Why was the Commission’s review delayed?
The Commission’s review was originally due by 18 September 2019 under Article 28 of the PAD. In the report, the Commission explains that the delay was due to the need to ensure that the Directive had applied for a certain amount of time. A lack of available and comparable data from member states was another factor that hampered the review process.
Two supporting studies for the review
As well as gathering data/input from member states and completing its first report on assembling specific payment account related data from member states under Article 27 of the PAD, the Commission launched two studies to support its review report:
What are the Commission’s key findings on PAD’s objectives?
The Commission notes that the three objectives of the PAD are to:
- create transparency and ensure comparability of payment account fees;
- ensure that consumers have access to payment accounts (with basic features); and
- make it easier to switch payment accounts.
The Commission’s review report concluded that:
Transparency and comparability of payment account fees has been improved but regulatory fragmentation remains
The PAD has helped to create transparency and comparability of payment account fees. In particular, it has ensured a minimum level of harmonisation by establishing a standardised terminology (which is partially uniform at EU level), common templates to report on fees linked to payment accounts, a uniform switching process, and an EU-level right of access to payment accounts with basic features (PABFs).
But some member states have created an additional layer of new legislation when transposing the PAD, rather than replacing existing legislation, making the national and EU regulatory framework more fragmented. The most important unintended consequence of this is duplication of documents on fee levels of payment accounts in Member States where documents with the same information already existed. The Commission has made a note of this and other issues identified (eg the differing interpretation of ‘packaged offers’ across member states) for the eventual revision of the PAD.
It makes the point that, while the measures contained in the PAD - particularly comparison websites - can improve transparency and consumers’ ability to compare fees, there are still some aspects (such as the above) requiring improvement. Cross-border transparency and comparison are not yet possible due to differences in the terminology used and to language barriers.
Access to basic bank accounts has been helped by the PAD but with varying results across member states and interaction of the PAD with AML requirements is area for concern
In order to foster financial inclusion, Article 16 of the PAD establishes the right of access to a PABF for all consumers legally resident in the EU. The PAD has ensured consumers have access to basic accounts, but take-up varies between member states and there may be different reasons for this.
For example, Article 16 also provides for a number of (possible) derogations to the right to a PABF. In practice, the most important derogation is contained in Article 16(4) which requires member states to ensure that credit institutions refuse an application if opening such an account would result in an infringement of the provisions on the prevention of money laundering and the countering of terrorist financing laid down in Directive 2005/60/EC (subsequently replaced by repealed and replaced by Directive (EU) 2015/849, the Fourth Money Laundering Directive (MLD4)). The Commission notes that this can conflict with the right to a PABF and that the interaction may not be completely clear. Recital 34 of the PAD emphasises that AML rules should not be used as a pretext for rejecting commercially less attractive consumers, but no other general EU-level guidance on the interlinkages between the different rules currently exists. Difficulties in opening a PABF have in particular been found in the following areas:
- Lack of specific identity documents;
- Cross-border access to payment accounts;
- De-risking practices on AML grounds; and
- De-risking practices due to the US Foreign Account Tax Compliance Act (FATCA).
There is a reminder that the European Banking Authority (EBA) has already provided some Guidelines (March 2021) which may help to address unwanted de-risking, with additional guidance on the interaction between PAD and AML rules published in March 2023. The Commission has also proposed specific provisions in the legislative package on AML/CFT that it presented in July 2021 to mitigate the risk of de-risking on AML grounds. The package is currently making its way through the EU legislative process.
Other reasons for the variable level of take-up for PABFs are:
- the percentage of people with a payment account was already very high in many member states when the PAD was adopted;
- some member states already had similar tools in place;
- given that standard accounts (including free online accounts) are highly accessible, PABFs may not be relevant for consumers who have access to those accounts;
- a lack of consumer awareness, with consumer organisations considering that the level of consumers’ awareness of their right to a PABF remains rather low and that many banks do not proactively offer the PABF to consumers;
- in some cases, the cost of a PABF;
As indicated by the latest 2021 Global Findex Database, other reasons for not having a payment account given by consumers without a payment account in those Member States that have a lower rate of banked people may be insufficient funds, lack of trust in financial institutions or the fact that financial institutions are located too far away.
However, the Commission reasons that the PAD’s purpose is not necessarily to achieve a high uptake of PABFs, but rather to increase financial inclusion and ensure that all consumers have access to a PABF. Given the general availability of PABFs, the Commission is of the view that this objective ‘seems to have been generally achieved’. In addition, as the latest Global Findex Database shows, the percentage of the population with a payment account has increased in member states to 95% on average – and close to 100% in some member states.
