European Commission Services Working Document. Consultation on Bank Accounts

Transcription

1 European Commission Services Working Document Consultation on Bank Accounts The National Consumer Agency welcomes the opportunity to comment on the European Commission s consultation on bank accounts. The National Consumer Agency ( the NCA / the Agency ) is the statutory body established by the Irish Government in May 2007 to enforce consumer law and promote consumer rights. In March 2010, the responsibility for consumer personal finance information and education transferred from the Central Bank of Ireland ( the CBI ) to the NCA. The NCA has a direct role in promoting price awareness and transparency in Ireland and in pursuit of this aim publishes regular price studies of key consumer markets, for example groceries, home heating oil and professional services such as dentists and doctors. Following the transfer of the consumer functions from the CBI, the NCA took responsibility among other things for the online financial product comparisons. These comparisons provide information to consumers on the wide range of banking and insurance products on offer in the Irish market. The website, which was redeveloped in October 2011, contains information on: - personal and student current accounts; - personal and student credit cards; - personal and student loans; - regular savings accounts; - lump sum deposit accounts; and - mortgages. The comparisons include information regarding the various products fees and charges as well as plain-english explanations of financial terms in order to ensure that consumers can be made aware of all the features of financial products even if they may not be financially literate. The NCA sources information on products directly from financial providers, this ensures that the website is constantly up to date with respect to interest rates, terms and conditions and fees and charges. 1

2 1. Transparency and comparability of bank account fees The Agency has, in researching its financial product comparison website, found that the fee information on websites can be difficult to locate. This leads to concerns that existing and potential customers may have difficulty gathering information regarding the various fees and charges that apply to current accounts. For example, some financial providers may offer free banking, that is the ability to utilise the standard functions of a bank account (lodging and withdrawing cash, the use of ATMs, direct debits etc.) free of charge, however from maintaining the Agency s comparison of bank accounts, it is clear that the number of institutions who offer this service without any underlying qualifying criteria has declined in the past year and this decline is likely to continue. A number of banks offer consumers free banking status provided that they meet certain conditions such as maintain a minimum balance in their account and/or make a certain number of online or telephone transactions. The current trend in the Irish retail banking market is for providers to offer free banking so long as the qualifying criteria are met. In many cases these qualifying criteria are quite stringent. 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? Answer 1: Banks may present information which can be difficult for some consumers to understand. In many cases, this can be necessary due to the requirement of banks to describe their terms and conditions in a sufficiently formal manner which fulfils their legal requirements regarding communication with consumers. However, long lists of fees and charges or terms and conditions written in complex financial language, do not communicate information clearly and can often be ignored by consumers or indeed may be too difficult for the consumer to absorb. The effect of this is that certain consumers may be unaware of the fees and charges which apply to their own bank account or those other accounts to which they may be interested in switching. Comparability between banks is generally facilitated by the use of standardised banking terminology which is applied by the vast majority of financial providers in Ireland. The issue however, is that while the majority of banks employ the same terminology to describe fees and charges, the language and complexity by which this terminology is applied and the differences in presentation of such information may mean that consumers find it difficult to compare products. In certain cases, providers attach similar conditions to their products with unique aspects that set them apart from the others. For example, Bank of Ireland, Permanent tsb and Allied Irish Bank, three of Ireland s leading banks offer free transactions on their current account, provided the accountholder meets certain conditions. The conditions are as follows: 2

