 13 of the credit transfers, it took longer than one day for the beneficiary s bank to credit the transfer amount to the beneficiary s account (2 days in 9 cases; 3 days in 4 cases). On average, credit transfers to Germany and Belgium took less than 3 days while transfers to Spain and Finland took three to four days and to Italy, four days. On average, a credit transfer took 3.17 days to arrive at the beneficiary s institution and 3.34 days to be credited to the beneficiary s account. The situation was less positive for credit transfers from EU Member States to Austria. Only 85 percent of the credit transfers reached the beneficiary s institution within five banking business days. Fifteen percent of the credit transfers failed to reach the beneficiary s institution within five days after the credit transfer order was placed. This is in breach of the EU Directive on cross-border credit transfers which stipulates that credit transfers take no more than five banking business days. There were also problems with the value date. Nearly a third of the transfers (33) were not credited by the beneficiary s bank to the beneficiary s account on the next day but instead two days (in 19 cases), three days (in 12 cases) and 4 days (in 2 cases) after arrival at the bank. On average, a credit transfer took 3.53 days to arrive at the beneficiary s institution and 4.98 days to be credited to the beneficiary s account. 4. Information on foreign credit transfers The information provided along with the credit transfer was usually insufficient and not in compliance with legal requirements. Under the Credit Transfer Act, credit institutions are obligated to provide the following written or electronic information to the originator of cross-border credit transfers covered by the act (credit transfer up to a maximum of EUR 50,000 /ATS 688,015, credit transfer in euro or in an EEA currency) The time the credit transfer will take (a maximum of 5 banking business days unless another period is agreed upon), the time at which this transfer period starts and ends; The methods used for calculating all charges and costs; The foreign exchange rate (if the credit transfer involves a conversion), and where applicable, the day on which the sum was converted; The bank s complaint office in the event of problems with the execution of the credit transfer. None of the credit institutions performed its duty to provide written information as set forth in the Credit Transfer Act until they were told to do so. Moreover, the testers received more detailed information on requesting it in conjunction with only a third of the credit transfers. 6

7 The information material handed out was not meaningful in some cases; it usually contained only the terms for foreign credit transfers. Only the information sheets handed out by Bank Austria and Creditanstalt contained information on how long the credit transfer would take. None of the information handed out indicated that a complaint procedure was available to customers in the event that problems arose with the execution of the transfer. No mention at all was made in any of the information materials about the in-house complaint offices although this information is required under the Credit Transfer Act. In the Chamber s view, these complaint offices are far below the standards of the EU Directive anyway and do not suffice for a full implementation of the directive. 5. Cost splitting Of the credit transfers from foreign banks to Austria, nine credit transfer orders were placed for which the costs were to be split (three credit transfers each from German, Belgian and Finnish banks). With cost splitting, the originator bears the costs at the originator s bank and the beneficiary of the credit transfer bears the costs at the beneficiary s bank. Despite instructions, costs were not split in one third of the credit transfers but charged solely to the originator (EUR 7.51 /ATS to EUR /ATS ). For the other six credit transfers executed according to instructions, the total costs ranged from EUR 8.63 /ATS to EUR /ATS and averaged EUR /ATS What was striking was that one and the same beneficiary institution (Volksbank) billed different charges to the beneficiary s account in the three credit transfers. In one case, no charges were levied despite the instructions; in another, charges of EUR 3.6 /ATS were levied; and in a third charges of EUR /ATS Creditanstalt as the beneficiary s bank also charged the beneficiary s account EUR 3.63 /ATS for one of the transfers and EUR 5 /ATS for another. 6. Beneficiary bears all costs Of the credit transfers from foreign banks to Austria, eight credit transfer orders were placed for which the beneficiary was to bear all costs. Only four of these were executed according to instructions. The total cost of the credit transfers executed according to instructions was far less than the total cost of the two other variants (i.e. total cost borne by originator, cost splitting), ranging from EUR 6.82 /ATS to EUR 8.60 /ATS and averaging EUR 7.6 /ATS The remaining four credit transfers were not executed according to instructions. In three of the credit transfers, the originator was billed charges ranging from EUR 6.73 /ATS to EUR /ATS For one of these credit transfers the beneficiary was billed no charges at all. In the fourth one, charges were billed neither to the originator nor to the beneficiary. 7. Failure to execute credit transfers Two of the 125 credit transfers from Austria to foreign countries were not executed. One was a credit transfer from Raiffeisenlandesbank Niederösterreich-Wien. No specific reasons were given for its non-execution and it was cancelled yet charges of EUR /ATS

