green paper on retail financial...

Contact: Dominique Forest- [email protected] Ref.: X/043/2007 - 23/07/07

BEUC, the European Consumers’ Organisation

36 avenue de Tervueren, 1040 Bruxelles - +32 2 743 15 90 Want to know more about BEUC? Visit www.beuc.eu

GREEN PAPER ON RETAIL FINANCIAL SERVICES

BEUC Response

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BEUC, the European Consumers’ Organisation 36 avenue de Tervueren, 1040 Bruxelles - +32 2 743 15 90 Want to know more about BEUC? Visit www.beuc.eu

1. Preliminary remarks: current situation and explanatory factors

BEUC has worked for many years in the area of financial services. Besides contributing actively to a number of discussions in the field of consumer credit, mortgage credit, payment services, SEPA, consumer mobility, competition in retail financial services for instance, we had reacted to horizontal initiatives, such as the Green Paper on Financial Services Policy (2005 - 2010) published by the Commission on 3rd May 20051, as well as to other institutional policy developments, such as the Lamfalussy Process2. More generally, BEUC responded also to the consultation on the Future of the Internal Market.3 BEUC welcomes the Green Paper on Retail Financial Services as an opportunity to bring forward the consumers side in the debate on the integration of the Internal Market in Retail Financial Services. This has not always been the case in the past, and we see the need for an increased emphasis on consumers’ welfare, in the framework of a Better Regulation approach reflective of consumers’ needs, and including in particular Consumers Impact Assessment of the measures envisaged. There is also a need to consider the market situation from the consumers’ perspective, as well as consumers’ expectations in this respect, to avoid a biased ‘supply-side’ analysis. Few consumers buy financial services from another Member State. The Green Paper highlights also large differences in charges and variations in terms of market performance. Not all the market performance indicators are relevant though, and in particular, choice as such should be seen more in terms of the quality of products on the market rather than the sheer quantity of products. Provided one assumes that the completion of the Single Market will potentially increase the choice of products and providers/lenders for consumers, this could also result in consumers’ confusion, fuelled by the sheer number of products on offer and their sophistication, to which one would have to add (possible) confusion marketing. Financial services are in essence a mix of rights and obligations for the supplier of the service and the consumer. Therefore, the need to adapt products because of differing consumer protection measures aimed at addressing the specific problems consumers (and suppliers) face in the specific national product markets cannot be seen as ‘economic barriers’4 per se limiting competition and stifling innovation. A case in point could be the introduction (on the continent) of so-called ‘equity releases’, as mentioned in the Green Paper, which would make it possible for consumers to mortgage their property and to spend the credit they get for consumption purposes (holidays, buying a car, etc). The vision of lenders/intermediaries targeting home owners, who are on average older/old people

1 ‘Green Paper on Financial Services Policy (2005-2010) - BEUC position’, X/030/2005 of 1st August 2005 2 ‘Application of the Lamfalussy Process to Securities Market Legislation – BEUC Comments on the Commission Working Document of 15th November 2004 and on the 3rd Inter- Institutional Monitoring Group report of 17th November 2004’, BEUC/X/004/2005 of 1st February 2005 3 ‘Future of the internal market – BEUC Reply to the Public consultation’, BEUC/X/043/2006 of 4th July, 2006 4 Green Paper §8 p.6

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could be worrying, especially if one has in mind door-to-door selling, high pressure sales tactics and the like. The danger for consumers in this case is to lose their home. Consumers are often unaware of their rights under their own national law, let alone those under the laws of other EU member states. According to the Green Paper, this underlines that integration of retail financial services does not seem to have reached its full potential yet, and there seems to be too little competition on various markets, particularly in areas like payments and retail banking. One has to underline here that the Internal Market has to be considered in its entirety. Therefore, instead of a too narrow focus on the purely cross-border dimension, the (limited) level of competition in a number of national markets has to be considered and addressed. Also, markets where offers are used to attract the consumer and to tie her or him to the provider, such as mortgage credits in some Member States, shall not be considered as competitive. The entire ‘relationship’ with the provider has to be considered to assess the level of competition – a point that we have made repeatedly during the lifetime of the expert group on customer mobility in the area of bank accounts. Financial services markets and products cannot be considered in isolation as bundling/absence of transparency and confusion marketing are widespread. The realities of the markets have to be considered. Various elements are underlined as explanatory factors by the Commission, such as the difference in national rules governing consumer protection, taxation and fragmented market infrastructure. In this respect, referring to differing national consumer protection frameworks as an obstacle is a well-rehearsed mantra which is not only largely irrelevant and reflective of a supply side biased vision of the markets, but also in sharp contradiction with the aim of increasing consumers’ confidence underlined as one of the priorities of the Green Paper. As further explained below, only a consistent approach, duly reflective of the three self reinforcing objectives of competitive and open markets, increasing consumers confidence and empowering them is likely to achieve a positive outcome. The Green Paper acknowledges that consumer behaviour and consumer preferences, high switching costs and the inability to access information or incomplete information can play a role. But ‘natural’ obstacles have a role to play also. Language barriers are genuine obstacles to cross-border provision of financial services, and/or for consumers to engage into contractual relationships with foreign providers. This shall not be underestimated. For a number of financial products5, tax aspects (uncertainty regarding the tax level to be paid on the income generated, procedures to follow with the tax authorities, necessity for products to abide by specific criteria and to follow specific administrative procedures to benefit from tax breaks) undoubtedly discourage consumers from crossing the borders.

5 Short or long-term savings, life insurance for instance.

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2. Better regulation and financial services

Under the better regulation agenda, the Commission underlines that new regulatory initiatives (subject to impact assessments) would only be undertaken if an economic case has been made, and if consumer confidence and cross border activity are improved. The Green Paper highlights the need for leaving measures enough time to prove their efficiency, and for their impact to be measured, whilst insisting that if they are not working, the Commission will propose their withdrawal. As underlined above, cross border activity as such, or increased choice per se are not necessarily relevant indicators for action to be taken (or not). Besides, the test for a legislation to be proposed should in no case be its purported "simplicity", but its capacity to solve the problems that consumers and providers could encounter on the market. Obviously, rules need to be proportionate and a good transposition of European rules must be ensured. However, whilst we are not in favour of ‘overregulation’ or ‘red-tape’ it is difficult to imagine that non complex rules could be efficient in a sector characterized by sophisticated products, complicated/bundled offers and information asymmetry, as well as ‘not-so-simple’ legislation in place at national level. In that sense, ‘evidence-based’ Commission proposals’ might need to be adapted to the specificities of national situations – this should also be seen as implementing the subsidiarity principle in practice, which the Commission reckons any legislation should respect. Owing to this, we remain very skeptical about the used and abused claim that ‘complex rules’ and ‘goldplating’ should be avoided. Also, as we remain firmly convinced that minimum harmonisation should be the rule, along with harmonisation of ‘interfaces’ (structured and standardized presentation of products along their ‘key features’ for instance) to allow for better information, transparency and comparability of products. As regards supervisory convergence, we would like to emphasize that such a convergence shall not in any case call into question the ability of national authorities to intervene if a financial services provider breaches the rules or harms consumers. This would include the ability to ban a provider or to withdraw its license if necessary. Consultation of consumer organisations is needed to ascertain the aspects most detrimental to consumers in the process of implementation of directives at national level, and we welcome the apparent willingness of the Commission to launch such a process with the implementation of the Payment Services Directive. As indicated above, this shall not result in the necessary flexibility in the implementation at national level being called into question. Linked to the discussion on better regulation is the increasing tendency to rely on the so-called Lamfalussy Committees, made up of member state representatives, to adapt and complete the framework legislation in the area of financial services, supposedly to reduce the time necessary to adapt financial regulation to new market developments. Whilst there is a need for better consultation mechanisms and greater transparency, and to improve the involvement of stakeholders and of consumer organisations in

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particular, lawmaking might not be faster and more efficient under this process6 since the consultation on implementing measures will impact on the time when the final package of measures is agreed upon. The political momentum needs to be considered when assessing ‘speed and efficiency’. For instance, the Regulation on cross border payments in Euros7 was adopted in a short time-span due to the political momentum (the changeover to the Euro) – and this was outside the Lamfalussy process. Also, timely implementation/transposition of Community directives (including implementing measures in the form of directives) into national laws and enforcement are key issues, and actual implementation remains an unknown factor. The process as it stands allows a delegated authority to issue subsidiary legislation: this is law-making, which should not be done behind closed doors. It could also call into question national discretionary powers as far as consumer protection provisions are concerned. Corporate governance could also play a complimentary role in the field of retail financial services. Besides companies, accountants and auditors and other market participants having to apply the highest ethical standards in their work, consumers must be put at the heart of corporate governance. Corporate governance would cover information to consumers, product design, contractual terms and conditions, fair penalty charges, to try to promote consumer confidence in financial services. The linking the remuneration of financial firms’ directors to indicators factoring in how well consumers are treated, fair and responsible practices could be considered, as well as rules to prevent retail financial firms from using remuneration strategies which conflict with the duty to treat customers fairly.8 Reporting of consumer related information in a dedicated section of annual reports and accounts should be mandatory. Also, in contrast to shareholders (under listing regimes), consumers suffer from a limited right of access to information (apart from disclosure of charges). This has to be corrected. The protection given to commercial interests through statutory prohibitions on the disclosure of certain information held by regulators and government departments shall be re-examined. In particular, there is no case for withholding information such as complaints, enforcement decisions, contract performance.

