Response to consultation on Technical Standards on standardised terminology and disclosure documents under the PAD
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A legal task has been set to the European Banking Authority (EBA) to coordinate and prepare further provisions to define a common terminology for fees as well as for in-formation standards needed for
- offering a comparable standardised pre-contractual fee-information document (FID) and
- to display at least annually all the costs related to the previous use of a bank ac-count by a standardised Statement of Fees (SoF).
This has been laid out in Articles 3, 4 and 5 of the PAD. The German Zahlung-skontengesetz (ZKG) - implementing most of the rules set by the PAD - is set to apply relating regulations prepared as §§ 5 to 13, 14 section 1 no. 1 and 5 and §§ 15 to 19 nine months after the enactment of these fee terminology standards.
EBA has drafted a Regulatory Technical Standard (RTS) as well as two Implementing Technical Standards (ITS) to provide for these tasks and has now called for a final con-sultation of these drafts. This is to comment those drafts and reply to the most relevant of the 12 questions from a consumer perspective concerning the local German Market experience. Beyond this vzbv endorses those replies provided by its European umbrella organisation BEUC.
Overall the payment account market in Germany has recently seen both,
- a sharp rise in fees for payment accounts in general mainly by ending a period of previous zero account management fee offers by important market players
as well as
- a diverging policy of applying fees on bank accounts. While in the past payment account costs were mainly set by a bank account management fee that did comprise most of the ordinary payment transaction costs with only certain ac-tions like third party ATM use, credit card fees, overdrafts and certain further services like postage, extra bank account statements, recall of a wrong credit transfer extra nowadays more and more standard payment procedures start to get charged extra. A few offers even try to charge any transaction, even incom-ing payments. Thus comparison has become more awkward than before and the overall costs do become more dependent on the specific individual use of a payment account.
With that the transparency provisions set by the PAD are really important for consumers in the German market now.
A first survey on the current new pricing has recently been published by Stiftung Warentest in Finanztest 12/2016. Their test account usage broad up a high spread of costs ranging from nil with still existing “zero cost” accounts to up to 200 Euros p.a. for actually the same set of transactions.
Furthermore some fees are interrelated. A higher standard fee may lower another
usage related fee.
• A quite pricy credit card for example adding for up to two-thirds of the annual bank account managing fees may yet allow for ATM cash withdrawal free of ex-tra fees.
• Overdraft interests are often lower for premium bank account offers that yet have considerably higher bank account management fees.
• Further conditions apply like a minimum amount of incoming payments to ren-der a bank account with a management fee into a zero-management-fee ac-count. With that even further conditions may be set on which incoming pay-ments actually qualify for these rebates.
A simple listing of fees will not help to compare offers unless those further conditions become transparent as well.
As the actual usage of a bank account plays an even more important part in considering alternative offers in the market the design of a SoF should support as best as possible consumers in comparing their own most relevant fee elements with a FID according to their previous usage.
Q1: Considering the alternative of a broad approach which comprises a lot of similar pay-ment service into one standard term to a more narrow approach to create more terms for differences in these services it is reasonable EBA took the broad approach. Current policies try to subdivide services and make it more difficult to compare their costs. A set terminology by law is meant to end this problem of comparison.
Terminology should not allow to distract consumers’ view on pricing. From a point of a consumer the main interest is to make a payment happen. Using the same general term on different services that yet reach the same goal will help them not to be lead astray by too many different names and prices.
It might though be necessary for information especially with FID to indicate those differ-ence and conditions within those terms. These differences often underlie further options to standardise: Online or offline, into another currency or within SEPA, own service or third-party service. These could be further pondered for creating a common display with information.
The listed bank account fees (account maintenance; provision of a debit card with a payment account; provision of a credit card with a payment account; cash withdrawal from a payment account; making a credit transfer of money from a payment account to another account; standing orders from a payment account; direct debits on a payment account; overdraft on a payment account) do reflect the main costs we see with bank account fees.
It might be important to hint, that some of the categories may need to be considered in a wider sense than currently described. For example providing payment cards may need to comprise further costs arising for their usage.
In Germany some bank account offers have started to charge for any transaction in-cluding every single use of a debit card and even any incoming payment as well as those payments stated with the other categories. These approaches could make the overall costs of a payment account far more expensive than reflecting only those costs arising from the defined categories. They may yet as well be considered as bank ac-count management fees.