3 Bank of Ireland Permanent tsb Allied Irish Bank Customers can avoid account Quarterly fee applies if To qualify for free transaction fees by lodging at customer does not meet maintenance and transaction least 3,000 to their personal qualifying criteria: a) banking on your personal current account and by lodge at least 3,000 and, current account customers making at least 9 debit b) make at least 18 card must maintain a minimum payments from that account purchases and, c) make at daily credit statement balance using 365 Phone and/or 365 least 1 financial of 2,500 in the account for Online, during the relevant fee transaction through the full quarter. quarter; or by maintaining a telephone and online minimum credit balance of banking and, d) keep the 3,000 in their personal account within agreed current account throughout limits. the full fee quarter. Good practice in this area would be for banks to provide their standard list of fees and charges, in a manner that is clear, transparent and written in plain English so it can be understood by the average consumer or indeed more vulnerable consumers. The NCA notes that the Payment Services Directive is maximum harmonisation. If it were to be reviewed, then the NCA recommends amendments requiring payment service providers to supply information which is sufficiently clear, concise and transparent to consumers. The NCA was involved in negotiations with the Department of Finance and the Competition Authority on sectoral commitments and proposals were put forward from these negotiations to the CBI regarding the transparency of current accounts. Unfortunately some of these could not be introduced by the CBI due to the maximum harmonisation nature of the Payment Services Directive. The excluded proposals were: 1. Better information on fees and interest rates: (i) Information on fees and charges should be presented in separate, easy to understand one page summary sheets for each type of personal current account. (ii) These summary sheets should be collated into a brochure format with the full list of fees and charges included. On the bank s website, information equivalent to that contained in the summary sheets should be linked to the relevant personal current account. (iii) The provision of this information and the ease of accessibility will be reviewed by way of independent usability testing commissioned by banks with reports made public and recommendations implemented. 2. Improvements in annual statements and notifications of changes in fees and interest charges: (i) Banks shall provide customers who have current accounts with separate annual statements of total fees/interest paid. (ii) Banks shall provide deposit account customers with separate annual statements of interest earned. (iii) Banks when informing customers on changes in interest rates and charges 3

4 shall include details of the old rate/charge, the new rate/charge and the difference in monetary terms (in the case of rate changes for loans and mortgages) In addition to the two measures above, provisions within Chapter 4, Provision of Information, of the Bank s Consumer Protection Code 2012 ( 2012 Code ) require a regulated entity to; A regulated entity must ensure that all information it provides to a consumer is clear, accurate, up to date, and written in plain English. Key information must be brought to the attention of the consumer. The method of presentation must not disguise, diminish or obscure important information. 4.4 A regulated entity must ensure that the font size used in all printed information provided to consumers is: a) clearly legible; and b) appropriate to the type of document and the information contained therein Prior to offering, recommending, arranging or providing a product, a regulated entity must provide information, on paper or on another durable medium, to the consumer about the main features and restrictions of the product to assist the consumer in understanding the product. To the extent that the contract for the provision of the product is a distance contract for the supply of a financial service under the European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004, the Regulations apply in place of the requirement set out in the first sentence of this provision A regulated entity must provide each consumer with the terms and conditions attaching to a product or service, on paper or on another durable medium, before the consumer enters into a contract for that product or service. To the extent that the contract for the provision of the product is a distance contract for the supply of a financial service under the European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004, the Regulations apply in place of the requirement set out in the first sentence of this provision. Similar provisions to those outlined above from the sectoral commitment negotiations combined with the Code would be of great benefit to European consumers if included in the Payment Services 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? Answer 2: Standardised banking terminology can facilitate transparency and comparability within retail banking markets. Standardised terminology allows consumers to directly 4

5 compare financial products on a like for like basis, while also making information easy to both read and understand provided the terminology is well explained and presented. In producing its financial product comparisons, the NCA adopted a similar approach. At the Agency s request, banks provide information to the Agency in a standardised format so that it can easily be presented to consumers. It is also important that information on interest rates, fees and conditions is standardised and can be easily compared across products. In addition, the comparisons offer supporting text which explains the details of these fees using plain English. The NCA notes the diversity existing in the Irish banking market between current accounts, in particular the qualifying criteria for fee-free banking. This diversity is of benefit to consumers, as it facilitates consumer choice, however, caution must be exercised in the use of standardised terminology in order to ensure that products and their fees and charges are sufficiently explained. At present, there are 11 current accounts on the NCA comparison site 1, which are actively marketed in Ireland. The current accounts available have notable differences and it is therefore imperative that providers have sufficient flexibility within regulations to adequately describe their products. If standardisation is to be applied to banking terminology it should only apply to certain fees which are universally charged to European bank accounts. The NCA advises that special attention should be paid to language differences and this should be considered when drafting the standardised terminology. Across the board standardisation would create difficulties for fees which are unique to certain member states or indeed to certain individual products. For example, fees related to cheques, information from the Irish Payment Services Organisation shows that cheque usage in France, Cyprus, Malta, Ireland, United Kingdom and Portugal remains high relative to the European average 2. Sweden has phased out cheque usage completely. Therefore there seems to be little reason to standardise terminology for fees relating to cheques and other similarly exceptional areas. Given the implications of the Payment Services Directive and the Single Euro Payments Area it is natural to assume that standardisation of primary fees should apply at a European level. 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? Answer 3: Yes, as stated above, standardised lists of bank fees, well explained would allow consumers to easily compare fees on a like for like basis while also presenting the information in an easy to understand manner. The Agency proposes that any standard template should be tested on end users prior to issue to ensure sufficient understanding. The glossary of terms should be produced by the European Banking Industry in conjunction with the European Central Bank, National Central Banks and various consumer groups within the EU. The glossary should be published in all working languages of EU member states