3. Replies to the Green Paper questions (1) Do you agree with the objectives and priorities set out in this paper?

6 Cf. for instance: ‘Application of the Lamfalussy Process to Securities Market Legislation – BEUC Comments on the Commission Working Document of 15th November 2004 and on the 3rd Inter- Institutional Monitoring Group report of 17th November 2004’, BEUC/X/004/2005 of 1st February 2005. 7 Regulation 2560/2001 of 19th December 2001 proposed in July 2001 8 According to our UK member Which?, Consumers’ Association, ‘There is a precedent in the UK institutional investment markets where conduct of business regulations require that remuneration paid to investment banking staff should be: i) consistent with impartial assessment of a company’s prospects and ii) cannot be tied to a specific deal. Again, it is ironic that the regulators recognise the need to make rules to prevent potential conflicts of interest caused by commercial models in the institutional markets – markets where ‘users’ are meant to be relatively sophisticated and exert a powerful influence – yet there is no real equivalent in the retail sector.’

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For the market to deliver to consumers, the specificities of retail financial services for consumers have to be duly acknowledged. The opacity of offers, the difficulties in obtaining clear, complete and comparable information, the forced immobility of consumers highlight the imbalance in terms of market power between consumers and operators, and constitute as many obstacles. There is therefore a need for a coherent strategy, to ensure consistency between the objectives underlined by in the Green Paper, which are not mutually exclusive, but self-reinforcing in our views. For instance, financial education to empower consumers is no substitute for consumer protection measures aimed at improving consumers’ confidence.

• Competitive markets We welcome the aim of achieving properly regulated open markets and strong competition to ensure choice, value and quality products meeting consumers’ needs. Integration of retail financial services markets could potentially benefit consumers in the form notably of substantial financial gains (lower prices through increased competition). We have underlined many of the issues restated in the Green Paper9 (termination fees, complex information, tying and bundling, administrative burden) in our comments to the Sectoral Enquiry10, and also in the framework of the expert group on customer mobility in the area of bank accounts (see our response to question 14 for more details). The consumer experts' recommendations in the Report on customer mobility are aimed at improving the situation for consumers and we expect a proper follow up of them. Needless to say, as expressed above, the national markets situation, and also the extent to which business practices in other financial services markets would impact mobility have to be factored in to allow for real progress to be achieved.

• Consumers’ confidence Potential benefits to consumers will be undermined if integration jeopardises consumers’ confidence, especially if the current level of consumer protection and legal safety at national level is called into question for the sake of ‘harmonisation’, which shall not be an end in itself. A high level of consumer protection is absolutely necessary to foster consumers’ confidence (and trust in all EU financial service providers). This is the only way to deal (in part) with the asymmetric relationship between the consumers and financial services providers. In fact, the consumer expects to benefit in the Single Market of at least the same level of consumer protection as the one he/she enjoys in his/her member state. Harmonisation must not lead to a deterioration of the existing level of consumer protection.

9 Green Paper §18 p. 7 10 ‘Retail Banking Sector Inquiry - Preliminary Report II - BEUC reply’, X/059/2006 of 13th October 2006

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It would be counterproductive to hold national consumer protection rules as merely obstacles to the integration of the Single Market, which would need to be removed. Consumer protection rules and regulations at the national level have been developed to address issues relevant to national markets, and should not be viewed as such as barriers to an internal market. Enhancing consumers’ confidence through proper consumer protection should rather be on the agenda. ‘Maximum’ or ‘targeted full’ harmonization is not acceptable if it results in a lowering of consumer protection at national level. If Member States are not allowed to introduce further rules than the EU harmonised level, they might not be able to deal with the complexities of retail financial services markets and to new specific products being developed in their markets, or to specific consumer detriments resulting for instance from the market structure. Since consumers would no longer be able to rely on their ‘familiar’ consumer protection provisions this would rather increase legal uncertainties and ambiguities, which might have a detrimental impact on their level of confidence towards financial services/financial services providers per se. On the same token, we fail to see how this could contribute to consumers contracting more cross border. Mutual recognition can only be envisaged when there has been a natural process of adaptation of retail products and services to local demand. Consumers already face difficulties in comparing financial services, even within one single Member State. It does not seem realistic to expect consumers to be able to make "an enlightened choice in contractual law", as they would have to understand the different national legislations to be in a position to benefit from the potential advantages and the larger choice provided by free movement. This might well explain the difficulties in reaching an agreement on a new Consumer Credit Directive. We believe that this can partly be explained by the fact that individual Member States, following longstanding traditions, have decided to regulate consumer credits using very different methods and that the consumer protection level in the previous directive had simply been too low and/or un-adapted to the realities of the national markets. This is also the reason why Member States to a large extent had decided to go further in the field of consumer protection than prescribed by the directive. We call on the Commission to rely on an evidence-based policymaking, duly considering the consumers’ dimension. It does not appear obvious to us that there is an overwhelming need for ‘simplification’ and ‘consolidation’ of all relevant (European and national) financial services rules. Besides, we are not convinced that current national consumer protection provisions truly distort competition and innovation, and restrictions on development of a cross border market. It is not enough to make the assumption that removal of perceived barriers will necessarily result in a functioning and effective cross-border consumer market. The choice of the regulatory instrument most appropriate must be done in a fair and balanced manner and should not be biased towards self-regulation, in particular since it is not necessarily "quicker" or ‘more efficient’ in terms of adoption and implementation, nor more "flexible" than binding regulation especially since there is a good deal of evidence against it being rapid, flexible or that it could more easily target specific situations.

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• Empowering consumers We welcome the objective of empowering consumers. Financial literacy, clear appropriate and timely information provision, high quality advice level are all necessary for consumers to be in a position to make the right decision for them. We will come back to some of these aspects in more details, but we feel that in any case the relative importance of these various aspects needs to be clarified. Financial education is no panacea. Retail financial services markets do not present the same characteristics as good markets. In particular the asymmetry in terms of information and (technical) knowledge between consumers and providers is particularly high. The ‘professionals’ have an undisputable advantage in terms of information and technical knowledge11. This has to do with the nature of financial services, but also with the increasing complexity of products (hence the need for ‘simplification’), linked to the ‘bundles’, as well as to the willingness of financial actors to develop a ‘global relationship’ with their customers It seems highly improbable that financial education of consumers as such will do away with these asymmetries. It is not realist to imagine that the average consumer would be able to grasp the subtleties of highly complex products. "The enlightened amateur" in financial services will most probably find it difficult to achieve the same level of experience or even a ‘sufficient’ one as compared to the professionals’. It is highly doubtful that consumers have become increasingly sophisticated and possess a broad range of skills and abilities to make their choices, especially with new and more complicated retail financial services products appearing all the time. According to a research conducted by the UK Financial Services Authority, 'people do not take adequate steps to choose products to meet their needs. Most households spend material amounts on financial services, yet many do not shop around to find a good deal.' 'The distribution of scores shows relatively few people demonstrating behaviours that would be considered more capable. Even of those who have bought financial products, approximately one third are clearly not very capable at choosing them.'12 Financial services are in essence a mix of rights and obligations, for the provider as well as for the consumer. This naturally renders the information more complex, and makes it more difficult to compare between offers. As a consequence of this, one cannot assume that an ‘increased’ competition or an extension of "choice" per se would necessarily benefit consumers. As an example, in the UK more than 30.000 financial services products are on offer. For ‘essential’ financial services such as mortgage credits, complexity of products and information asymmetry are all the more problematic since the risks and consequences of a bad decision are substantial.

11 ‘The mind of the merchant, the lawyer, the physician, and the man of science, becomes gradually equipped with a store of knowledge and a faculty of intuition, which can be obtained in no other way than by the continual application of the best efforts of a powerful thinker for many years together to one more or less narrow class of questions.’ In Alfred Marshall (1920), ‘Principles of Economics ‘, Book IV, Chapter 9, paragraph 3. 12 http://www.fsa.gov.uk/pubs/other/fincap_baseline.pdf

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Beyond these aspects, the number and the multiplication of tariffs, the lack of clarity of the services covered fuel confusion. The French consumers association UFC-Que Choisir had identified more than 180 charges in the field of retail banking alone in 2003 in France13 (bank account, bank card, bank transfers, payment incidents, loans). Various charges for ‘advice’, encoding or intervention can be claimed, without the consumer knowing exactly what they cover. Tariff innovation often results in the absence of standardisation of the labelling of services considered, the non linearity of pricing (the same service can be free for a certain number of operations, and then the customer is charged), whilst for other operations a complex charging formula is applied. The same service can also be found under different names from one provider to the next, which highlights the need for a common public domestic glossary of retail banking vocabulary in order to facilitate customers' understanding of the terminology and ability to compare offers (“same words for the same services"). In Denmark in 2005, 7 out of 10 consumers stated that they found bank prices confusing, which suggests a lack of transparency, and that they did not trust the public price lists14. In Italy15, in 2005 nearly 20% of consumers declared not knowing how much they paid for their current account whilst 51% declared not knowing how much they pay per year for using ATMs. And those who believed they knew were generally wrong. Similar results have been highlighted by our Portuguese member DECO, according to which more than 50% of consumers did not know the level of the fees they were paying, nor whether other operators were offering less expensive services or products. The access to these tariffs is also difficult. In spite of the commitment of French banks in November 2004 that all tariffs would be easily accessible on Internet and in branches as leaflets, a survey conducted by the French consumers association CLCV beginning of 2006 in 280 branches covering 10 networks has showed that in only 50% of cases tariff leaflets were available16. This was confirmed by a 2007 survey17, which indicated that although some progress has been made, a lot still needs to be done in this respect. The obligation for French banks to make a list of automatic and recurring transactions available for a reasonable price has been respected, but this has led some banks to create a new tariff line for this ‘service’, which is charged 30 Euros in several branches of Crédit Agricole and Société Générale. This leads to the situation where consumers get the information only after they have signed the contract.18 As a result of limited transparency, information asymmetry and the complexity of products, consumers might use imperfect proxies such as brands, reputation or proximity of the provider (bank-next-door) instead of analyzing prices, quality of service, contract terms and conditions. This will impact competition as such, since for instance marketing might play a bigger role than the quality of the offers themselves,