2.2 Disputable fee practices
Some of the new fees may not be considered legal according to the standards of law and jurisdiction. The RTS and ITS should refrain from endorsing any type of fee beyond its task to simply create transparency and comparability. A fee that needs to be stated by FID and SoF is not necessarily legal. To give two examples:
• Cash payments into one’s own account have now started to become charged extra as the procedure got defined as a payment service. Yet in the past Ger-man law and jurisdiction developed the opinion that certain basic usages of a payment account need to be covered by paying a bank account management fee. Including adding money. As payment accounts bundle payment services it will keep necessary to reflect whether certain types of services may not need to be already considered included by another service and its fee.
German courts have outlawed quite a number of bank account related fees due to double charging.
• The same applies to closing fees. Any account will need to be closed one time. Bank account management fees already provide for its cost to run and with that as well as to cease an account. Repaying the account balance must not be charged either. By cancelling the account a payment service provider loses its right to keep the money of the former customer and is legally obliged to repay. As with any other provider a legal duty to repay must not be charged extra. The fact that closing fees got restricted by PSD II and have occurred in the past as a problem to a number of Member States does not mean that this challengeable fee needs to be entered into markets that have up to now never allowed them to occur.
German courts have considered quite a number of fees illegal for the reason that they were charged for “services” that were actually legal obligations of the provider and must not be offered and charged extra as a service to the custom-er.
Article 3, 4 and 5 of PAD do not allow to establish or endorse such fees. It would be helpful to find a clear statement on this to omit any avoidable later legal dispute.
4.1 Lastschrift/Direct debit
The definition on direct debit should be carefully revised. It is conflicting with the legal definition of a direct debit as stated in Article 2 No. 2 of Regulation 260/2012/EU as well as with Article 4 No. 23 of the Payment Crevice Directive II (2015/2366/EU) (PSD II).
The chosen definition describes a payment that is enacted by the bank account provider of the payer according to a set scheme by the mandate which may though vary in its amount. Actually a direct debit is a payment that is always enacted by a payee and ac-cepted for execution by the payer’s bank account provider if is in line with the referring mandate. This is clearly fixed in the new PSD II.
The expressed goal of EBA to rather reflect the aim to explain services to consumers than to meet the exact legal definition is prone to mislead consumers’ reflection on the nature of this type of payment. It is described as a kind of standing order set by the re-cipient (=payee) but stored and responsibly initiated by the payers own account institute. This is wrong. Despite the mandate any payment is always related to an order by the payee. The payee is with that always responsible that a payment apart from being in line with the mandate is as well due in relation to the underlying contract that is to be paid by it. The definition is likely to set a wrong understanding of the responsibilities with that payment.
The German version stresses this misconception by pointing at a payment made ac-cording to “vereinbarte Termine” as if those payments are mainly governed by a time schedule. Actually especially in Germany direct debits are widely used as one time payments and SEPA schemes have been further developed to allow for even short term enactments. Certain card payments are actually direct debits (ELV-scheme). It has become common to add direct debit mandates to online accounts in order to enable payments of buying goods and services on these platforms entirely without a set sched-ule but as they occur. Restricting direct debits to regular payments like to a landlord, an insurance or utilities only is no longer reflecting the true nature of this type of payment nor its legal binding definition. This explanation might even alienate consumers with what they understood direct debits to be up to now.
Due to the legal and SEPA standards we expect this to be misleading with other national versions as well.
The definition should be reset to match the legal definition of the primary EU law.
4.2 Kontoüberziehung/Overdraft
Overdraft is stated to be an agreement that determines a maximum amount that can be borrowed. This is not precise enough for the German market. The limited overdraft de-scribed by the definition is actually known to consumers under the term of “Dispokredit” while there is a further overdraft that is known as “geduldete Kontoüberziehung” which is an unlimited further servicing of an account. These kind of penalties of the latter are often considerably higher than Dispokredit interest rates. These higher interest rates are a topic of political debate.
EBAs proposal to rename Dispokredit into Kontoüberziehung is disconnecting German consumers to a standing term they do know well while mixing it up with a different but similar service that is yet not within the proposed definition.
It is essential to either use the term Dispokredit (familiar term for Dispositions-Kredit) or alter the definition to include as well the penalty interest rate for overdrafts beyond agreed limits. Otherwise consumers may get misled and either miss a Dispokredit service or worse they may take a lower actual Dispokredit interests for granted when having to use the account beyond the limits
Experts of German Finanzmarktwächter checked on the draft as well as they inquire currently into the new structure of banking fees in Germany. Their report is to be ex-pected early next year. Reflecting their current results they hint that some issues might still occur.