8 were nonetheless levied. When the contra-entry was made to the originator s account, the credit transfer amount of EUR 40 /ATS was subject to further charges of EUR /ATS The testers got nowhere when they sought to find out why these charges had been levied. The promised return call from the originator s bank has still not been received. In the second of the failed credit transfers, Österreichische Volksbanken AG mistakenly filled out a domestic credit transfer form (new euro receipt). Fifty days later the originator was informed that no address partner had been found for the credit transfer to Italy. The credit transfer was cancelled by contra-entry, the value date was set retrospective to the debit-entry date yet the credit transfer charges of EUR 10 /ATS were not recredited to the originator s account. Of the 105 credit transfers from foreign banks to Austria, one has still not been received, namely, a credit transfer from Spain (P.S.K as the beneficiary s bank; credit transfer charges were levied; upon inquiry it was noted that the credit transfer was being withheld due to lack of cover in the account, yet repeated assurances were made that it would be executed). Three further credit transfers arrived at their destinations late or circuitously. One credit transfer from Spain did not arrive at the beneficiary s bank (Raiffeisenlandesbank NÖ-Wien), but was sent to the beneficiary as a postal remittance although the correct designation of the beneficiary s bank was known to the Spanish institution. The investigation into this matter revealed that the credit transfer from the originator s Spanish bank was not routed directly to the beneficiary s bank, but via Erste Bank instead. Since it was not clear that the payment order of the Spanish bank to be passed on by Erste Bank was for Raiffeisenlandesbank NÖ-Wien, Erste Bank passed the credit transfer on to P.S.K. for payment by postal remittance. Another credit transfer from Germany was first lost in the originator s country and not executed until 18 days later at the originator s insistence. In this case, charges were levied neither against the originator nor against the beneficiary of the credit transfer. A further credit transfer from Germany (beneficiary s bank was Raiffeisenlandesbank NÖ- Wien; debited by the German Postal Bank; investigations did not clarify the reasons; the sum was finally credited to the beneficiary s account 70 days after the order had been placed). 8. Possibility for identifying credit transfers Under the Credit Transfer Act, the beneficiary s institution is required to provide the beneficiary with information that enables him to identify the credit transfer. It must also inform the beneficiary of the amount of the credit transfer and the charges levied against the beneficiary (and if the originator stipulated that the beneficiary is to bear all or part of the charges) as well as the value date and, where an amount has been converted, the exchange rate applied and the time at which the conversion took place. In nearly all cases it was very difficult to clearly identify the transfer. Different designations were used, in some cases by one and the same receiving bank, in the entry description, e.g. credit transfer, transfer credit, incoming payment, foreign exchange payments, foreign payment, etc. In some cases, meaningless reference numbers were given for beneficiaries. Moreover, the credit transfer amount and the exchange rate were not always indicated and the charges were not always clear. For instance, the credit transfer amount was sometimes given with the charges already deducted or the designations used for the charges differed greatly. Or there was unclear information on the account statement. For example, one bank indicated the 8

9 charges levied against the originator on the account statement without further describing these charges. In several cases, there was an indication that the credit transfer entailed no charges for the beneficiary; in other cases, there was no such indication although the credit transfer was also executed without any charges being levied against the beneficiary. Nine of the credit transfers were not able to be identified at all due to the lack of information given; neither the originator s name nor the purpose of the transfer was indicated. Nonetheless, in one case, the account holder was charged 50 schillings for a subsequently requested credit transfer receipt. The bank did not waive the 50 schilling charge for the requested credit transfer receipt until the account holder had pointed out the bank s duties to provide information under the Credit Transfer Act. 9. Domestic credit transfers Along with the foreign credit transfers, 98 domestic credit transfers were executed between the following credit institutions: Bank Austria, BAWAG, Creditanstalt, Erste Bank, P.S.K., Raiffeisenbank Niederösterreich-Wien, Österreichische Volksbanken AG. 63 percent of the credit transfers were credited to the beneficiary s account within two days and 33 percent on the third day after the order was issued. Only 3 credit transfers (3 percent) required 4 days and only one credit transfer took 8 days before being credited to the beneficiary s account. On average it took 2.35 days for a credit transfer to be credited to the beneficiary s account. Compared with the average time taken for the foreign credit transfers, there is definitely room for improvement in this figure. After all, foreign credit transfers from Austria took an average of 3.34 days, i.e. they took just one day longer to be credited to the beneficiary s account than average domestic credit transfers. Only 13 percent of the credit transfers were credited to the beneficiary s account on the same day. In 84 percent of the domestic credit transfers, the value date was one workday after the arrival of the credit transfer at the beneficiary s institution. Although the value date is permitted to be the next workday under the Banking Act (Bankwesengesetz), in actual practice, same-day crediting of transfers, which is also specified in the Banking Act (Bankwesengesetz), tends to be the exception rather than the rule. In one case, the credit date was prior to the bookkeeping entry date, and in two cases it was the second workday after the credit transfer had arrived at the beneficiary s bank, which a violation of the Banking Act (Bankwesengesetz). Demands The cost of transferring small credit amounts continues to be excessively high and must be reduced significantly. Just recently the EU Commission, too, called on the banks and the Member States to reduce the cost of credit transfers within the euro zone on the basis of a study it had commissioned. The average charges for a credit transfer from Austria to an EU Member State was EUR 11.3/ATS , which meant the average charges were the equivalent of percent of the credit transfer amount. Charges equal to nearly a third of an invoice amount of EUR 40/ATS pose a barrier to cross-border shopping which looms all the larger the smaller the credit transfer amount is. The reason such disproportionately high charges are levied on small credit transfers is that most credit institutions have fixed charges for a European credit transfer (usually possible up to EUR 5,500 /ATS 75,681.65). 9

