EU: the European Commission's proposed Directive on Payment Accounts

The European Commission has published proposals for a Directive on the transparency and comparability of payment account fees, payment account switching and access to basic payment accounts.   

The proposed Directive is published alongside a new webpage which contains a press release, FAQs, and fact sheets on the three main strands of the legislative proposals: Comparability of payment account fees; Payment account switching and Access to payment accounts.   The Commission has also published an impact assessment (and summary thereof) in respect of the proposal.  It is envisaged that Member States will have one year to implement the Directive from the date of its entry into force, and that it would extend to the EEA.

The Commission notes that although single market legislation has ensured that banks can operate throughout the European Union and offer their services cross-border, it is estimated that about 58 million EU consumers do not have a payment account and approximately 25 million of them would like to open one.  In addition, consumers are often unable easily to switch from one bank to another, often pay over the odds for the services they receive from their bank, and struggle to have clarity on the various fees charged.  EU consumers who seek to acquire banking services across borders are often hindered by requirements or practices in domestic markets that place non-residents at a disadvantage.   These issues and their effects combine to hinder competition  in the retail banking sector .

The measures contained in the draft Directive target the following three areas:

 1. Transparency of payment account fees

Although the Payment Services Directive addresses fee transparency by ensuring that a consumer receives the full terms and conditions linked to payment services, this information is, as the FAQs freely acknowledge, in practice often far too complex and long to be used by consumers.  This Directive targets related but separate aspects of payment services and fees, including the way information is provided to consumers and the terminology used to define the core services linked to a payment account.

The proposed Directive will require that all payment service providers provide consumers with the following set of documents:

• a fee information document listing the most common services provided and the fees charged for each of them
• a statement of fees charged by the payment service provider during the previous twelve months for the services provided on the payment account
• upon request, a glossary of terms used in relation to payment accounts

Payment service providers offering a payment account together with another financial service or product as part of a package will be required to provide customers with the necessary information on the separate components of the package.

The Directive will require that these documents be drafted using standardised terminology and standard formats, to facilitate comparison between the offers of different payment service providers.

The proposal also requires that there should be at least one independent comparison website in each Member State, collecting information on the fees charged by payment service providers, to allow consumers to easily compare prices and conditions for payment accounts offered on the market.

2. Payment account switching

The proposed Directive will facilitate the process involved in switching bank accounts, by requiring payment service providers to:

• make a switching service available to any consumer who holds an account with an EEA payment service provider
• provide consumers with adequate information on their rights to switch bank accounts and the process involved
• deal with all the steps involved in the transfer all or part of the recurring payment orders (such as credit transfers or direct debits) established on one account to another account
• enable customers to request the transfer of the remaining balance on the old account and its closure
• complete this procedure within 15 days (30 days if the switch is made between providers located in different EU countries)
• provide access to personal information regarding existing standing orders and direct debits held by either the transferring or the receiving payment service provider free of charge
• provide a receiving payment service provider with specified information free of charge
• ensure any other charges associated with the switching service are appropriate and in line with costs incurred
• refund any charges incurred by consumers due to mistake or delay during the switching service - consumers will not bear financial loss resulting from misdirected credit transfers or direct debits by third parties

3. Access to payment accounts

The proposed Directive will allow consumers in Europe to:

• open a payment account with any payment service provider in the EU, even where they are not residents of the country in which the provider is located
• have access to a payment account with basic features whatever their place of residence in the EU or their personal financial situation, free of charge or for a reasonable fee

Member States will be required to :

• ensure that at least one payment service provider offers a payment account with basic features in their territory
• inform about the availability of these payment accounts
• maintain a list of the most representative payment services subject to a fee at national level and standardised terminology for these services
• the payment services provider is prevented from using the financial situation of the person as a reason to refuse an account.

The Directive lists the essential services to be provided with this account, which include withdrawals, bank transfers, online payment facilities, and a debit card.  Overdrafts or credit facilities will not be permitted on basic accounts.

Going forward

The Commission has chosen to use a Directive to ensure that the policy options are introduced in all 27 Member States and that the rules are enforceable, whilst allowing for consideration of national specificities in the payment account market.  Member States will have one year to implement the Directive from the date of its entry into force.

Member States will be required to supply the Commission with information about

• compliance by payment service providers
• the number of accredited comparison websites
• the number of payment accounts that have been switched, the average fee charged for switching, and the number of refusals to switch
• the number of payment accounts with basic features opened, the number and grounds for refusal and the associated charges

within 3 years of the Directive's entry into force, and every 2 years thereafter.  The operation of the Directive would be reviewed after 5 years.