CNB opinion and answers to questions asked on the European Commission Consultation on bank accounts

NA PŘÍKOPĚ 28 115 03 PRAHA 1 CZECH REPUBLIC June 12, 2012 CNB opinion and answers to questions asked on the European Commission Consultation on bank accounts A. General On a general level, the CNB considers it important to assess whether existing legal instruments give supervisory authorities adequate powers to resolve existing or alleged problems before discussing any new legislation. We believe that the vast majority of the commercial practices identified by the Commission as problematic (e.g. insufficient transparency of fees and non-compliance with codes of practice for bank account mobility) can be resolved by, for example, consistently applying supervisory and penalty powers in the areas of unfair commercial practices, payment services and competition law. As regards the general approach to the questions posed in the consultation, in addition to consistent use of existing legal instruments (including the extensive information disclosure of financial services providers laid down in other directives), the CNB strongly prefers the option of enhancing the financial literacy of consumers and encouraging them to take more interest in the financial products and services they use or wish to use, ahead of introducing any new legislation. Financially educated consumers should be capable of comparing various offers of financial products. If the products offered by a specific provider do not meet their needs, they can turn to a competing provider. It is vital for consumers themselves to take an interest in their finances and be more proactive in this area. The above general comments and the following answers to specific questions are in line with the opinions that the CNB has provided repeatedly to the Commission on other topics in the past (consultations on basic payment accounts, cross-selling and bank account mobility). B. Transparency and comparability of bank account fees 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 1

that amendments to the transparency obligations in the Payment Services Directive (2007/64/EC) could address those shortcomings? The approaches of individual banks to the transparency of fees are very mixed. While the lists of fees of low-cost banks primarily offering remote bank account management (internet and telephone banking) are relatively clear, those of other banks offering a greater number of products (or combinations thereof) tend to be less transparent. The ease of comparison of fees across banks is hampered mainly by the large variation in the products offered (some products may be incomparable by design) and also owing to the widespread practices of product packaging and cross-selling. It is true that there is a risk of abuse of cross-selling in some areas, especially the making of services or products conditional on the purchase of other products without good reason. It is also true that some packages are problematic in practice if they are not transparent enough for consumers or discourage them from terminating contracts. However, the CNB considers it important to highlight that cross-selling and product packaging are not necessarily a priori disadvantageous to consumers 5 if price transparency and the possibility of comparing the benefits of a package with those of purchasing individual services are maintained. Key factors as regards eliminating any negative effects of crossselling include a competitive environment, a regulatory framework that minimises the opportunity for regulatory arbitrage, and consistent application of all existing sectoral and consumer standards. From marketing point of view we consider transparency and simplicity of lists of fees to be an important practical tool for promoting competition. We see no major benefit in amending the Payment Services Directive to extend the information duties of providers (especially in introducing yet another information duty for consumers benefit). On the contrary, there is a risk of overloading the average consumer with so much information that they will not be able to assess it in practice. The issue of cross-selling could be resolved under the existing rules contained in the Unfair Commercial Practices Directive, or by revising this directive 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? The CNB is of the opinion that introducing a standardised terminology while simultaneously respecting the prohibition of unfair commercial practices is not an appropriate solution, as the products offered and the related fees are in many cases very diverse and often individually tailored (e.g. discounts based on the frequency of use of a payment card or on the balance of funds on an account). National market specifics also need to be taken into account. The effort to introduce a comprehensive standardised terminology might limit the range of products offered and negatively affect innovation and a tailored approach to the client. On the other hand, we believe that partial harmonisation of terminology would result in reduced transparency and comparability as a result of the introduction of other fees outside the harmonised areas. 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? 5 For instance, in the form of a lower price. 2