It will be essential on how well the proposed instructions are actually set and executed to provide for adequate and comparable information.
It will be important for example to clearly indicate the difference of payment fees whether they are enacted online or written, whether they are SEPA or not, whether they differ if a payment is made into another currency.
In Germany cash withdrawal may be done at an institutes own or an institutes scheme ATM – then often for free or at a third party ATM. Schemes may include different insti-tutes that may need to be named. Actually the fees for using ATM abroad differ consid-erably to those at home due to the fact that customers of German institutes will be charged by a third party ATM provider in Germany directly and the account provider will not charge anything. Abroad a third party ATM provider will charge the German account provider an interchange fee and this will lead to a customer being charged for this by an ATM fee. This situation often leads to bad surprises on how expensive getting money abroad might become. Depending on the institute sometimes these fees are far higher than those third party charges consumers get used to pay when using third party ATM in Germany. Yet there are as well providers that charge fairly. It will be important this dif-ference becomes very transparent in a FID and no longer hidden in terms and clauses.
The costs of using debit cards or credit cards at ATM may vary considerably. Further-more with some providers the costs of using credit cards will be lower than using the debit card vice versa further providers will charge higher for credit card usage than debit card usage. FID should be able to indicate these differences.
Question 1: Do you agree with the EBA’s decision to take a broad approach to defining ‘service’? Please explain your reasoning.
Pre-Remark: According to the Payment Account Directive (PAD) institutes offering payment ac-counts will soon be obliged to offer far better transparency on their fees and relating costs to their clients than before.A legal task has been set to the European Banking Authority (EBA) to coordinate and prepare further provisions to define a common terminology for fees as well as for in-formation standards needed for
- offering a comparable standardised pre-contractual fee-information document (FID) and
- to display at least annually all the costs related to the previous use of a bank ac-count by a standardised Statement of Fees (SoF).
This has been laid out in Articles 3, 4 and 5 of the PAD. The German Zahlung-skontengesetz (ZKG) - implementing most of the rules set by the PAD - is set to apply relating regulations prepared as §§ 5 to 13, 14 section 1 no. 1 and 5 and §§ 15 to 19 nine months after the enactment of these fee terminology standards.
EBA has drafted a Regulatory Technical Standard (RTS) as well as two Implementing Technical Standards (ITS) to provide for these tasks and has now called for a final con-sultation of these drafts. This is to comment those drafts and reply to the most relevant of the 12 questions from a consumer perspective concerning the local German Market experience. Beyond this vzbv endorses those replies provided by its European umbrella organisation BEUC.
Overall the payment account market in Germany has recently seen both,
- a sharp rise in fees for payment accounts in general mainly by ending a period of previous zero account management fee offers by important market players
as well as
- a diverging policy of applying fees on bank accounts. While in the past payment account costs were mainly set by a bank account management fee that did comprise most of the ordinary payment transaction costs with only certain ac-tions like third party ATM use, credit card fees, overdrafts and certain further services like postage, extra bank account statements, recall of a wrong credit transfer extra nowadays more and more standard payment procedures start to get charged extra. A few offers even try to charge any transaction, even incom-ing payments. Thus comparison has become more awkward than before and the overall costs do become more dependent on the specific individual use of a payment account.
With that the transparency provisions set by the PAD are really important for consumers in the German market now.
A first survey on the current new pricing has recently been published by Stiftung Warentest in Finanztest 12/2016. Their test account usage broad up a high spread of costs ranging from nil with still existing “zero cost” accounts to up to 200 Euros p.a. for actually the same set of transactions.
Furthermore some fees are interrelated. A higher standard fee may lower another
usage related fee.
• A quite pricy credit card for example adding for up to two-thirds of the annual bank account managing fees may yet allow for ATM cash withdrawal free of ex-tra fees.
• Overdraft interests are often lower for premium bank account offers that yet have considerably higher bank account management fees.
• Further conditions apply like a minimum amount of incoming payments to ren-der a bank account with a management fee into a zero-management-fee ac-count. With that even further conditions may be set on which incoming pay-ments actually qualify for these rebates.