13 ‘Frais bancaires – les Français exigent une facture séparée’, Etude IFOP/UFC-Que Choisir Mars 2003 14 http://www.oem.dk/graphics/oem/nyheder/Pressemeddelelser_2005/RapportGebyrer.pdf 15 Altroconsumo March 2005 16 ‘Banques : des engagements non tenus !’, Confédération Logement et Cadre de Vie, Avril-Mai-Juin 2006 17 "Tarification bancaire: l'enquête annuelle de la CLCV. En collaboration avec Mieux Vivre Votre Argent", CLCV, 2007. 18 ‘Banques – le compte n’y est pas,’ UFC-Que Choisir n°425, April 2005.

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resulting in small players with more limited resources/new entrants with a limited brand recognition not being able to match the activism of bigger operators. Consumers may attempt to compensate for information/knowledge asymmetry by seeking advice or by basing their choice on other ‘confidence-building’ factors, such as the location/nationality of the financial services provider. The need for after sales services, language and traditions might also play a role. The best way for consumer to deal more effectively with financial products is for them to receive more professional and independent, high quality advice – ‘ best possible advice’19, under which they are being advised the product(s)/service(s) best adapted to their needs and to their (financial) situation (e.g. ability to repay, personal employment and family situation). The need for this will only increase with cross border provision, enlargement of choice and higher involvement of financial intermediaries. (2) Are there issues that are not covered in this Green Paper, which are important for the integration of retail financial markets and to which the Commission's attention should be drawn? For example, are consumers in their everyday life confronted with requirements or limitations from either financial services providers or other stakeholders (employers, social security, administrations, businesses, etc.) which restrict their ability to use cross border financial services (such as an obligation to have a bank account or insurance policy in one specific country, etc.). We are of the view that a number of topics are not covered in the Green Paper, whilst they are important for consumers. Even if 15 countries (out of 27) will be member of the eurozone from 1st January 2008, the Green Paper is meant to cover the Internal Market, not only the eurozone, and we regret therefore the absence of analysis of the issues facing non-Euro countries in the Green Paper, in particular as regards the currency risks with these consumers would have to factor in when considering the potential gains of using cross border financial services. Our Danish member FBR has noted a problem regarding the costs in relation to payments of labour market pensions earned in other countries. Every month these consumers must pay the rather high costs of paying out their pension as Denmark has chosen not to implement Regulation 2560/2001 (which automatically apply for euro-payments) which lay down those cross-border payments must not be more expensive than national ones. This is a barrier for Danes resident in other Member States wanting to take out loans, save for retirement etc. as this might involve high costs in connection with the regular payments received and made. Access to financial services is key for consumers to be integrated in society, and to live a normal social and economic life, and not only, as highlighted in the Green Paper, to ‘facilitate EU citizens full participation in the economy’20. Access to a bank account and ‘basic’ payment services in particular, but also access to motor insurance for some

19 Cf. ‘BEUC's comments on Commission’s Proposal for Directive on Insurance Mediation’, BEUC/X/140/2000 of 25th January 2001 20 Green Paper §4 p.4

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categories of consumers (young drivers in some Member States) for instance need to be considered. Without access to a basic bank account, a huge variety of important financial services remain inaccessible. Even finding a job might become difficult if one does not have a bank account, due to the administrative burden associated with paying the salary in cash. One needs to underline also that few consumers in the ‘new’ Member States have access to bank accounts. In fact, less than 40% of consumers have a bank account in Poland, Lithuania or Latvia for instance21. Actual access to bank accounts and basic banking services are of growing concern across Europe. Universal Service Obligations in the field of financial services have to be duly considered (a EU-wide right to a current account perhaps). A ‘basic’ banking service is already in place in some Member States.22 In Portugal also, a basic banking service has been in place since 2000. However, according to our Portuguese member DECO, only 8 banks out of 20 have followed suit so far. In their latest study23 about the implementation of universal banking service, only one bank was implementing the law properly, whilst one bank charged consumers with an opening fee of 150 euros, in breach of the law and another charged consumers with a higher annual fee than foreseen in the law. The other banks did not reply to the request for information from DECO.

21 Cf. Candidate countries Eurobarometer 2003.5 May 2004. 22 Our French member CLCV has been campaigning for such a universal banking service and has defined such a service as including notably the opening and closing of a bank account and a cash-withdrawal card operating on the network. Our Belgian member Test Achats is also in favour of this (‘Tout le monde a droit à un compte à vue’, Budget et Droits, Septembre-Octobre 2003, n°170). En Belgique, le droit universel au compte à vue est consacré par la loi du 24 mars 2003 relative au service bancaire de base et son Arrêté royal d'exécution du 7 septembre 2003 Le service bancaire de base est défini comme un compte à vue comprenant différentes opérations : - l’ouverture, la gestion et la clôture d’un compte à vue; - la mise à disposition de virements (pouvant être effectués à la main et de façon électronique, en

fonction de l’établissement de crédit); - la possibilité d’effectuer des ordres permanents et des domiciliations; - la possibilité d’effectuer des dépôts (espèces, chèques et chèques circulaires); - la possibilité d’effectuer des retraits au guichet et par voie électronique (en fonction de l’établissement

de crédit); - la mise à disposition périodique d’extraits de compte. Il appartient à chaque banque de décider si elle offre une carte de débit dans le cadre du service bancaire de base. Afin de ne pas favoriser le surendettement, le recours au crédit (c’est-à-dire la possibilité d’aller “en négatif” sur le compte) n’est pas possible. Les conditions d’accès au service bancaire de base (SBB). - Avoir sa résidence principale en Belgique; - Etre une personne physique agissant dans un but privé; - Compléter le formulaire de demande qui sera mis à disposition (et dont il recevra copie une fois

complété) et y attester ne pas déjà disposer d’un compte à vue (voir plus bas); - Ne pas avoir été condamné pour escroquerie, abus de confiance, banqueroute frauduleuse, faux en

écriture ou blanchiment de capitaux. - Ne pas déjà bénéficier d’un service bancaire de base, d’un compte à vue ou d’autres produits liés auprès

d’un établissement de crédit. Les produits d'épargne et de crédit sont compatibles avec l'octroi d'un SBB pour autant que leurs montants cumulés ne dépassent pas 6000 €.

Aucune condition de revenus ou de rentabilité dans la nouvelle loi. Il n’est plus question pour une banque de refuser d’ouvrir un compte à un jeune chômeur en stage d’attente ou encore à un travailleur qui n’a pas les moyens de déposer immédiatement une somme d’argent sur le compte qu’il veut ouvrir. Toutes les banques sont concernées par l’obligation de fournir le service bancaire de base. Un forfait maximum de 12 € par an pourra être réclamé au consommateur. Ce montant est indexable (pour 2007 : 12,80 €). Le forfait de 12 EUR couvre également les éventuels frais qui pourraient être réclamés au consommateur lors de la clôture de son compte. 23 Dinheiro & Direitos Março/Abril 2007

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Obviously, the financial soundness and the integrity of financial services providers in the field of banking, insurance and investment shall not be called into question. Some of our member organisations have expressed worries regarding the possibility for new actors to distribute credit (related to payment services) thanks to the Payment Services Directive. The multiplication of offers and the market entry of new actors shall not lead to an unmanageable distribution of credits leading to over-indebtedness. This raises also the issue of proper supervision, including cross border. The European Parliament Equitable Life Committee of Enquiry has underlined the need for cooperation between national regulatory authorities to be improved: national financial regulators should not play a passive role, limited only to their national jurisdiction. EC legislation is thus needed "to highlight the collegial responsibility of national regulators". It has called also for "the further strengthening of prudential supervisory and regulatory standards throughout the Union, including an obligation to reserve for liabilities such as bonuses" (since the Equitable Life crisis arose because the company did not set aside adequate reserves). We share the view that supervisory cooperation should be strengthened in view of monitoring cross border risk. This should not encroach on Member States ability to react to consumers harm/breaching of rules by operators active in their market. Regulatory consistency is also needed. Pension schemes based on savings and Investments products are a rising market in the EU, due to the challenges of financing state-funded pensions. Consumers are then faced with providers having to follow different regulatory provisions depending on the product they “sell” to the consumer. Beyond ‘vertical’ regulations applying to insurance intermediation, mutual funds, other financial products, there is a need for some kind of horizontal legislation to achieve regulatory consistency. This is about creating a ‘level playing field’ for consumers so that they are adequately protected and they can make informed choices. We believe that a number of more specific issues could be mentioned as they would impact consumers’ confidence and welfare, including for instance the issue of the creation of a European Bank Arrestment, which would allow creditors to `freeze` funds of debtors in case the debtors’ funds are located in another Member State, or the issue of security of payments and bank accounts (identity theft). These issues are borne to impact consumers’ confidence, including cross border. The obstacles to consumers exerting their ability to choose are many-fold although consumers’ (lack of) confidence is a key aspect to consider. Lack of information, transparency and comparability are important, both at national and cross border level. Advice is crucial in this respect (cf. our response to questions 7, 9 and 11 respectively). Issues linked to bundling and/or restrictive practices are treated in more details in our response to questions 4 and 14. (3) The Commission has undertaken several initiatives to improve consultation with consumers and to secure their input into its policy making. Should further steps be taken and, if so, what steps? There is a need for European institutions to be informed about what constitutes progresses in respect of integration from the point of view of consumers, the manner in which the regulatory initiatives impact consumers and the areas in which decision makers should concentrate their efforts.