10 The credit institutions must take more seriously their legally stipulated duties to provide information. The Chamber neither understands nor accepts that none of the Austrian credit institutions complied with their duty to provide information unsolicited, that only one third of the institutions met the duty to provide written information upon request, and that none of the institutions made reference to an in-house complaint office. Under the law, the credit transfer beneficiary must receive extremely clear information on receipt of a cross-border credit transfer so that he can identify the credit transfer and recognise without a doubt the amount of the credit transfer and the costs he himself will bear. The value date for consumer current accounts should be the same day. There is no objective justification for having different practices with regard to value dates for debits and credits on accounts. The value date rule for consumer current accounts in the Banking Act (Bankwesengesetz) is a loophole allowing the same-day value date to be the next working day which credit institutions utilize one-sidedly to their own advantage. It is not an exception but an established practice at credit institutions. Tips Pay small amounts by credit card wherever possible. Aside from the annual fee which every credit card holder has to pay anyway, you incur a processing fee of only one percent of the invoice amount. The amount above which payment by European credit transfer is cheaper than payment by credit card has to be calculated in each individual case. With credit transfer costs of EUR 10/ATS , payment by credit card is cheaper up to an invoiced amount of ATS 13,759. If you wish to execute a cross-border transfer to an EEA country, request that the transfer be executed as a European credit transfer. Most credit institutions offer this for credit transfers up to ATS 5,500/ATS 75, at a price of EUR 9 to EUR 10 /ATS to ATS The advantage for customers is the fixed costs, which are more favourable than under the terms of conventional foreign credit transfers. Demand exact and complete information from your contract partner regarding the beneficiary account. European credit transfers can be executed only if you have complete data for the beneficiary (exact designation of the beneficiary s bank, bank code or IBAN, International Bank Account Number, exact designation of the account name and the account number). In many receiving states, the bank code or IBAN is integrated right into the account number. Demand binding information on the time the credit transfer will take and on its costs. If this information turns out to be inaccurate, the bank has no claim to fees and charges. Issue clear instructions as to who is to bear the charges incurred in the credit transfer. You have one of three options with regard to who bears the charges. 1. You can bear only the costs incurred at your bank. 2. You can bear those costs plus the costs incurred at the beneficiary s bank in which case the beneficiary incurs no costs at all. 3. You can instruct that all costs of the credit transfer be borne by the beneficiary. 10

11 When choosing which of these three variants to use, consider any contractual provision regarding the assumption of credit transfer charges. Bills are generally payable where the registered office of the offeror is located and must arrive in their full amount at the beneficiary s. In this case, it is recommended to also assume the beneficiary s costs. If deductions are made from the credit transfer amount without your instructions, the deducted amount must be subsequently credited to the beneficiary of the credit transfer free of charge. Expect a cross-border credit transfer to take 6 banking business days. The credit transfer amount should be credited to the beneficiary s account by the end of this period at the latest. In the event of failed credit transfers up to EUR 12,500/ATS 172,003.75, the bank that accepted the credit transfer order is liable regardless of culpability. If a credit transfer ultimately fails to reach the receiving bank, you must be reimbursed the credit transfer amount including interest for arrears as well as the costs charged for the credit transfer. You have no claim to reimbursement if the credit transfer failed to reach the destination because you gave incomplete or incorrect information. 11