European Banking Industry Committee response to the European Commission consultation on bank accounts

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1 European Banking Federation (EBF) European Savings Banks Group (ESBG) European Association of Cooperative Banks (EACB) European Mortgage Federation (EMF) European Federation of Building Societies (EFBS) European Federation of Finance House Associations (Eurofinas)/European Federation of Leasing Company Associations (Leaseurope) European Association of Public Banks (EAPB) 12 June 2012 European Banking Industry Committee response to the European Commission consultation on bank accounts The European Banking Industry Committee (EBIC) brings together European banking associations with a mandate to provide advice, assure a comprehensive consultation of market participants and to ensure representative industry views on policy aspects related to banking activities. Key Points The EBIC 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. EBIC members are therefore committed to continuously improving in order to meet the changing needs of customers. Since some Members States and banking communities are taking a number of initiatives at national level, the EBIC would strongly encourage, before a further analysis is made, allowing those initiatives a chance to succeed. The EBIC does not consider that further EU legislative proposals at this stage would be appropriate. We would therefore strongly recommend not proposing further initiatives until the ones already in place are fully assessed. EBIC members believe that the Common Principles on bank account switching are the right approach which simplifies the bank accounts switching process. Notably, where the Common Principles are used, consumers consider the process to be running smoothly. There are always possibilities to improve their efficiency; however, this should be seen as a continuous effort since self-regulatory initiatives are medium-term projects. While the efficiency of the process could still be improved, this will be driven by a better awareness and better communication between the interested stakeholders and not by imposing legislation. Owing to the different conditions and particularities of the national markets in the EU, the EBIC Common Principles should remain voluntary. Therefore, EBIC remains committed to promoting bank account switching. EBIC members understand fully the objectives of financial inclusion and agree with the European Commission on the need for consumers to access financial services and participate fully in the economic and social life of modern society to today. The recently adopted Recommendation, addressed to the Member States, is the right initiative at EU level allowing national authorities to take appropriate measures in order to facilitate, where needed, the

2 access to bank accounts by taking into account the specific conditions in their respective national markets. EBIC 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 take into account all available findings. 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 at national level. GENERAL REMARKS In the past years EBIC has been actively engaged and has followed with interest the number of private and public efforts that have been deployed in order to increase the transparency of fees linked to the operation of bank accounts, help consumers to switch smoothly between account providers and facilitate consumers access to basic bank accounts. Before responding to the detailed questions, EBIC would like to make the following general comments. TRANSPARENCY AND COMPARABILITY OF BANK ACCOUNT FEES EBIC members have invested a substantial amount of time and work in developing the EBIC selfregulatory draft Principles on transparency and comparability of personal current account fees (hereinafter the draft Principles ) which, in their substance, would have effectively assisted European consumers in accessing, understanding and comparing information on bank account fees, while allowing the required flexibility, notably by doing justice to the various market conditions in the different Member States which represent diverse consumer habits, needs and expectations. The draft Principles would have reached the desired objectives without imposing unnecessary costs on credit institutions, particularly in the current situation of the banking industry. EBIC considers that the current provisions of the Directive 2007/64/EC on payment services (PSD), the national legislative and self-regulatory measures taken by public authorities and non-profit organisations, provide a solid ground for improving the transparency and comparability of bank fees.therefore, EBIC would strongly encourage the Commission to carry out an objective and balanced assessment of all evidence at hand, as well as a cost-benefit analysis, before any policy decisions are made concerning transparency and comparability of bank account fees. We would like to draw the Commission s attention to several sources of evidence which in our view would provide a valuable contribution to the assessment of the status quo. Firstly, we would like to point out that we disagree with the unconditional use, as a basis for the analysis, of the 2009 Study Data collection for prices of current accounts provided for consumers (the 2009 Study on bank fees), which EBIC continues to challenge as an incorrect representation of the real retail banking market conditions. If the decision is taken to make a reference to national studies, such as the OFT study on Personal current accounts in the UK, a reference to other national studies should also be included. Otherwise the relevance of the quoted information in the context of EU policy making is significantly limited. 2