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Similarly, the integration of consumer protection policy into other community policies, as defined in Article 153 of the Treaty must be implemented, and the legislative process must reflect this integration. Consequently, the use of Consumers Impact Assessments, to assess the cost-benefits of the proposed legislation, and to take into account the impact on consumers’ welfare, should be on the agenda. Proper analysis of the impact of the implementation of directives or other measures on consumers should also be on the agenda, and the involvement of consumer organisations is very much needed in this respect. There is certainly a need for radical change in the way consultations and policy analysis are conducted, and for policymakers at all levels to properly understand the needs of consumers in terms of efficient and effective competitive markets and consumer protection. The consumer needs shall be the starting point. Therefore, effective involvement and representation of consumer organizations are key in the field of financial services. Some initiatives have been taken in this respect. However, we remain of the view that (much) more needs to be done. First of all, we would expect impact studies to be carried out by independent and competent organisations. There should be no overemphasis on financial services integration per se without taking into account consumers interests: both sides of the coin have to be considered. Extensive consultation before the impact studies are finalised as well as a balanced, evidence-based approach are needed. This has not always been the case in the past. For instance, the study from London Economics on the costs and benefits of further integration of the EU residential mortgage credit markets24 failed to capture the realities of the market, and in particular the consumer dimension. Only lenders had been consulted not consumer organizations, resulting in an attempt to prove the benefits of integration from a supply side perspective, without duly considering the demand side. Crucial aspects, including information asymmetries, consumers’ confidence had been largely if not completely ignored25. Besides this, the (much) more limited resources of consumer groups as compared to the industry should be acknowledged. For instance, participating in Forum groups for specific retail products26 might constitute a serious strain on consumer organisations staff resources. More balanced working groups are needed, but also a better financing of consumer organisations providing the expertise. These two aspects are very much intertwined as the imbalance in the working groups increases the workload on the consumers’ participants in these groups. (Whilst useful, merely providing technical briefings to consumer associations would not be up to the task). It has also to be ensured that enough time is allocated for replying to consultation, owing to the limited resources of consumer organizations as highlighted above.

24 ‘The costs and Benefits of Integration of EU Mortgage Markets’, Report for European Commission, DG Internal Market and Services By London Economics, August 2005. 25 ‘Mortgage credit Green paper on a Single Market – BEUC Comments’, X/051/2005 of 1st December 2005 26 According to the Green paper p. 13, “the Commission proposes to establish Forum groups for specific retail products, consisting of experts in the field, representing industry and consumer interests, to identify any barriers and examine possible solutions. This work will be supported by extensive research.”

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As a general practice, more transparency is needed, and in particular we are calling for the publication on Internet of all the answers and contributions to the consultations, to make it possible inter alia to reply to arguments which might be circulated as contribution not visible to other parties. All policy submissions should be published, subject to a very few limited and sharply defined exceptions such as (genuine) commercial confidentiality or personal privacy. There should be no blanket exemption. We welcomed at the time the development of FINUSE but feel now that it is a half missed opportunity. FIN-USE is open to criticism as a representative body, and we feel that independent consumer organisations are still underrepresented in this body. The setting up of an EU Financial Services Consumer Panel, modelled on the UK similar panel, should be duly considered. It would advise EU institutions on progress in integration from the consumers’ perspective, how regulatory initiatives affect consumers and in which areas policymakers should focus their efforts to benefit consumers27. (4) Is consumer choice unnecessarily limited by restrictions on the providers and channels through which they access retail financial services? What are, in your experience, these restrictions? As underlined above, it is the quality of choice rather than the quantity of choice per se which matters. In this respect, we have underlined above that the complexity of information, lack of transparency and comparability, lack of proper advice, bundling and tying are effective restrictions to consumers’ choice, and they may act as effective barriers to entry for competitors and/or contribute to a closed market situation, where the market shares of the (few) dominant players are not contestable. We do see market entry/establishment as the main channel for consumers to benefit from more competition within the Internal Market, in the framework of adaptation of the offers to the local requirements and to the specific needs and expectations of consumers28. Also, we would like to reiterate our demand as reflected in the Report of the expert group on customer mobility in the area of bank accounts that ‘if there are Member States where banks are not offering bank accounts to non-residents, an investigation into the causes of this in that Member State should be considered.’ We have some evidence highlighting the malpractices of some banks refusing foreign consumers on the basis of their nationality alone. Our Belgian member Test Achats had investigated the conditions and modalities for a Belgian consumer to open a bank account in another Member State in 2004. A questionnaire had be sent to headquarters of 20 banks in 7 Member States, to which only one of them replied that it was not possible for a Belgian customer to open a bank account. However, when contacts were made with branches of the banks surveyed, 40% responded that it was impossible to open a bank account, whilst others raised conditions which had not been mentioned, the most frequent being to have to go physically to the branch. 27 For further details, see ‘Financial Services Action Plan: views on expert reports on the state of financial integration’, submission by Which?, UK Consumers Association, September 2004 28 Cf. also ‘Green Paper on Financial Services Policy (2005-2010) - BEUC position’, X/030/2005 of 1st August 2005

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(5) Despite efforts, in particular the creation of FIN-NET, the handling of crossborder consumer complaints in the field of financial services still remains problematic. The Commission would welcome input as to the ways to improve the current situation. For example, should Member States be obliged to ensure that alternative dispute resolution (ADR) schemes are in place? Should providers be obliged to adhere to an ADR scheme? Should they be contractually obliged to offer ADR mechanisms to their clients? Access to redress is indispensable, and this access must be local. It must be possible for consumers to file a complaint with the local authorities in their country of residence, without having to complaint with the authorities of the Member State from which the company at fault originates. Suppliers should be required to subscribe to independent and effective redress schemes. This was one of our key recommendations in the discussion on the liberalization on services29, and we believe this is even more important when financial services are considered. Enforcement of ADR findings on the firm and sanctions in case of non compliance should also be on the agenda. Needless to say, independence of the ADR schemes and fairness in the handling of cases have to be ensured. However, Alternative Dispute Resolution will not address all the issues consumers are facing and would not allow for all disputes to be settled – this needs to be acknowledged. This is why consumer protection provisions, enforcement and supervision need all to be borne in mind when considering the added value ADRs could bring to consumers. Even at national level, some of our members have highlighted a lack of effective and independent Redress Schemes in the Field of Financial Services. According to our French member UFC-Que Choisir, the ADR system set up by banks is inefficient in France, as ‘mediators’ are paid by banks, which does not allow for their independence and for an equitable dispute resolution for consumers. To re-establish consumers confidence a procedure which would allow for the infringement of the legislation by professionals to be sanctioned, and therefore for the efficiency of the legislation to be ensured has to be created at European level. The group action, dealing with mass disputes, needs to be set up, at national level as well as European level, to allow not only for putting an end to unfair or abusive practices of professionals but also for their victims to be really compensated. (6) The creation of the Single Euro Payments Area (SEPA) offers challenges and opportunities for businesses and consumers alike. What do stakeholders think of SEPA's impact on consumers? Should consumers be more involved in the governance and the preparation of SEPA? We have many concerns regarding the creation of the Single Euro Payments Area (SEPA). In fact, we fear a ‘lose-lose’ outcome for consumers, under a forced transition to more expensive and/or less efficient SEPA products than the ones currently on offer

29 Services in the Internal Market –BEUC position on the Commission’s proposal for a directive, BEUC/X/032/2004 of 9th November, 2004