Glossaries may, to some extent, facilitate comparability of services, but the benefits of standardised lists of fees are debatable (incomparability of products, cross-selling). However, even with glossaries (with the reservations given in the answer to Question 2) we would at most be in favour of self-regulatory measures, created, for example, by industry associations and implemented on a voluntary basis. Non-government consumer organisations and educational institutions could also play a role. 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? All the above tools could to some extent help to improve fee transparency and comparability, but they should be introduced purely on a voluntary basis given the possible high costs related to their use. These costs can differ not only across banks, but also across public authorities. There can also be substantial differences between individual EU markets (national markets or segments thereof). An EU-level solution is therefore not appropriate. Another question is the updating of such tools, which is essential but also very expensive. 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 crossborder basis? Consumers are already given full information about compulsorily stated fees and on fees actually paid in their regular account statements. We consider this information sufficient. As regards encouraging mobility (cross-border mobility in particular), we consider aggregate information on payment transactions and thus also on fees actually paid to be a minor factor of little significance. The key factors, in our opinion, include language and cultural barriers and the distance of the branch from consumer s home (in the case of traditional customers preferring personal contact at a branch). 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. In addition to the general emphasis on enhancing financial literacy discussed above, we consider it appropriate to support self-regulatory measures at a general level in the form of codes of conduct adopted by professional organisations. Adherence to such codes should, however, be strictly voluntary. We consider regulatory intervention at national or EU level to be unnecessary, as the existing regulation (in particular those on unfair commercial practices and payment services) provide supervisory authorities with sufficient tools to protect consumers and these tools should be consistently applied. 3

C. Switching between payments account providers 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? Most banks in the Czech Republic are signatories to the relevant self-regulatory code of conduct, which is in line with the Common Principles. In practice we have recorded only a handful of complaints about banks switching behaviour, most of them concerning fees charged (e.g. for terminating standing orders) or long times taken. In our opinion, these isolated cases do not justify regulatory intervention. On the other hand, the CNB does not have any statistics on the use of switching services or any information on consumer awareness of this possibility or on how much banks themselves disseminate information about it. 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. In the opinion of the CNB, the main persisting obstacle is inadequate consumer financial literacy, i.e. poor awareness of the possibility of account switching, consumers general aversion to change (the appearance and functions of online banking, the physical accessibility of branches, bonds with personal bankers, and convenience and habit) and the consequences of cross-selling and product packages also play a role. 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 CNB still resolutely opposes making the Common Principles compulsory, as voluntary self-regulation is working and no large numbers of consumer complaints have been recorded in this area in the Czech Republic. In our view, the main disadvantage of making them compulsory is the potential rise in costs, which in the case of banks would be passed on to other clients (in the form of higher fees). We consider it particularly important for consumers to think carefully before switching to a different provider, especially given the diversity of bank products (former and new accounts may not offer the same functions at the same price and the consumer may not take this sufficiently into account, especially if persuaded to switch by an intermediary or incentive). Question 10: Should switching principles/measures also cover cross-border switching of bank accounts? The CNB would support the application of the principles to cross-border switching only if they were to remain voluntary (or compulsory only for signatories of the relevant codes; these signatories could then take advantage of this when advertising their services). 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? 4