3 In addition, EBIC would encourage the Commission to take a more all-encompassing view of the results of certain studies quoted in the consultation. For example, when the Commission quotes in its consultation document 1 that: A recent Eurobarometer survey found that one of the main reasons given by consumers for not purchasing financial products (such as current accounts) in another EU country was the lack of clear information 2, it should also quote other relevant statements of the same survey. For example, the same Special Eurobarometer 373 finds that: Eight in ten (80%) [consumers] say they would not consider buying a financial product in another EU country in the future. The main reason is most do not see any need to do so, as they can purchase all the financial products they need in their own country, or they prefer to do so 3, and that The main reason why people do not purchase financial products in other EU countries is that they feel they can already access everything they need in their own country. A third (32%) of respondents gave this explanation. 4 Finally, in the spirit of a balanced and all-encompassing approach, EBIC would advise that if the Commission decides to make reference to statements of consumer organisations 5, it should quote all interested organisations. Taking all those elements of information into account would be very useful to contextualize the problem under consideration. Universal banking relationship vs. price-based competition From reading the consultation, we get the impression that the Commission s view of what is a competitive banking industry is based only on price. While EBIC considers that tools helping customers to understand and compare fees are indeed one of the important factors to be taken into consideration, there are also other factors of choice than the price which may be important to the consumer and that may add to their preferences, such as branch density, distribution structures, online banking services, quality of the service, other value added services, etc. Many European retail banks are focused on providing quality service and are not purely orientated on price-based competition. Against this backdrop, it seems to us that the Commission somewhat disregards the quality level of services and attempts to compare products which in fact are not comparable one by one, i.e. bank accounts developed for different customer needs, economic and cultural environments under various influencing factors, including consumer expectations and behaviour. The one-sided focus on the price might even be misleading to consumers. Consumers might get the false impression, that current account models are more or less the same and the price is the only distinctive mark. The one-sided focus on the price will furthermore have adverse effects on those credit institutions which offer a wide range of additional services (e.g. a close branch network). Therefore, the one-sided focus on the price might distort competition. 1 Consultation document, p.3. 2 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%). 3 P. 31 of the 2012 Special Eurobarometer on Retail Financial Services 4 Idem, P see quote of BEUC statement on p.3 of the consultation document 3

4 SWITCHING OF PERSONAL CURRENT ACCOUNT EBIC shares and supports the underlying objective of the Commission to conduct surveys, notably ensuring that reliable and valuable services are provided for European consumers. In January 2012, EBIC members notedthe recently published results of a mystery shopping exercise, notably the Consumer Market Study on consumers experience with bank account switching with reference to the Common Principles on Bank Account Switching (hereinafter Common Principles ). The EBIC noted shortcomings 6 in the methodology used in conducting the mystery shopping exercise, among which: 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 worthwhile acknowledging that the latter study covers a much larger sample of the European population and therefore is expected 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. According to the same study, the approach outlined in the Common Principles, in its substance, is the right approach which simplifies the bank accounts switching process. Notably, where the Common Principles are used, consumers consider the process to be running smoothly. There are always possibilities to improve their efficiency. But 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 some others progress is still ongoing. The Common Principle facilitates effective switching solutions for consumers. While the efficiency of the process could still be improved, this will be driven by a better awareness and better communication between the interested stakeholders and not by imposed legislation as such. Due to the different conditions and particularities of the national markets in the EU, the EBIC Common Principles should remain voluntary. Therefore, EBIC remains committed to promoting bank account switching. ACCESS TO A BASIC PAYMENT ACCOUNT EBIC members understand fully the objectives of financial inclusion and agree with the European Commission on the need for consumers to access financial services and participate fully in the economic and social life of modern society today. In January 2012, the EBIC welcomed the adoption of a non-legislative measure (European Commission Recommendation on access to a basic payment account, hereinafter the Recommendation ) granting a right to a basic payment account (BPA) to unbanked consumers. Since the reasons for and the effects for the consumer from not having a bank account vary from country to country and depend on a number of socio-economic factors, including the use of cash or the presence of the grey economy, the Recommendation, addressed to the Member States, is, in the EBIC s view the right initiative at EU level. It allows national authorities to take appropriate measures in order to facilitate, where needed, access to bank accounts by taking into account their specific conditions. 6 EBIC preliminary observations on on the Consumer Market Study on consumers experiences with bank account switching. 4