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at national level, in the context of even more concentrated markets than in the case today, as regards payment cards for instance, with a virtual duopoly. It is therefore quite ironic that SEPA is mentioned under ongoing initiatives aimed at lower price and more choice. In fact the SEPA standards defined by the European Payments Council (EPC) will impact directly the features of the products available to consumers at national level, as well as their pricing, and potentially banking services in general. How SEPA products would compare with current national products in terms of price, quality and adaptation to consumers needs is likely to vary from one Member State to another and from one bank to another. Besides, uncertainties remain as regards the ‘core’ features of products, beyond which providers will ‘compete’. For instance, even if the Payment Services Directive clarifies that from 2012, the execution time for credit transfers will be one day within the Single Market. However, the SEPA standard for credit transfers refers to ‘a common maximum 3-day time cycle’. In some Member States, depending on the date of implementation of the SEPA credit transfer standard, same day execution time (which is the rule) might be called into question by SEPA, unless there is ‘good market behaviour’ from operators. Owing to the limited consumers’ mobility in the sector, this raises some doubts at the very least. The (likely) elimination of the double mandate for direct debit, as was the case in France for instance, is worrying, since it will eliminate the control by the bank of the legitimacy of setting up the direct debit, whilst our French member UFC Que Choisir has noted an increase in the number of disputes in this respect. Although no final decision seems to have been made on the SEPA direct debit, the fact that the CMF scheme would work with some 8,000 banks raises a number of concerns. For instance, with so many banks having access to information, some privacy issues could arise. The direct debit instrument could end up being mistrusted as a result of national ‘controls‘ being forfeited, unless measures are taken for extra checks to be made about the legitimacy of the mandate. Even if the pricing of SEPA products is not ‘normally’ on the agenda of the industry discussions, for fear of breach of antitrust rules, SEPA products could also end up being more expensive for consumers than current national payment products. The transition from ‘national’ products to ‘SEPA’ products is unlikely to be achieved before 2012 at the earliest. However, some banks have already anticipated this move, resulting in new ‘packages’ for consumers, in Belgium, Slovenia and the Netherlands. Indications of future new prices of 9 cents per transaction (SEPA direct debit) which would imply raising prices by 20% have been highlighted in Germany. Fear is that costs will rise and quality lowered. We fear a general increase in the prices and fees charged to consumers, especially since competition in retail banking services remains limited, and SEPA could be used as an excuse. The restriction of choice can also result in higher (relative) prices for consumers. For instance, if consumers only needed a (cheaper) payment card for purely national payments, they might be forced to opt for (more expensive) euro-wide payment card, offering facilities they do not need at a higher price. For instance, a Dutch pensioner retiring in the Netherlands would only need a ‘payment

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The Eurosystem itself has expressed concerns30 that the implementation of a SEPA for cards may lead to increase in card fees and could be detrimental to consumers and merchants, especially owing to the fact that in Europe national card schemes are generally very efficient and relatively inexpensive. Even if all these fears would prove unfounded (!), some of the benefits to consumers put forward by the EPC are elusive at best. For instance, consumers might not be in a position to only possess one bank account to make payments across the eurozone even if they so choose. Consumers might still be faced with substantial fees for withdrawing cash at an ATM outside the network of the bank of their country of origin, at national and cross border level, even when considering the implementation of Regulation (EC) No 2560/2001 on cross border payments in euro31, which provides for equivalence of charges for national and cross-border payments. Besides, it does not really make sense to expect mobility to increase dramatically as a result of SEPA even if consumers would only need ‘one’ bank account across the Internal Market. Bundling and tying issues would need to be considered, for a start. Also, it seems to be the case that for instance, the Dutch switching scheme in place currently could be called in question by SEPA. The migration to IBAN and BIC has to be consumer friendly. An easy-to-handle software application might be a good idea. The uncertainties regarding SEPA are compounded by the uncertainties linked to the interpretation and implementation of the Payment Services Directive (to be formally adopted in September 2007) for instance, as regards the burden of proof and liability when payment means have been lost, stolen or misappropriated32. To request a consumer to ensure for instance that his credit card details are not accessible to a hacker when paying online is quite simply impossible. Whilst it is possible for Member States to reduce consumers’ liability, taking into account especially the nature of the personalised security features of the payment instrument and the circumstances under which it was lost, stolen or misappropriated, the extent to which this margin of manoeuver will be used is still unknown quantity. Up to now, consumer representatives are not really integrated in discussions and information meetings about the consequences of SEPA. 'At national level, no real consultation is in place in Germany and Ireland although there is an information meeting twice a year in the former country. No consultation is in place in Austria, Hungary (although Hungarian bankers are part of the EPC), Italy, Portugal, Slovenia. Only in the Netherlands a dedicated forum seems to be in place where consumer organisations are consulted. In Belgium, the National Central Bank has created a working group of SEPA in which representatives of Belgian consumers are taking part. However, the important issue of the impact of SEPA on the costs for consumers is not discussed, and consumer organisations consider that their views are not always adequately reflected in the discussions

30 ‘The Eurosystem’s view of a “SEPA for cards’, ECB, November 2006, available at http://www.ecb.int/pub/pdf/other/eurosystemsviewsepacardsen.pdf 31 OJ L 344 of 28.12.2001, p. 13–16. 32 Article 50 of the text does not make a distinction between loss/theft and misappropriation of payment instruments, whilst consumers are generally not aware that their payment instrument has been misappropriated before some time has elapsed, and the ability of consumers to prevent misappropriation is limited.

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(7) With view to the launch of its study on credit intermediaries, later this year, the Commission would like to know whether stakeholders believe the current legislative framework to be sufficient and if consumers face any particular problems in dealing with credit intermediaries, particularly on a cross-border basis. For a long time now, we have been asking for the Commission to propose a binding legislation covering all financial intermediaries33 (so far, only insurance mediation is dealt with at EU level). There is also a need to assess the impact on consumers and the level of enforcement of the Insurance Mediation Directive at national level. We had highlighted a number of recommendations in our position paper of 1998, and notably in terms of access to the profession (minimum level of general, commercial and professional knowledge and skills, professional indemnity insurance, sufficient financial capacity, intermediaries must not have been declared bankrupt previously), registration, transparency as regards commissions and possibility for the consumer to pay for the advice separately from the contract, transparency as regards the status of the intermediary (tied or independent), quality of advice (description of the needs expressed by the consumer, costs and the characteristics of the contract proposed, obligation for the lender or intermediary to seek to advise the consumer about the product best adapted to his/her specific needs - best possible advice), complaint and redress (clear responsibilities as regards financial intermediaries, access to consumer complaints and compensation). These recommendations are still valid. We consider that the demands and needs of the consumer and the underlying reason for any advice given should be specified (on a durable medium), so as to ensure proper provision of information to the consumer. Also, it should be compulsory for the intermediary to search for the product best adapted to the consumer’s needs. In the framework of our response to the Green Paper on the Internal Market in Mortgage credit, we had underlined the need to foster consumers’ trust and confidence in that field and for provision of advice to be compulsory. Advice differs from information, it has to reflect the consumer’s specific financial and personal situation and recommend and explain a course of action in accordance with the option(s) meeting the consumer’s demand. It had been suggested in the UK (the Miles Review of the Mortgage Market) that mortgage advisors help people assess risk by presenting ‘what if’ scenarios, giving an indication of the scale of variability in interest rates. The idea is to help consumers to take a decision based on a reasonable assessment of future risks. The Implementation in practice of this is a key issue. First and foremost, these ‘scenarios’ would need to be presented to consumers in a clear, non-jargon, understandable manner. Second, lenders should be prevented from using these ‘scenarios’ to induce consumers to buy such or such of their products. In fact, according to our members, most intermediaries operate on the whole financial services market: there is a need for regulatory consistency, as underlined above. Clear rules and standards for financial intermediaries are of utmost importance. They play a

33 ‘Financial intermediaries - BEUC’s recommendations’, BEUC/X/006/2000 of 10th November 1998

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key role especially in the field of Investment products but also for loan Intermediation. One of the main issues clearly is inadequate advice, which is often linked to the issue of the structure of the remuneration of these agents. We consider that there should be complete transparency as regards the commission received by the intermediary, to avoid that only the financial products for which they get the highest commission rates are proposed and not the product which is most suitable to consumers. Intermediaries should inform consumers about all the commissions/fees they receive from selling the different products they propose, regardless of source or description. It should also be the case that consumers be advised not to buy any product if it is not in their interest. In the Netherlands according to our Dutch member Consumentenbond, from 2009 all intermediaries will be under a legal obligation to give full transparency on the fees they receive on so called ‘complicated products’: mortgages, life-insurances, investments, combination-products (e.g. an insurance combined with a credit.). The same applies in Ireland. More and more advisors try to give independent advice paid by the consumer itself. This option however might sound attractive to consumers looking for financial planning, and/or to the better off consumers, but not to the average consumer who clearly expect to receive advice from his/her provider ‘for free’ whilst at the same time he does not know how much the ‘advisor’ /seller will receive from the deal. Hence, even if a market for independent advice would be stimulated the issue of transparency of fees and commissions will remain. In Belgium, the Belgian Law of 24th March 2003 (entered into force in January 2004), has imposed new obligations on credit intermediaries, including the interdiction to sub-contract to a sub-agent, to increase transparency. There has also been an extension of its information obligations, to check the reimbursing capacity of the (potential) borrower, and the intermediary has to communicate to all lenders concerned the amount of credits (asked for or obtained) by the borrower in the last two months preceding the request. Splitting credit demands is banned34.