A simple listing of fees will not help to compare offers unless those further conditions become transparent as well.
As the actual usage of a bank account plays an even more important part in considering alternative offers in the market the design of a SoF should support as best as possible consumers in comparing their own most relevant fee elements with a FID according to their previous usage.
Q1: Considering the alternative of a broad approach which comprises a lot of similar pay-ment service into one standard term to a more narrow approach to create more terms for differences in these services it is reasonable EBA took the broad approach. Current policies try to subdivide services and make it more difficult to compare their costs. A set terminology by law is meant to end this problem of comparison.
Terminology should not allow to distract consumers’ view on pricing. From a point of a consumer the main interest is to make a payment happen. Using the same general term on different services that yet reach the same goal will help them not to be lead astray by too many different names and prices.
It might though be necessary for information especially with FID to indicate those differ-ence and conditions within those terms. These differences often underlie further options to standardise: Online or offline, into another currency or within SEPA, own service or third-party service. These could be further pondered for creating a common display with information.
Question 2: Do you consider the services that the EBA has selected for standardised terms and definitions to be suitable to achieve the aims of the Directive? Please explain your reasoning.
2.1 Type of feesThe listed bank account fees (account maintenance; provision of a debit card with a payment account; provision of a credit card with a payment account; cash withdrawal from a payment account; making a credit transfer of money from a payment account to another account; standing orders from a payment account; direct debits on a payment account; overdraft on a payment account) do reflect the main costs we see with bank account fees.
It might be important to hint, that some of the categories may need to be considered in a wider sense than currently described. For example providing payment cards may need to comprise further costs arising for their usage.
In Germany some bank account offers have started to charge for any transaction in-cluding every single use of a debit card and even any incoming payment as well as those payments stated with the other categories. These approaches could make the overall costs of a payment account far more expensive than reflecting only those costs arising from the defined categories. They may yet as well be considered as bank ac-count management fees.
2.2 Disputable fee practices
Some of the new fees may not be considered legal according to the standards of law and jurisdiction. The RTS and ITS should refrain from endorsing any type of fee beyond its task to simply create transparency and comparability. A fee that needs to be stated by FID and SoF is not necessarily legal. To give two examples:
• Cash payments into one’s own account have now started to become charged extra as the procedure got defined as a payment service. Yet in the past Ger-man law and jurisdiction developed the opinion that certain basic usages of a payment account need to be covered by paying a bank account management fee. Including adding money. As payment accounts bundle payment services it will keep necessary to reflect whether certain types of services may not need to be already considered included by another service and its fee.
German courts have outlawed quite a number of bank account related fees due to double charging.
• The same applies to closing fees. Any account will need to be closed one time. Bank account management fees already provide for its cost to run and with that as well as to cease an account. Repaying the account balance must not be charged either. By cancelling the account a payment service provider loses its right to keep the money of the former customer and is legally obliged to repay. As with any other provider a legal duty to repay must not be charged extra. The fact that closing fees got restricted by PSD II and have occurred in the past as a problem to a number of Member States does not mean that this challengeable fee needs to be entered into markets that have up to now never allowed them to occur.
German courts have considered quite a number of fees illegal for the reason that they were charged for “services” that were actually legal obligations of the provider and must not be offered and charged extra as a service to the custom-er.
Article 3, 4 and 5 of PAD do not allow to establish or endorse such fees. It would be helpful to find a clear statement on this to omit any avoidable later legal dispute.
Question 3: Do you consider the drafting decisions taken by the EBA for the standardised terms and definitions, and the resultant provisions in Recitals of the draft RTS, to be suitable for achieving the aims of the Directive of enhancing transparency and comparability? Please explain your reasoning.
The overall approach on defining terms and definitions aimed at being comprehensive and either self-explaining or well introduced to consumers is deemed both adequate and decisive to achieve the set aim by PAD.Question 4: Do you consider the terms and definitions proposed by the EBA in the Annexes to the draft RTS, and the resultant provisions in the Recitals of the draft RTS, to be adequate for achieving the aims of the Directive of enhancing transparency and comparability? If not, please provide alternative terms and definitions and their underlying rationale.
There are issues with two definitions:4.1 Lastschrift/Direct debit
The definition on direct debit should be carefully revised. It is conflicting with the legal definition of a direct debit as stated in Article 2 No. 2 of Regulation 260/2012/EU as well as with Article 4 No. 23 of the Payment Crevice Directive II (2015/2366/EU) (PSD II).