5 Following the publication of the Recommendation, the European Parliament started drawing up an own-initiative report in relation to which EBIC members observed that social and cultural factors related to financial exclusion cannot be easily removed through legislation. Banking penetration levels in Member States are very different, ranging from 49% to 100% 7, and there is no proven correlation between the existence 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. As an observation on the currently adopted European Commission Recommendation, and any future initiative in this respect, EBIC members believe it is important to make a distinction between the social (access to a basic payment account (BPA)) and internal market (cross-border access for EU residents) policy approaches. In the EBIC 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 and should allow Member States to take into account their local situations and ensure due care for preserving the diversity of the banking sector. We suggest that the EU should encourage the Member States to follow through its Recommendation. National authorities, in cooperation with the relevant stakeholders, including banks, are best placed, with regard to the principle of subsidiarity, to take adequate measures adapted to their local specific situations. It is important to acknowledge that industry initiatives meet the needs of the different markets 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 facilitate access to bank accounts or are currently doing so Study on the costs and benefits of policy actions in the field of ensuring access to a basic bank account. 5

6 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? EBIC 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, EBIC does not consider that, at this stage, further EU legislative proposals would be appropriate, by it within the framework of PSD or otherwise. Should however further measures be foreseen because proven to be necessary, proportionate and cost-effective, sufficient flexibility should be left at national level. EBIC 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. EBIC members are therefore committed to continuously improving in order to meet the changing needs of customers. The developed draft Principles on transparency and comparability of personal current account fees were based indeed 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 8. Further it is clarified that the period shows a particular development of these initiatives 9. 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 years 10. As a first step, the implementation of the information requirements contained in the PSD improved the accessibility of information for consumers on payment services. Several other European regulatory measures have been transposed into national law and concern not only requirements regarding current accounts but also credit 11, which affects overdrafts. It must be recalled that the implementation work required from the banking industry in this respect were Study on bank fees, p.7. 9 Idem, P Study on bank fees, p. 7 and P. 3 of the commented Commission consultation document 6

7 significant. Some Members States and banking communities are taking a number of initiatives at national level (be it on a legislative or voluntary basis by banks). In the light of the above, EBIC 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), EBIC would strongly encourage, before further analysis is made considering new regulation, allowing those initiatives a chance to succeed,. Therefore, EBIC 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, EBIC could agree that the use of the same terms for the most common services could be feasible (which does not mean easy). The services subject to the use of common terminology should be identified at national level upon the particularities of the national markets. The use of common terminology should be limited to the most common services identified. It is our view that the use of the same terms for the most common services should be practised at national rather than European level and should be limited to the most common services defined at national level. However, in first place, the use of same terms refers to services, not fees and should not mean standardisation of products. Secondly, we do not consider that the use of the same terms for the bank account services would have as groundbreaking benefits for consumers as some stakeholders seem to believe. We wish 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 characteristics and the range of products offered in the individual Member States. Therefore, some degree of flexibility must be ensured. Open, competitive markets are the best drivers for innovation, consumer choice, and a well functioning internal market. It must therefore be ensured that businesses continue to have the freedom to design products best suited to consumers diverse needs. It should be also clarified what all fees would mean in practice, particularly when talking about such a specific product as a bank account. For example, whilst in some Member States an overdraft is a standard service of a bank account, in others it may be that of cheques. Also, different consumers expectations within a Member State may 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 7

8 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 may be more familiar with the brand names than the new harmonised terms. Banks must be allowed to differentiate their offer from other banks as long as it is clear to the consumer what service is concerned. 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. In order to fulfil this purpose, however 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 disclaimer will not be sufficient in all Member States. Consumers equipped in better understanding of terms are more likely to understand different offers more easily and, as such, compare them more effectively. However, for the glossaries to be useful for the end-user, and to allow comparison, they have to be concise. Thus, EBIC considers that any glossaries 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, EBIC 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 12. Retail banks are mainly run on a universal consumer-bank style relationship whereby the bank account is ideally a gateway to other services the consumer may require. Furthermore, 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 has already worked in a given Member State should always be exploited. Also 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 circumstances, which 13 could also include glossaries, even if the former are not directly linked to the contract.the problem 12 P. 3 of the commented Commission consultation document 13 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 8