34 The relevant articles under the 12th June 1991 Law on credit for consumers as modified by the Law of 24th March 2003 are: Art. 62. Sont notamment considérés comme intermédiaires de crédit au sens de l'article 1er, 3° : 1° l'agent-délégué : tout intermédiaire de crédit ayant le pouvoir de conclure des contrats de crédit au nom et pour le compte d'un preteur, et n'intervenant pour les types de contrats pratiqués par un prêteur qu'exclusivement au nom de ce prêteur; 2° le courtier de crédit : tout intermédiaire de crédit qui intervient habituellement dans la conclusion d'un contrat de crédit dans le cadre de ses activités commerciales ou professionnelles, à titre principal ou accessoire. Le courtier de crédit intervient lors de la conclusion de contrats de crédit offerts par un ou plusieurs prêteurs. Art. 63. § 1. Tout intermédiaire de crédit doit informer le consommateur de sa qualité d'intermédiaire de crédit, ainsi que de la nature et de l'étendue de ses pouvoirs, tant dans sa publicité que sur les documents destinés à la clientèle. § 2. L'information visée au § 1er porte notamment sur la qualité de courtier de crédit ou d'agent délégué. § 3. L'intermédiaire de crédit ne peut intervenir que pour des contrats de crédits conclus avec des prêteurs agréés. (Toute intermédiation pour un contrat de crédit à l'aide d'un sous-agent ou en qualité de sous-agent est interdite, sauf si l'intermédiaire de crédit est lui-mëme un prêteur agréé ou enregistré.) <L 2003-03-24/40, art. 47, 018; En vigueur : 01-01-2004> § 4. Le courtier de crédit ne peut pratiquer son activité que sous sa propre dénomination. § 5. L'agent-délégué indique les éléments d'identification du prêteur dans tous les documents destinés à la clientèle. Art. 64. <L 2003-03-24/40, art. 48, 017; En vigueur : 01-06-2003> § 1er. L'intermédiaire de crédit ne peut introduire de demande de crédit pour un consommateur si, compte tenu des informations dont il dispose ou devrait disposer, notamment sur base des renseignements visés à l'article 10, il estime que le consommateur ne sera manifestement pas à même de respecter les obligations découlant du contrat de crédit. § 2. L'intermédiaire de crédit ne peut fractionner les demandes de crédit. Il doit communiquer au prêteur les informations necessaires visées à l'article 10. § 3. Quiconque agit en tant qu'intermédiaire de crédit doit communiquer à tous les prêteurs sollicités le montant des autres contrats de crédit qu'il a

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A supervisory system for independent intermediaries should be introduced along the following principles : registration with a competent authority in the home Member State; possession of appropriate professional knowledge and ability (to be determined by the home Member State, including the requirement for the intermediary to be ‘fit and proper’); possession or professional indemnity insurance and a complaint/redress scheme in line with requirements for other intermediaries to ensure consistency. In addition, under such a system there should be a declaration at the outset of the relationship between consumer and intermediary of all payments, including every commissions/fees, and that records should be kept of any information/advice given to consumers on a durable medium (burden of proof). Intermediaries need to prove they have a solid knowledge of their trade. The expertise needs to be specific – i.e. it could be ‘split up’ in sections: savings, investment, insurances, mortgages / credits. There is certainly a need for binding/legal liability on them to provide best possible advice. There is also a need for a rapid and effective conclusion to disputes. (8) The Commission believes that it has an important role to play in developing a competitive, open and effective market for long-term savings, retirement and pension schemes that meet consumers' needs. Do stakeholders agree and how could the Commission contribute? Could an optional legal EU-wide regime ("28th regime") for savings and/or 3rd pillar pension products be envisaged? We are not in favour of the setting-up of a 28th regime insofar as it implies for the consumer the knowledge of two rights (his national right and the 28th regime). Consumers might get confused between national information standard or levels of regulations and an additional one. As mentioned above, free choice of law is an illusion for consumers. The benefits of such regimes remain to be proven and reaching agreement on optional European standards designed only for certain products could be difficult. A 28th regime is likely to be as complicated to establish as a common European civil law including law of procedures, layout of court etc. Besides, a 28th regime might end up working as a kind of mutual recognition where providers would choose to provide products only if the consumer protection level were

demandés ou reçus au bénéfice du même consommateur, au cours des deux mois précédant l'introduction de chaque nouvelle demande de crédit. Art. 65. § 1. L'intermédiaire de crédit ne peut recevoir, directement ou indirectement, aucune rémunération, sous quelque forme que ce soit, du consommateur qui a sollicité son intervention. § 2. L'intermédiaire de crédit n'a le droit de percevoir une commission que si le contrat de crédit pour lequel il est intervenu, a été conclu valablement et régulièrement quant à la forme. § 3. Le paiement de la commission doit être échelonné à concurrence de la moitié au moins, selon les règles fixées par le Roi, en fonction de la nature du crédit et de sa durée. § 4. Lorsqu'un contrat de crédit est conclu en vue du remboursement intégral et anticipé d'un contrat de crédit antérieur, aucune commission n'est due si le même intermédiaire de crédit est intervenu pour les deux contrats. La présente disposition n'est pas d'application en cas de diminution significative du taux annuel effectif global du nouveau contrat de crédit par rapport au contrat de crédit antérieur. Art. 66. Le prêteur continue de répondre des sommes qu'il a remises à l'intermédiaire de crédit, en exécution du contrat de crédit, jusqu'à ce qu'elles soient versées dans leur totalité au consommateur ou à un tiers désigné par le consommateur.

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lower than in the individual Member State, which would result in a race to the bottom in terms of consumer protection. Here again, the need for evidence based policy making is obvious: there is a need for the Commission to conduct a thorough cost benefit analysis, studying in particular the impact of such a regime in different financial services markets taking into account the factual information and regulatory needs of consumers. One of the key objectives in the area of pensions should be to get clear information from the State and from the financial services providers about the pension rights consumers are entitled to under the 1st and 2nd pillar. Portability of pension rights is important also, including for the 2nd pillar. This implies for instance that fees for portability are transparent and limited in their amount35. (9) Do you think that there could be benefits for both banks and consumers, if banks would have the opportunity to offer an optional simplified standardised product, which would have a good level of consumer protection, would be easy to understand, and could be offered across borders without the need to be modified to fit local rules? We find that this question unduly mixes up two issues: the need for more simple products for consumers to be able to make an informed choice, and the ‘old’ discussion about an optional/additional 28th (previously 26th) regime. One does not imply the other, contrarily to what the question seems to imply, and we have addressed the issue of the 28th regime in the previous question, underlining our scepticism regarding the merits of such an option. On the other hand, simplification and harmonisation has an enormous potential for good for consumers, competition and the Internal Market. The idea of simplified and standardised products would obviously be most relevant for precisely the more complicated products – although they might not necessarily need to be ‘simplified’ in terms of their construction, but standardised. For instance, our Danish member organisation FBR came to terms with the Danish Insurance Association in 1989 on the design of a standardised family insurance, in order to give consumers a point of orientation in the market. However, it could well be the case that if more complicated products coexist beside these products, the comparability will not be improved for the consumer. Also, simplification should not apply to products such as bank accounts for which in some countries, provision of bank account is obligatory (universal banking service) as if simplified products become an option, the obligation to provide consumers with bank accounts in some countries might have to go. This would hardly make sense Finally, actions should be undertaken so that providers be under an obligation to deliver understandable, comparable and transparent information concerning all relevant products so that even consumers with low financial literacy are able to make price and quality evaluation without being misled.

35 Our German member VZBV reported cases where very substantial commissions were deducted in the first years of the pension scheme (under the 2nd pillar), resulting in the consumer receiving only a marginal share of the amount invested when leaving the fund.

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(10) The Commission believes that more could be done to improve consumers' financial literacy and capability. Possible measures include developing guidelines or promoting best practices. The Commission would welcome input on how this policy should be further developed at the European level. We agree with the Commission that there is a need to strengthen the consumers’ knowledge in the financial area and so try to reduce to some extent the huge knowledge gap between customers and companies in the financial sector. However, increased consumer training and consumer information can never replace appropriate consumer protection rules. Financial education is not some kind of a miracle cure to all the ills in the financial services sector. Education as such is complementary – and should not be used as an excuse to avoid (binding measures in terms of) better information/comparability and more professional and independent advice. A higher level of ‘financial education’ or the improvement of financial skills could lead to important benefits in the long run, and allow for instance to focus on the ‘risk elements’ of the different products. Nevertheless, allowing to the fact that most consumers live a very active life and their ability to follow a financial services training is necessarily very variable, financial education is a necessary but not sufficient tool. Its benefits are bound to be felt in the medium to long term at best, provided information and product complexity does not outpace the improvements in financial literacy. Programmes should be devised in a neutral manner and allow consumers to assess risks and pricing structure over time. We agree that it should first and foremost be a national responsibility. Consumer organizations would have a role to play too. We support the proposal that the Commission should be a ‘knowledge centre’ which gathers guidelines and best practice. We would also like to stress the need for evaluation, and to reflect on ‘education’ having to be tailored to the needs of specific groups although basic financial education could be delivered at school. (11) Do you think that, as they stand, the provisions on consumer information contained in financial services directives are adequate and consistent with one another? Were it not the case, how could the Commission ensure that information requirements are set at the right level, ensuring proper information but without creating any overload? Do you think that informing consumers is sufficient or that advice should also be provided? If yes, should that be compulsory or on request? Providing clear, comparable information in a plain and understandable language is a way to promote competition as consumers are then in a better position to try to assess the (complex) products/services on the market. Comparing products would be easier if they were to be explained/ presented in a standardised way, following the same structure. The harmonisation of "interfaces" (structured and normalised presentation of products, for example) should be on the agenda, to allow for better information, transparency and comparability of products.