6 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? Answer 4: i) The NCA has managed its own independent financial product comparisons since March Page views on the comparisons have remained high since the redeveloped website was launched in October and the comparisons remain the most popular content on the NCA website, The Agency has undertaken user testing on the site recently and feedback gathered from consumers during this has been extremely positive. Consumers commented that the website is easy to use and financial terms are explained well. Other comparison websites managed by private entities are active in the Irish market, however, the NCA is of the view that publicly managed comparisons afford a higher level of impartiality to consumers and feedback from our user testing indicated that consumers trust information from public authorities. Consumers stated that it was clear from the NCA site that they were not being sold anything, as the products are listed alphabetically, with an additional sort function to enable comparisons. They understood that the purpose of the site is to provide information to interested parties. Furthermore, in contrast to the privately managed sites, the NCA receives notifications of updates to rate information, five working days in advance from the providers so that the information is at all times correct and up to date. There can be high costs involved in establishing a comparison website including but not limited to the design and building of the site, advertising and establishing its brand and staff to maintain and update the site. ii) Cost simulations are an element that the NCA has considered incorporating in the current account comparisons. It would be useful if consumers could use the site to project the costs of running a bank account based on the estimated number of transactions in a given quarter. This calculation would help consumers decide the most suitable current account for their needs given the qualifying criteria that may be attached to the accounts. One of the main difficulties with this approach, however, is the random nature of consumer behaviour. Many consumers cannot accurately predict the number of times they would use an ATM for example, in a given time period. As noted in the consultation paper in regard to ex post information, if a consumer received an 6

7 annual itemised fee statement outlining the number and types of various transactions made, it would make it easier for consumers to compare their current account fees. iii) iv) Representative examples can be useful from a consumer point of view, however the NCA opines that such examples are of limited use when making inter-bank comparisons as each financial product provider can frame their representative examples in a unique fashion. While representative examples are somewhat useful, they should not become a compulsory measure adopted across Europe in order to improve comparability and transparency. The NCA is the statutory body in Ireland tasked with enforcing consumer law, defending consumer interests and embedding a robust consumer culture. A key feature of the NCA s work is the promotion of consumer price awareness and transparency. To date the NCA has taken an active role in the introduction and development of some of the measures set out above. However, other consumer organisations and/or the financial ombudsman may have a role in developing the measures outlined above while also conducting regular studies of the banking industry. The NCA referred in point (ii) above to ex post information, which would be useful to consumers and suggests that if banks could provide tools that would help consumers assess their usage levels in any given period, this would help consumers compare current account fees. In regard to the final question on whether the tools described above should be compulsory and the costs involved, we have highlighted above the popularity of the financial product comparisons and how beneficial they are to consumers. The comparisons provided on the NCA website are paid for by the financial services industry through a statutory levy. As mentioned earlier, in the user testing that was conducted recently, participants expressed great satisfaction with the site. Individual member states need to analyse their own market and evaluate the costs to the State of providing such a service versus the ultimate costs and benefits to consumers. 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? Answer 5: The Agency is of the view that account holders should have details of all fees charged to their account provided to them with their regular bank account statement and also on an annual basis in one document. This may be online or paper based. As previously mentioned, it would be useful if consumers could view a breakdown of which fees were actually charged to their balance and to which actions they apply, similar to the ex post information set out in the consultation paper. This would encourage consumer mobility as well as encouraging consumers to review the methods by which they manage their bank account in order to avoid similar fees in future. 7