9 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. Finally, credit institutions should not be obliged to provide glossaries to the consumers. As mentioned above, glossaries mainly serve for educational purposes. Therefore, it will be sufficient, that consumers are indicated, that additional information is easily available. This enables credit institutions to avoid unnecessary costs, while at the same time the glossaries can be easily accessed by those consumers who are interested. 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? EBIC holds the view that comparison websites could indeed be run by public authorities, consumer organisations or independent stakeholders. What is important however is that, appropriate mechanisms are ensured to monitor the quality of the comparison service. No additional reporting obligations should be imposed on banks. EBIC recalls that standardised cost simulations imply quite high costs. It should be born in mind that examples could be representative for some consumers, but not for others. EBIC appreciates that consumer organisations are carrying out surveys to help consumers have general information easily available. European retail banks are focused on providing quality service and not purely orientated on pricebased 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 EBIC recognises potential benefits of such websites and we believe that they could be further explored. These could be run by public authorities, consumer organisations or other independent stakeholders, and appropriate mechanisms should be envisaged to monitor the quality of the comparison service provided. A recent publication notes that there are significant differences, in relation to the increased use of comparison websites on the EU insurance market, in the types of comparison websites used and that significant drawbacks have also been identified with regard to 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. 9

10 over-reliance by consumers on the price of products, rather than understanding the underlying terms and conditions. 14 We 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 would promote competition based purely on price, which in our view is not the right approach. Therefore, it is our opinion 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 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 we believe that they should remain voluntary. There is also the fact that, as argued by EBIC in the context of the 2009 study on bank fees, there is no such thing as an 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 a situation where more complex bank account fees structures are used, i.e. where fees for current personal bank account services are transaction-based. Thus, utility of cost simulations based on profiles appears questionable in a number of circumstances and the estimated high costs 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 to consumers. In this case, the bank account fee to be paid, is precisely known by the consumer or viewable on the (ex-ante) product offering page on the bank s website, and remains the same, irrespective of the actual payment behaviour. Re iii) Representative examples EBIC would imagine 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. EBIC 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. In fact, the attempt to build profiles on an EU level has been 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 being used afterwards. Consumer organisations surveys should in our opinion only lead to general information provided to consumers, and not be used as a sole basis for policy actions, such as legislation. The latter always require fully-fledged studies of the market- 14 EIOPA s Initial Overview of Key Consumer Trends in the EU, 1 February 2012, page 3 10

11 based on reliable and scientific methodology that can be back-tracked, as well as on 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 already above, EBIC 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 already fulfil the requirement to provide ex-ante 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 the payment transactions before and after the execution of the payment, including the information on actual fees paid and the frequency on the information provided. There is also a Member States option to require periodic provision of information about the charges 15. Several other European regulatory measures have been transposed into national law and concern not only requirements with regard to current accounts but also credit 16 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 imposed on credit institutions. As a general comment, we would like to mention that during the last few years, EBIC has been observing serious inconsistencies in the approach of the policy makers towards the issue of the level of detail of the information on fees. We would encourage the policy makers to precede their decisions concerning the appropriate level of detail of consumer information with a careful impact assessment of all costs and benefits. EBIC in general disagrees with the focus of the policy makers on the high number of services itself, and already back in 2009 we argued that Measuring the relative simplicity of tariffs by the number of tariff components is not longsighted enough in our 17 view. 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, the level of detail will consequently be lower than if he/she paid for each and every service separately). Thus, in our view the discussion on the level of detail belongs rather to the consideration of ex-ante information. 15 E.g. Articles 36-37, and 47 of the PSD. 16 Directive 2008/48/EC on consumer credit (CCD). 17 c.f. EBIC Comments On The Study On Data Collection For The Prices Of Current Accounts ( ) 11

12 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 the 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, because while elements such as frequency or graphic layout of the ex-post 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 consumption level. Consumer mobility reflects primarily the level of satisfaction of clients. Cross-borders consumer mobility is mostly affected by language barriers, cultural differences, fiscal barriers, and differences in legal systems of Member States. 18 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. EBIC 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, EBIC does not consider that, at this stage, further EU legislative proposals would be appropriate, by amending the PSD or otherwise. Should however further measures be foreseen because proven to be necessary, proportionate and cost-effective, sufficient flexibility should be left at national level. In addition to the comments provided for the previous questions, EBIC would like to stress that there is already a large number of initiatives and legislation in place 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 19, the period shows a particular development of these initiatives 20, and the effectiveness and efficiency of these tools is improved. We 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, we would encourage the Commission to analyse carefully what is missing, and where. and in light of the analysis design measures targeting specifically those deficiencies rather than regulate across the board. If EBIC has a preference it would be for solutions and flexibility at national level. 18 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%). 19 P.7 of the 2012 study on bank fees 20 Idem, P.45 12