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Binding measures to provide consumers with clear, transparent and understandable information are needed. This information has to be provided in good time, before consumers are tied by a contract, and in an easy-to-understand format (on paper if the consumer requests it). Information on terms and conditions must be communicated by the provider (bank or any other financial institution), not merely made 'available', 'somewhere', 'if asked for', 'at the first demand'. We consider that consumers could benefit from enhanced standards providing understandable, structured, comparable information on all crucial aspects of a contract (key elements to allow the evaluation of comparable products). In France for instance since the 1st of May 2006, a heading with a specific content has to appear on top of life insurance offers, for the consumer to have access quickly to the key elements of the offer. The same level of information should be granted for products meeting the same needs. This would have to be done under a high level of consumer protection, to make sure that the information is sufficient, informative and ensures corresponding legal protection. Actually, there is certainly a need for more/better information being given to consumers in the field of financial services, not less. Incomprehensive, lengthy information in foreign language are real barriers to competition in that respect. Information would need to be provided to the consumer in its native language. Rules in that respect will need to be adaptable to new types of services at very short notice. They should also be thought through so as to actively prevent “model contracts” disguising important disadvantages by simply sticking to the legal requirements in place. We remain skeptical regarding focus groups aimed at evaluating the information provisions in place, owing to the huge information asymmetries between consumers and providers and to the difficulties in establishing representative samples and analytical tools in this complex area. We do not think this would contribute to evidence-based policy making. In addition to transparent information, we point out the need of the "best possible advice", and for the demands and needs of the consumer and the underlying reason for any advice given to be specified (on a durable medium), so as to ensure proper provision of information to the consumer (see also our response to question 7). (12) Measures to improve lenders' access to credit data will be discussed in the context of the forthcoming White Paper on Mortgage Credit. The Commission believes that more could be done to promote the accessibility of credit data, in particular on a cross-border basis. Who should be able to access consumer credit data? How could the cross-border transferability of consumer credit data be improved, ensuring in particular that mobile credit data follows increasingly mobile consumers? Could a memorandum of understanding, ensuring smooth data circulation between credit bureaus, be a workable solution? We feel that the treatment of this issue in the Green Paper is one-sided and largely ignores the consumer aspects.

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In particular, it is the experience of our member organizations, in Germany for instance, that often the information in the credit register is not correct. In the Netherlands, another problem is the forthcoming mixing up of the registration of credits with payment arrears: for instance debtors of energy suppliers would be registered in the credit database too, whilst this is already the case for some (mobile) telephone-companies arrears. This approach is being criticised by our member organisation Consumentenbond, as payment arrears are of a different nature and the mixing up can lead to detrimental consequences for consumers. For instance, it has been reported that a woman could not obtain a mortgage credit, because her ex-husband – who was in charge of paying the mobile phone subscriptions for their kids, failed to do so. Also it is difficult for consumers to know what is registered and the borderline for payment arrears to be registered or not is far from clear. Before envisaging the opening of credit registers EU-wide, all consumers should at the very least be able to access and correct their files. Besides, credit registers are needed for scoring, but consumers do not know how the information in the credit register is used. A high degree of transparency and safeguards as regards the use of the information in the register are needed. Consumers must have a right to be informed about the existence and content of collected data. It is important also to make sure that data collection is limited to the data necessary (to appreciate the solvency of the borrower for instance). The creditor should be obliged to inform the consumer free of charge about the consultation of the database (which data base was consulted, at what date, what was the result of the consultation) and moreover, the consumer should be informed about his rights of access/rectification to this data according to Article 12 of Directive 95/46/EC. It should not be possible for data to be communicated except within the context of appreciating the solvency of the consumer or the guarantor. The destruction of the data immediately after the conclusion of the credit agreement/the refusal of the application is vital to contribute to that objective. It is important also to make sure that data collection is limited to the data necessary to appreciate the solvency of the borrower. It would need to be ensured that it is prohibited for the data to be collected, marketed, sold or stored by third parties having no direct link with the consumer in the context of a credit transaction. Consumers must have access to clear and straight-forward procedures to correct data and to have the incorrect information deleted, to block information in cases of disputes, and to know to whom which information is disclosed. Sanctions should also be put in place for abuse of access. Improper checking of data could have detrimental effects on consumers hence the need for sanctions to cover this aspect. We regret that the dimension of responsible lending is not reflected in the Green Paper. In Belgium, a positive database regarding consumer credits and mortgage credits has been set up under the responsibility of the Belgian Central Bank to prevent over-indebtedness and promote responsible lending (the obligation on the lender to assess

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the consumer’s reimbursing capacity). It is linked to an obligation for creditors to consult the database36. The same system is of application in Portugal for instance. According to our Belgian member Test Achats over the 4 last years, the number of consumers with at least one credit contract has increased from 52% to 55% the of adult population in Belgium. During the same period, the number of defaulting consumers registered has decreased from 400,000 to 338,000 (4,1 % of the adult population). This is evidence of the utility and effectiveness of this positive database according to Test Achats. (13) Fragmentation of retail insurance markets, for example in the field of motor insurance, does not allow consumers to reap full benefits of EU integration in this area. Do you think that more should be done at EU level to address this fragmentation? As regards motor insurance, the possible need for ‘direct’ contact regarding claims for instance could be a reason for the proximity of the supplier to be important in the eyes of consumers. Besides, insurance products are complex (tax incentives in life insurance), which would make them less likely to be traded cross-border. Also, national rules vary from one Member State to another, for instance as regards the reimbursement of healthcare. Moreover, it would be necessary that the consumer be able to compare the offers. But such a comparison is only possible if a number of essential elements of the contract are taken into account (impossibility to oppose the exceptions, right for the insurer to refuse its intervention, taxes, no-claims discount - bonus-malus systems). In Germany, according to our member vzbv, the pre-contractual info is often given at the time of subscribing to the product. Concretely, consumers find it hard to know what is insured and what is not. Since insurances tend to be sold by intermediaries, this is also linked to the previous question 7. There is also a degree of ambiguity as regards general good rules in the absence of guidelines for regulators. A framework legislation based on minimum harmonisation to

36 La loi belge du 12 juin 1991 relative au crédit à la consommation met à charge des professionnels (banques, sociétés de financement, courtiers, …) différentes obligations vis-à-vis des consommateurs, considérés comme étant la "partie faible" au contrat. Entre autres, ils sont ainsi légalement tenus de demander au candidat emprunteur tous renseignements nécessaires afin de pouvoir apprécier sa situation financière, la loi interdisant d'ailleurs explicitement la conclusion du prêt s'il s'avère que le consommateur ne sera pas à même de rembourser. Dans l'échange des informations qui doit conduire à la conclusion du crédit, le législateur fait reposer l'obligation de recueillir les informations adéquates sur le professionnel, qui a le devoir de s'informer. Si la loi prévoit la collecte de certaines informations spécifiques (la vérification de l'identité du candidat emprunteur et la consultation de la Centrale des crédits), pour le reste elle n'énumère pas les renseignements qui doivent obligatoirement être recueillis; elle laisse donc au prêteur l'entière responsabilité de la détermination de la liste des informations à collecter. Son devoir de s'informer suppose un rôle actif de la part du professionnel : interroger le consommateur sur sa situation financière, vérifier les réponses, poser le cas échéant de nouvelles questions, demander des précisions, relever les incohérences et ensuite, seulement, prendre une décision. Selon Test Achats, il va de soi que pour déterminer si le budget du demandeur permet le remboursement d'un crédit, la composition de famille ainsi qu'une appréciation correcte des revenus et des charges du ménage doivent être considérés comme les renseignements minima à obtenir! La sanction prévue par la loi si le prêteur ne respecte pas son obligation d'information et de conseil est assez lourde : en effet, le juge pourra alors décider de relever le consommateur de l'obligation de payer les intérêts sur le crédit accordé. En résumé, la loi belge a le mérite d'être claire : c'est le professionnel qui est responsable du crédit octroyé; le consommateur se doit de répondre correctement à ses questions, mais son obligation s'arrête là.

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regulate the relationship between the consumer and the insurance provider could help dealing with the temptation to segment the Internal Market for protectionist purposes. This would include: complete precontractual information in the native language of the consumer on the main characteristics of the policies, fair and quick indemnities (indemnities have to be at a sufficient level and within a short delay, failure to do so should be sanctioned), information on the motives for an insurer to refuse to intervene (exclusion provisions…, these motives have to be clear and precise, limited and apparent, the burden of proof for this falling on the insurer), the ability to end the contract, yearly at least. Our Swedish member informed us that in Sweden, insurances are sometimes part of non-profit making mutual funds imbedded in a profit making company. So, the profit making branch allocates ‘disproportionate’ costs into the non-profit product. The solution could be to make the life insurance transferable to another company. This is the case now, but fees to do so are very high (this is also linked to the next question 14, and to the issue of fees to transfer products, and bundling/tying). (14) Customer mobility and competition are closely associated. The Commission would welcome input as to how customer mobility could be enhanced. In particular, in the field of bank accounts, and as a follow-up to the Expert Group's work, would stakeholders see merits in, for example, having EU wide account switching arrangements? Will SEPA have an impact on customer mobility? For a long time we have been asking for the Commission to take action in the area of customer mobility, and BEUC and its member associations has played an active part in the work of the expert group on customer mobility in the area of bank accounts, and obviously supports the consumer experts recommendations as expressed in the final report.37 This immobility of consumers has been highlighted for example in the framework of the sectoral investigation of the Directorate General Competition of the European Commission38. If information is hard to get, and comparability difficult (see our remarks above), it should be no surprise that consumers are not necessarily looking for best deals, even when better offers are available on the market. Consumers’ decision to switch would then be based primarily on dissatisfaction with their current bank. However, this is not even the case: in Belgium, 8 out of 10 consumers have not changed banks over the last 10 years in spite of 65% of them not being satisfied with the service offered. In the UK in 2005, less than 5% of consumers had changed banks over the last two years, in spite of 35% of consumers being annoyed with their banks, and the current account market being dominated by four big banks: Lloyds TSB, Barclays, NatWest and HSBC (as 70% of consumers bank with them) none of them offering the best current accounts39. In Portugal according to our member organization DECO, 67% of consumers have not changed banks over the last 10 years. In this respect, the so-called ‘satisfaction’ of consumers has to be considered with caution. Since a large proportion of consumers do not have a precise idea of how much 37 http://ec.europa.eu/internal_market/finservices-retail/docs/baeg_report_en.pdf 38 ‘Interim Report II Current Accounts and related services’, Sector Inquiry under Article 17 Regulation 1/2003 on retail banking, 17th July 2006 39 ‘Give us back our money’, Which ?, July 2005