The chosen definition describes a payment that is enacted by the bank account provider of the payer according to a set scheme by the mandate which may though vary in its amount. Actually a direct debit is a payment that is always enacted by a payee and ac-cepted for execution by the payer’s bank account provider if is in line with the referring mandate. This is clearly fixed in the new PSD II.
The expressed goal of EBA to rather reflect the aim to explain services to consumers than to meet the exact legal definition is prone to mislead consumers’ reflection on the nature of this type of payment. It is described as a kind of standing order set by the re-cipient (=payee) but stored and responsibly initiated by the payers own account institute. This is wrong. Despite the mandate any payment is always related to an order by the payee. The payee is with that always responsible that a payment apart from being in line with the mandate is as well due in relation to the underlying contract that is to be paid by it. The definition is likely to set a wrong understanding of the responsibilities with that payment.
The German version stresses this misconception by pointing at a payment made ac-cording to “vereinbarte Termine” as if those payments are mainly governed by a time schedule. Actually especially in Germany direct debits are widely used as one time payments and SEPA schemes have been further developed to allow for even short term enactments. Certain card payments are actually direct debits (ELV-scheme). It has become common to add direct debit mandates to online accounts in order to enable payments of buying goods and services on these platforms entirely without a set sched-ule but as they occur. Restricting direct debits to regular payments like to a landlord, an insurance or utilities only is no longer reflecting the true nature of this type of payment nor its legal binding definition. This explanation might even alienate consumers with what they understood direct debits to be up to now.
Due to the legal and SEPA standards we expect this to be misleading with other national versions as well.
The definition should be reset to match the legal definition of the primary EU law.
4.2 Kontoüberziehung/Overdraft
Overdraft is stated to be an agreement that determines a maximum amount that can be borrowed. This is not precise enough for the German market. The limited overdraft de-scribed by the definition is actually known to consumers under the term of “Dispokredit” while there is a further overdraft that is known as “geduldete Kontoüberziehung” which is an unlimited further servicing of an account. These kind of penalties of the latter are often considerably higher than Dispokredit interest rates. These higher interest rates are a topic of political debate.
EBAs proposal to rename Dispokredit into Kontoüberziehung is disconnecting German consumers to a standing term they do know well while mixing it up with a different but similar service that is yet not within the proposed definition.
It is essential to either use the term Dispokredit (familiar term for Dispositions-Kredit) or alter the definition to include as well the penalty interest rate for overdrafts beyond agreed limits. Otherwise consumers may get misled and either miss a Dispokredit service or worse they may take a lower actual Dispokredit interests for granted when having to use the account beyond the limits
Question 5: Do you consider the FID template that is being proposed in the draft ITS and its Annex to be suitable to achieve the aims of the Directive? Please explain your reasoning.
vzbv acknowledges EBAs special efforts to use consumer testing in order to develop a standard information sheet serving consumers interests. With that we trust its results.Experts of German Finanzmarktwächter checked on the draft as well as they inquire currently into the new structure of banking fees in Germany. Their report is to be ex-pected early next year. Reflecting their current results they hint that some issues might still occur.
It will be essential on how well the proposed instructions are actually set and executed to provide for adequate and comparable information.
It will be important for example to clearly indicate the difference of payment fees whether they are enacted online or written, whether they are SEPA or not, whether they differ if a payment is made into another currency.
In Germany cash withdrawal may be done at an institutes own or an institutes scheme ATM – then often for free or at a third party ATM. Schemes may include different insti-tutes that may need to be named. Actually the fees for using ATM abroad differ consid-erably to those at home due to the fact that customers of German institutes will be charged by a third party ATM provider in Germany directly and the account provider will not charge anything. Abroad a third party ATM provider will charge the German account provider an interchange fee and this will lead to a customer being charged for this by an ATM fee. This situation often leads to bad surprises on how expensive getting money abroad might become. Depending on the institute sometimes these fees are far higher than those third party charges consumers get used to pay when using third party ATM in Germany. Yet there are as well providers that charge fairly. It will be important this dif-ference becomes very transparent in a FID and no longer hidden in terms and clauses.
The costs of using debit cards or credit cards at ATM may vary considerably. Further-more with some providers the costs of using credit cards will be lower than using the debit card vice versa further providers will charge higher for credit card usage than debit card usage. FID should be able to indicate these differences.