13 Based on the analysis of the EBIC inventory of the existing measures on bank account fees transparency and comparability 21, it is clear that there is a wide variety of situations in Member States. Those differences on the how and the what of the solutions in the various banking communities is the best testimony to the existing 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 the one or the 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 of bank fees is not considered to be problematic, in others there may exist more demand for appropriate initiatives. EBIC welcomed the fact that the 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, stating that the solutions should be developed and implemented at national level. EBIC strongly recommends maintaining this line of thinking as 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 already raised challenges at national level. On this occasion we 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 the national authorities. 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. EBIC would also agree with the suggestion of the 2012 study 22 consultant to keep up the studies on consumer behaviour. Finally, EBIC would also like to stress the need for financial education and general financial advice to consumers. This element is also part of the grand scheme of improving transparency and comparability for consumers. 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 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. 21 which were presented to the Commission on 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%.. 13

14 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 regularly informed the European Commission and European consumer associations on the operation of the Common Principles, notably in a Report on the Implementation of the Common Principles published by EBIC in According to the recently published Consumer Market Study on consumers experience with bank account switching with reference to the Common Principles, the approach outlined in the Common Principles, in its substance, is the right approach which simplifies the bank accounts switching process. In particular, where the Common Principles are used, consumers consider the process to be running smoothly and consequently they remove all obstacles. There are always possibilities to improve their efficiency; however 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 some others, where concerns remain, progress is still ongoing. The Common Principles aim to ensure that bank account switching is not onerous for consumers and that their mobility will not be constrained by any unnecessary delay or lack of support by their banks. The Common Principles also seek to increase the awareness of consumers by providing clear information on the necessary tasks and steps of the switching, as well as by laying out the respective roles and responsibilities of banks and consumers. 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 also seek to increase the awareness of consumers. By laying out the respective roles and responsibilities of banks and consumers they indeed 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 greatly increased customer mobility. The EBIC recognises the role of bank account switching as part of the competitive environment in the European retail banking markets. However, 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 due to the satisfaction of the parties 23. In addition, the new bank often might become an additional partner and not a replacement of the previous one. Indeed, developments in recent years led to an increase in multi-banking. Therefore, making the switching service easier does not necessarily translate into greatly increased customer mobility. This can be due to consumers banking habits and their preferences for holding multiple bank accounts. First and foremost, however, it is due to the fact that most relationships 23 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%.. 14

15 between consumers and banks are long standing and based on, as well as determined by, consumers trust in, and satisfaction with their bank. EBIC also noted shortcomings 24 in the methodology used in conducting the mystery shopping exercise, published by the European Commission, which says 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; iii) and contradictions between the results of the Consumer Market Study and those of other studies, including a recent Eurobarometer study (February 2012). It is worthwhile acknowledging that the latter study covers a much larger sample of the European population and therefore is expected 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? While the efficiency of the process could still be improved, this will be driven by a better awareness and better communication between the interested stakeholders and not by imposed legislation. Due to the different conditions and particularities of the national markets in the EU, the EBIC Common Principles should remain voluntary. There are always possibilities 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 some others, where concerns remain, progress is still ongoing. However, the principle facilitates effective switching solutions for consumers. While the efficiency of the process could still be improved, this will be driven by a better awareness and better communication between the interested stakeholders and not by imposed legislation. Due to the different conditions and particularities of the national markets in the EU, the EBIC Common Principles should remain voluntary. Therefore, EBIC remains committed to promoting bank account switching. A decision to impose unnecessary costs on credit institutions, particularly in the current situation of distress for 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 diverse angles in different 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 the diversity of national switching arrangements, the European banking industry has been careful to ensure that the present set of Common Principles shall be compatible with existing switching services, further taking into account the various 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 24 EBIC preliminary observations on on the Consumer Market Study on consumers experiences with bank account switching 15