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their bank costs them and how much the same level of service would cost in another bank, their ability to compare alternative offers is severely constrained as a result. Besides, the quality of services is often difficult to assess, and consumers are not well aware of their rights and obligations in the ever more complex field of financial services, including under their own national rules. Most consumers would like to ‘divorce’, but cannot afford to. Closing fees for bank accounts are problematic in this respect since they have a negative impact on the capacity/willingness of consumers to change provider. In Austria, for example, according to the Austrian consumers organisation VKI40, closing fees for a bank account varied between 5 € and 25 €, the average being around 25-30 € today. There are additional costs for cancelling special services like the so called Dauerauftrag. In general, banks willing to attract customers offer potential new consumers to deal with the red tape – but do not compensate for the closing fees the consumer has to face. As a result, switching is limited. Closing fees for a bank account should in any case be limited and in line with real costs. These fees should be forbidden when the decision of closing the account results from non acceptance of new banking or contractual conditions. However, consumers’ mobility goes much beyond the problem of closing fees. The capacity of consumers to choose between providers/products or services (transparency of information, comparability of offers) and their capacity to exert their capacity to choose (no obstacles to switching/consumers mobility, level of competition on the market) have to be taken into account. In 2004, UFC Que Choisir had assessed the opportunity costs41 linked to switching banks in France to around 335 euros42. Besides the charges imposed on consumers for closing a bank account at the time, other costs have to be taken into account, (transfer of contracts, for example, costs of lost payments, administrative fees, that is to say the necessity to send letters, to fill in forms, the time lost in looking for a new provider). Finally, if the consumer had subscribed or subscribes to a package of banking services, there is a fair amount of chances that at least some of these services would overlap and consequently would lead to double billing. The red tape linked to changing bank accounts has to be lightened as well. In Austria, additional fees are charged for specific services such as permanent order. In general, banks willing to attract consumers propose to take care of bureaucratic tasks – but do not cover closing fees. More generally, switching current accounts can be a complex operation for consumers because of the range of everyday functions that are conducted through the account. Filling in the necessary forms for opening a new

40 "Bankenwechsel – Auf Nimmerwiedersehen !", Konsument 3/2005 p. 38-39. 41 Opportunity costs reflect the true economic costs for consumers and should not be confused with the costs linked to some of the contractual or legal obligations arising from one or the other party involved in the switching. ‘The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (utility) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. For example, the opportunity cost of choosing to train as a lawyer is not merely the tuition fees, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as a footballer. These lost opportunities may represent a significant loss of utility.’ http://www.economist.com/research/Economics/alphabetic.cfm?letter=O 42 "Etude sur le coût des services bancaires", UFC – Que Choisir, juillet 2004

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account, closing the old one, transferring balances, transferring direct debits, setting up payment instructions, informing customers about the new account number can be time-consuming In addition, there is a risk that direct debits or other transactions might be lost. In Italy for instance, it can take more than 2 months to switch a current account to another bank. Packages have a negative impact in terms of transparency as they make it more difficult for consumers to compare offers and prices. Besides, it increases consumers' reliance on their bank and thus it might be more difficult for a consumer to exit a contractual relationship or have more than one bank. For instance, a consumer can fear for that the interest rate he obtained for his mortgage credit is called into question if he switches bank account provider. Also, consumers may not end up getting the best deal. If the consumer has subscribed or subscribes to a ‘package’ of banking services, it is highly probable that at least some of these services will overlap and will lead to a costly double charging. It is evidently not a solution in this respect to resort to a ‘gradual’ switching of provider under which the consumer would keep at least some services with his former provider until the contract has elapsed. This can only negatively impact the ability of consumers to switch, since he/she would be limited in his endeavours as far as this particular service or a package including this service is concerned. At the same time, even if tying of products43 (making the provision of an offer for a specific product conditional on the purchasing of another) is forbidden, consumers could be in the situation where they are strongly advised to acquire another product if they want to get a specific product under specific conditions. Consumers should always have the possibility to buy services in isolation. They should not be under an obligation for instance to open a bank account as a prerequisite of buying other services and vice versa. Failing this, consumers would not be able for example to switch their bank account, if it is bundled with a mortgage credit and the mortgage is expensive to repay early. Bundling therefore tends to make it more costly to leave the current provider. Also, customers often do not select which products to include into a bundle and end up buying more products than they actually need. It is extremely complicated to prove that consumers have been obliged/strongly advised to take on a bundle instead of separate products, or an accessory product together with the ‘main’ product (insurance together with a mortgage credit to secure a better interest rate, resulting in effective tying). Therefore, it would have to be ensured that consumers can easily terminate the contract (timing, limited termination fees) for a product part of the ‘bundle’ without necessarily calling into question the conditions for the other product(s), say the interest rate for the mortgage credit. Concretely, it has to be ensured that consumers are in an economic position to withdraw from a contract when they find a better offer on the market. This would be beneficial to consumers and to competition.

43 According to the Interim Report II: Current Accounts and Related Services by DG Competition, tying occurs when two or more products are sold together in a package, and at least one of those products is not sold separately. Tying, unlike bundling, involves coercing customers to take on additional – and perhaps unnecessary – products. Bundling means selling two or more products together in a package. These products may only be available as a bundle (pure bundling), or available separately but offered at a discount relative to their individual prices (mixed bundling

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Tying in Germany occurs most often with mortgage credit (tied to a current account) and with payment protection tied to a credit. Tying rates have been estimated at 94%. Besides, the effective interest rate only took into account the credit as such and not the payment protection instruments. The credit actually cost much more than indicated to consumers. Pure bundling in Austria is the most problematic. There is a product that ties a foreign account credit to an investment fund. Bundling of products/services is also likely to have an impact on the level of multi-banking consumers (multi-banking meaning having bank accounts with more than one bank44), and on the extent to which multi-banking would contribute to consumers mobility. Multi-banking can in no way be considered a substitute for switching, or evidence of a competitive market. In fact, consumers may be forced into multi-banking in the case of bundled products and high fees for terminating or transferring a contract of a specific product in the package. Whilst the optimal solution for them would be to switch provider entirely or at least for the product considered, they might refrain from doing so during the lifetime of the contract if the costs of terminating/transferring the contract are higher than the potential benefits they would get from switching. The forced immobility of consumers has a detrimental impact on the level of competition on the market as well as on the level of entry of new competitors. The low ‘churn’ rates, at around 9% yearly on average in the UE45 impact negatively the level of entry on the market. In fact, since few consumers switch provider as a result of lack of transparency and high opportunity costs render demand relatively inelastic to prices: consumers switch less than the price movements on the market would normally imply. This inelasticity can result in prohibitive costs of acquiring clients for new entrants, whilst they are faced with the necessity to make economies of scale to render profitable their entry on the market. As a consequence, entry can be limited, all the more since the sunk costs of attempting to attract customers and/or to build one’s reputation and credibility cannot be ignored. There is also a need for action regarding Security (Investment) Accounts regarding as reported by our Austrian member. More and more consumers have to save for pension funds, pension schemes (besides first and second pillar) for their retirement. For this purpose more and more consumers invest in mutual funds, shares and all types of securities or investment plans. For these investments they have to keep a special account for the deposit of the investments. Switching such account from one bank to another (which has more favourable products or fees) is extremely costly and costs for switching range from about 200 € to more than 400 €. This is a real barrier to mobility in the rising market of consumer investment. Binding measures to deal with ‘tying in’ of consumers and bundling of products should be the priority. There is a need to deal with early repayment fees and other contractual terms which tend to ‘tie in’ the consumer with its current financial services provider, to allow for consumers to potentially benefit from a competitive market. We consider that there is still a large degree of uncertainty as regards the implementation of the PSD and the launch of SEPA products. In practice, when consumers move temporarily to another Member State, it may still be more beneficial for them to open a bank account in that Member State if, for example, they would be 44 Multibanking is more likely when banks do not charge high maintenance fees for bank accounts 45 ‘Interim Report II Current Accounts and related services’, Sector Inquiry under Article 17 Regulation 1/2003 on retail banking, 17th July 2006

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faced with substantial fees for withdrawing cash at an ATM outside the network of the bank of their country of origin, at national and cross border level, even when considering the implementation of Regulation (EC) No 2560/2001 on cross border payments in euro, which provides for equivalence of charges for national and cross-border payments. In our response to the Commission’s Communication on a New Legal Framework for Payments in the Internal Market46, we had underlined that proper consideration should be given to the idea of portability with regard to bank account numbers. This has also been underlined in our recommendations in the Report of the Expert Group on customer mobility in the area of bank accounts in which we have been calling for an EU-wide account number portability system to be designed. END

46 ‘New Legal Framework for Payments in the Internal Market - BEUC position on the Communication‘, BEUC/X/007/2004 of 16th February, 2004

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