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Bank accounts for all as EU delivers another maelstrom

By Roger Davies, Principal Consultant, EA Change Group

Many European bankers, SEPA weary and PSD-2 averse, will express alarm that the bubbling cauldron of payments regulation has produced yet another directive. The new Payment Accounts Directive (PAD) was approved by the European Parliament in April 2014. Member States will have two years to transpose the text into national law once published in the Official Journal. This gives a likely implementation date of mid-2016. In press releases, PAD is consumer legislation focused on financial exclusion but the directive is of much greater significance to the banking industry.

Surveys indicate 58 million EU citizens do not have a bank account and of these some 25 million would like one. In Bulgaria and Romania half of the population do not have a payment account and even in the UK some 1 million Britons are also “unbanked”. PAD guarantees to all EU consumers, irrespective of their credit record, access to a ‘basic’ payment account. A payment account is essentially a bank current account. However, PAD also promotes the comparability of payment account fees charged by EU payment service providers (PSPs) and legislates for account switching. The provisions on transparency and comparability will affect all PSPs.

Roger Davies
Roger Davies

A ‘payment account’, for the purpose of the directive, means an account held in the name of one or more customers used for the execution of payment transactions. Savings accounts and business accounts are out of scope. Credit card accounts and e-money accounts are in principle excluded although Member States can decide the accounts within scope for their jurisdiction.

The ‘payment account with basic features’ will enable a consumer to carry out all the core banking transactions. A payment card must be included but an overdraft facility is not mandatory. Residency cannot be used as a barrier to accessing payment services whilst fraud protection is provided through existing AML legislation. Individual Member States must guarantee easy access to basic accounts by using all or a selected number of credit institutions. They can also decide if ‘reasonable’ bank charges can be raised.

To promote transparency, PAD will also introduce a new pre-contract ‘fee information’ document and an at least annual ‘statement of fees’ with both documents in a standard format. The former must be accompanied by a glossary using approved terminology. The directive will require the extensive revision of existing documentation including T&Cs and relevant customer agreements.

PAD introduces an obligation on Member States to ensure that consumers have free access to one or more websites which compare fees charged by PSPs for a range of common services. Such comparison websites must be independent, up-to-date and accurate. PAD also contains provisions regarding the unbundling of information on packaged account services. Together with new rules governing the switching of accounts it should on paper make it easier for consumers to get a better deal.

With many consumers finding it difficult to change their bank accounts, PAD seeks to create a level playing field for the opening of payment accounts across the EU. Importantly, it establishes a harmonised timetable for account switching and allocates bank responsibilities although importantly it provides no technical information. Interestingly, the UK adopted its new ‘faster switching’ rules (CASS) in September 2013 after an industry investment of £750 million! Fortunately, such existing schemes can continue if meeting the new PAD timetable.

It appears PAD is building on the UK’s existing rules governing basic bank accounts, CASS and packaged accounts. However, the directive will involve all EU Member States in an extensive change programme. Concerns do exist. Disappointingly, the latest UK experience with CASS indicates few will shop around for day-to-day banking facilities in contrast to credit cards and savings products! Cross-subsidies, as involved with “free banking”, can also limit the value of cost comparison websites. Although most Europeans pay bank charges, PAD will hasten the end of the ‘free banking’ enjoyed elsewhere. It also remains to be seen if adopting standard pan-European documentation is of real benefit to the consumer.

PAD is well intended but bares all the hallmarks of rushed regulation. The Law of Unintended Consequences lies waiting in the wings! The directive will certainly fuel the debate about unnecessary EU intervention. In many ways, it attempts to provide an expensive pan-European solution to a variety of national issues. Furthermore, PAD’s account guarantee may well encourage further economic migration. Ultimately, it is the consumer who pays for grand regulatory programmes. This is far from a well-honed directive and the consumer is being short-changed. Europe needs proportionate and cost-effective regulation, not legislation for its own sake.