8 Section 28 of the Payment Services Directive requires that consumers receive monthly statements of current accounts and states: In addition, the consumer should receive basic information on executed payment transactions for no additional charge. In the case of a single payment transaction the payment service provider should not charge separately for this information. Similarly, the subsequent monthly information on payment transactions under a framework contract should be given free of charge. However, taking into account the importance of transparency in pricing and differing customer needs, the parties should be able to agree on charges for more frequent or additional information. In order to take into account different national practices, Member States should be allowed to set rules requiring that monthly paper-based statements of payment accounts are always to be given free of charge. 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. Answer 6: No further observations. 2. 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? Answer 7: The CBI introduced a Code of Conduct on Switching of Current Accounts with Credit Institutions ( Switching Code ) in October This is a statutory code, which banks must comply with and which built on the voluntary Irish Banking Federation ( IBF ) Personal Account Switching Code and IBF Business Account Switching Code. The Switching Code was drafted in line with the Common Principles on bank account switching. While the CBI published the Switching Code, under sectoral commitments the Agency committed to provide information on switching current accounts to consumers in a plain-english manner. The Agency s website 3 contains detailed information in regard to switching, notably a clear step-by-step guide. 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. Answer 8: In December 2011 the CBI published findings from an inspection and mystery shopping exercise conducted across four banks about the current account switching process 3 8

9 based on the Switching Code. Concerns about the information provided to consumers on current account switching and the level of awareness and understanding of the Switching Code by branch staff were identified. The NCA s bi-annual nationally representative quantitative market research of 1,000 consumers aged between 15 and 74 years of age, last conducted in November showed that the number of consumers who have switched current account provider in the past 12 months was 2%. Of those that did not switch their current account provider: - 56% said that they were happy with the level of service provided; - 14% felt that their existing current account gave them the best value for money; - 10% said it was too difficult to determine who provides the best value for money; - 7% said time and money needed to switch outweigh the benefits; - 3% said that they cannot switch due to limitations; and - 2% said there was no convenient alternative provider. These statistics, while also highlighting that many consumers are satisfied with their existing current account, point to remaining difficulties surrounding the switching process for current accounts. Namely, difficulties identifying suitable alternative providers and limitations on the switching process. While it was not included in the Agency s market research, anecdotally there is a perception amongst the general public that it is difficult to switch. As part of its public awareness role, the Agency regularly highlights to consumers the merits of reviewing their personal financial products in order to ensure that they are getting a good deal. For convenience, there is also a link directly from the financial product comparisons to the switching information on the website in order to educate consumers on the switching process. 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? Answer 9: As previously stated the Switching Code in Ireland is now statutory, however, its origins lie in the voluntary IBF Personal Account Switching Code and IBF Business Account Switching Code. The CBI s inspection covered the period from October 2010 to June 2011, the eight months directly following the introduction of the Switching Code on a statutory basis. The mystery shopping exercise was conducted in September It appears from the findings of these exercises that banks are not complying with the Switching Code, however the CBI has advised that a formal review of the Switching Code will take place in It would be more beneficial for consumers if the Common Principles were placed a on a statutory footing. Relevant competent authorities could monitor the on-going compliance of banks with the Common Principles and place sanctions where breaches were identified. This would increase the protection for consumers

10 Question 10: Should switching principles/measures also cover cross-border switching of bank accounts? Answer 10: Yes, switching principles/measures should cover cross-border switching of bank accounts. There are presently 11 current accounts actively marketed by providers in Ireland. If cross-border accounts were also considered, it would increase competition among providers. This would lead to more options for consumers and a broader range of services. The amount of providers offering free banking without qualifying criteria to consumers in Ireland has decreased and the introduction of cross-border switching may entice providers to offer better deals to compete with other European providers. In addition to the comments above, the Agency considers that it should be very clear to consumers when conducting cross-border activities which competent authority in the consumer s specific State has responsibility for overseeing issues regarding complaints and regulatory matters. 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? Answer 11: The risk of having receipts, bills and payments misdirected, as advised in answer 8 was not included in the Agency s research, however, it was identified as an issue in the CBI s inspection and mystery shopping exercise 5. The inspection findings showed that delays were caused by the direct debit originators not updating their records and in the mystery shopping just over half of the visitors were advised of how standing orders, direct debits and salary payments transactions would be dealt with. Strengthening of the legislative powers in this regard would make banks more responsible for ensuring a smooth switching process. 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? Answer 12: The Agency does not have any data on this but would opine that a number of factors constitute barriers. Consumer trust and brand familiarity, attitudes towards switching, language barriers, clarity around deposit protection and complaints handling and how consumers can lodge cash if accounts were online only to name but a few. Some of these problems are connected to issues surrounding inertia in the current account market, consumer trust and brand familiarity play a large role in the Irish banking market. Further figures from our bi-annual market research 6 indicate that consumers choose the bank for their current account based on a number of factors: 5 taccountswitching.aspx