This risk cannot be quantified on the basis of the available data (the CNB does not collect such data). In our opinion there is no need to adopt any legal measures to make the switching process safer, as the consumer is entitled to compensation under general law if either bank makes a mistake. This sufficiently motivates banks to make the switching process safe. Theoretically, we can imagine strengthening the consumer s position, for example by modifying the relevant self-regulation, especially as regards the burden of proof and/or the introduction of liability of the former bank (which would be entitled to compensation if the new bank is proved to be at fault). 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? The CNB is not aware of any major obstacles for account providers wishing to expand their client base in the Czech Republic. Financial/computer 2 literacy and general distrust of new market players, especially among the older generation, may represent minor obstacles. Question 13: What other measures should be considered to improve bank account switching? Please describe. Apart from raising consumer awareness of this service (as part of the process of enhancing financial literacy), the CNB sees no reason for adopting any measures. D. Access to a basic payment account General opinion of the CNB In the opinion of the CNB, the right of access to basic banking services is not an issue that falls within the scope of the single internal market. The right to establish a bank account is an issue of social policy (social integration) and such issues fall primarily within the competence of the Member States. The current European legislation satisfactorily addresses any discrimination thereof. In no event should anyone be obliged to establish a bank account. Beyond the framework of the prohibition of discrimination, we regard it as unacceptable to introduce any restriction of contractual freedom or of the right of banks to choose their clients, especially given the potential risk that the costs incurred will be passed on to other clients. The CNB notes that the terms bank account and payment account are used alternately in question 14 onwards without further explanation and that the possibility of having access to payment services independently of holding a payment account is not considered. We also note that the term payment account has a wider meaning in technical terminology and that such accounts are maintained not only by banks, but also by non-bank institutions (such as payment institutions and electronic money institutions). Hence, it is not clear which institutions the consultation is targeting. In future we recommend consistent use of unified terminology. 2 Especially in the case of some low-cost banks that do not have traditional branch networks. 5

Question 14: Do you dispose of information on consumers encountering difficulties in access to a basic bank account? What types of obstacles are signalled by the consumers preventing them from having access to a basic bank account? Banks in the Czech Republic are not obliged to offer access to a basic bank account and no such obligation is being considered. We regard it as more appropriate to leave this issue to the business policy of each individual institution, not to regulatory intervention. The competitive environment in the Czech Republic led some time ago to a situation where some credit institutions offer free 3 accounts with no additional demands or requirements on clients other than an identification duty. With the exception of the AML rules, isolated problems for non-residents and limited financial literacy in some social groups 4 (and ensuing concerns about using services linked with holding an account) we are not aware of any major obstacles preventing consumers from using bank accounts. We also consider it important to add that consumers in the Czech Republic who do not have a bank account often use a joint family account (for example, some banks offer additional payment cards to other family members) and also have easy access to basic payment services via the SIPO 5 product offered by the dominant postal service provider, which provides a very cheap way of paying rent and related service charges as well as, for example, paying insurance premiums and making other payments. The postal service provider currently offers a universal service enabling customers to send money to a specified account or to the home address of the beneficiary regardless of whether or not the sender is a payment account holder. This service costs less than one euro. 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? Given the highly competitive environment prevailing in the Czech Republic in the supply of payment accounts (see the answer to Question 1 for more details), the introduction of right of access to a basic payment account is not a relevant issue in the Czech Republic. Question 16: Do these measures also facilitate access to a basic payment account for nonresidents? The CNB has recorded several complaints from non-residents regarding access to a payment account, especially in respect of new banks, but these have been dealt with effectively through the prohibition of consumer discrimination. Question 17: If consumers still have difficulties in opening a bank account, what are the reasons for that? 3 Free account maintenance, a set monthly number of free ATM withdrawals, free issuance of a chip debit card, a set monthly number of free payment orders, saving products. 4 The Czech National Bank, which since 12 February 2008 has, among other things, been overseeing compliance with the prohibition of consumer discrimination on the financial market, has recorded only a handful of complaints about discrimination in the establishment of bank accounts (a condition of permanent residence in the Czech Republic). The bank concerned changed its business terms and conditions in a suitable manner when called upon to do so by the Czech National Bank. 5 SIPO (sdružené inkaso plateb obyvatelstva) is a multiple-billing service whereby a private individual receives by post a bill for all regular payments associated with running a household (rent, energy, telephone, insurance, TV licence fee, etc.). These payments are combined into a single payment order (a postal order or a bank transfer or direct debit). The postal service provider then transfers the relevant amounts to the individual beneficiaries bank accounts. 6

We have not registered any reasons other than those given in our answer to Question 14 (AML and financial literacy). Question 18: If more needs to be done what additional measures should be envisaged? Should the problem be tackled at national or EU level? From the perspective of the CNB, no measures are needed at national level, still less at EU level. 7