11 - 43% said that familiarity and past experience were influencing factors with 12% identifying it as the most important. - 30% said that recommendations from friends and family were influencing factors with 9% calling this the most important factor. This is a feature of the Irish consumer banking market that means it is difficult to incentivise current account switching and accordingly may create barriers to entry for potential current account providers. Question 13: What other measures should be considered to improve bank account switching? Please describe. Answer 13: The Agency is of the view that competition between current account providers in Ireland has stagnated in recent years to the extent that providers are not actively competing to win business from each other. Banks are not advertising for new customers or offering better deals to encourage consumers to switch their current accounts. It is unclear if there are any measures that can be introduced to improve the current situation, although the Agency s financial product comparisons do facilitate competition to an extent. This will be of particular importance in the coming years, if Ireland continues on its path towards a market consisting of two pillar banks, namely, Allied Irish Bank and Bank of Ireland. The CBI and the Agency should actively promote the benefits which can accrue from switching current accounts and the general benefits to having healthy and vibrant competition in the market for financial products. 3. Access to a Basic Payment Account 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? Answer 14: In 2011 a Steering Group on Financial Inclusion was established by the Department of Finance to examine access to a basic bank account. This group produced a report 7 on this topic which was published in June The report recommended that domestic banks in Ireland be required to provide and promote basic payment accounts to the 20% of consumers who currently are not in possession of a bank account in Ireland. Obstacles which are highlighted in the report include a mistrust of providers, lack of confidence in the banking system, perception of high costs and a fear of loss of control over money. Terms and conditions along with charges associated with bank accounts can deter access and use. Supply side factors such as unsuitable product design, risk assessment procedures and modes of delivery (e.g. online only) can exclude certain consumers from the personal banking market

12 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? Answer 15: The Basic Payment Account scheme is due to be piloted in Ireland in July 2012 by three domestic banks (Allied Irish Bank, Bank of Ireland and Permanent tsb) in a number of branch locations. Providers are not expected to make basic payment accounts widely available until The CBI s 2012 Code includes a General Principle that refers to access and endeavours to ensure that regulated entities do not restrict access to financial services. The principle is: A regulated entity must ensure that in all its dealings with customers and within the context of its authorisation it without prejudice to the pursuit of its legitimate commercial aims, does not, through its policies, procedures, or working practices, prevent access to basic financial services. Question 16: Do these measures also facilitate access to a basic payment account for nonresidents? Answer 16: Finalised details of these plans are unclear at the present time, however the basic payment accounts are currently intended to be offered to those who do not presently have a current account. The basic payment accounts will be made available in a number of pilot locations. Providers are not expected to make basic payment accounts widely available until At this point it cannot be said whether basic payment accounts will be made available to non-residents of Ireland. Question 17: If consumers still have difficulties in opening a bank account, what are the reasons for that? Answer 17: The main barriers would be cultural and some have difficulties with identification and address certification required under Anti-Money Laundering legislation. The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 transposed the 3rd Money Laundering Directive into Irish law and requires banks, etc., to identify their customers by reference to documents or information that the designated person (i.e. in the bank) has reasonable grounds to believe can be relied upon to confirm the identity of the customer. The Guidelines for the financial sector contain a number of guiding principles, including the following: a statement of commitment to ensuring that AML/CTF requirements are not used to unreasonably deny access to financial services including access by vulnerable groups who may be financially excluded by merit of their age, gender, ethnicity, disability, educational attainment, income, etc.,. 12

13 The Guidelines also detail a non-exhaustive range of alternative documents which can be used to identify customers who do not possess standard identity documents. A copy of the Guidelines are available on the Department of Finance s website 8. As previously mentioned in answer 14, obstacles which are highlighted in the Steering Group on Financial Inclusion s report include a mistrust of providers, lack of confidence in the banking system, perception of high costs and a fear of loss of control over money. Terms and conditions along with charges associated with bank accounts can deter access and use. Supply side factors such as unsuitable product design, risk assessment procedures and modes of delivery (e.g. online only) can exclude certain consumers from the personal banking market. Question 18: If more needs to be done what additional measures should be envisaged? Should the problem be tackled at national or EU level? Answer 18: This problem might best be tackled at EU level by providing a basic right to a payment account. This action would prevent exclusion of certain consumers who do not meet the necessary identification requirements. A larger challenge exists in increasing the participation of those who at the present time simply do not wish to participate in the personal banking market, i.e., those who are content without a bank account and who have no desire to open one. More can be done at the EU level to promote the benefits of bank accounts and the facilities that can come with them. -ends