Switching has been made easier
The PAD has enabled all EU consumers to easily switch accounts domestically, but the Article 27 report shows that the number of yearly switches varies considerably between the different member states. The Commission has found that a number of factors may be affecting the level of switching, for example:
- the switching service applies to payment accounts but not to other financial products (e.g. mortgage loans and investments) to which the payment account may be linked;
- consumers may have only a limited awareness of the service and may not always be informed about it – or even discouraged from using it;
- insufficient financial literacy and the assumption that switching would only lead to limited savings;
- a desire not to lose one’s payment account number; and
- the risk that payments may go astray.
In addition, the Commission references the special Eurobarometer survey of 2016 on switching of financial products and services which more generally reported as the two main reasons for not switching: (1) the fact that consumers are satisfied with their current provider; and (2) the fact that they have never considered switching.
However, given that the aim of the PAD’s switching provisions was not necessarily to increase the number of switches – but rather to make it easier to switch in order to increase competition - the general availability of a (well-functioning) switching service suggests that this aim has been achieved. The Commission further comments that it could nevertheless be useful to take additional measures, in particular to raise consumers’ awareness of their right to switch payment accounts.
Possible further measures on switching considered in the report are:
- Extension of the switching service to cross-border switching;
- Introduction of a framework for automated redirection of payments to the new account; and
- Implementation of full EU-wide portability of payment account numbers.
On the basis of the Deloitte Study 2, the Commission concludes that while these possible additional measures could make it even easier to switch payment accounts within the EU, as things currently stand the cost would largely outweigh their expected benefits.
Strengthening financial inclusion: Commission doesn’t rule out possibility of further amendment to PAD
As mentioned above, according to the 2021 Global Findex Database an average of 95% of citizens in the EU aged 15 or over have at least one payment account. This has risen by 4% since 2017. The Commission acknowledges that this may be due to different factors, namely digital finance, the arrival of cost-free digital accounts, and the fact that the PAD provides the right to a basic bank account.
But the 2021 Global Findex Database also shows considerable differences between the member states. The proportion of the population aged 15 or over with a payment account is considerably lower in some member states than others. The Global Findex Database also underlined differences between types of consumers, in particular vulnerable persons. The Deloitte Study 1 showed that sector and consumer organisations consider that being homeless and being an immigrant brings the highest risk of not having a payment account.
The report includes the following examples of best practice among member states for reducing consumer exclusion from payment services:
- designating a specific credit institution to provide a PABF to a consumer whose applications for a PABF have been rejected;
- issuing guidance to credit institutions on the interaction of the PAD and AML/CFT requirements for cases where customers do not have a fixed address or standard documentation;
- establishing a system that allows social workers to vouch for the identity of a homeless person seeking to open a payment account (to address the identity documents issue referred to above);
- requiring PABFs to be provided cost-free to everyone or just to particularly vulnerable groups, or setting clear and low limits for the fees, or different pricing schemes to grant more advantageous conditions to vulnerable consumers;
- taking action to inform consumers and raise their awareness of PABFs, particularly through leaflets, guides and information on websites; and
- developing initiatives to improve financial inclusion through different financial literacy programmes (see Financial education | European Banking Authority (europa.eu) for an overview of national measures).
The Commission states that the question of whether or not the PAD will need to be amended to further strengthen financial inclusion, for instance in relation to the fees for a PABF, will be assessed in more detail in line with better regulation standards. It also considers that additional non-legislative measures such as the EBA guidelines on the interaction between the MLD and the PAD, and awareness-raising measures in some member states, ‘could be useful’.
The report also outlines on-going work by the Commission and others to tackle the effects of increasing digitalisation on financial inclusion, including financial education and access to cash. It has also recently launched a study on EU consumers’ over-indebtedness and its implications, aimed at providing an overview of the over-indebtedness of EU households and consumers taking into consideration the impact of the COVID-19 pandemic on households’ over-indebtedness.
More consistency in data sets across member states is needed
The data issue identified by the Commission in its PAD review report is also picked up in its Article 27 report, which noted that the timespan of the data collected (2016-2021) and the differences in data collection methods makes it difficult to draw definitive conclusions on the impact of PAD. The Commission is working with member states to agree the relevant data sets to be collected and provided going forward, to ensure more complete availability and comparability of data.
Next steps
Given its conclusions in the review report, the Commission has not presented any legislative proposal to amend the PAD at this time. This will need to be considered in further detail and in line with better regulation standards at a later stage and taking into account, in particular, the EBA Guidelines on interaction between PAD and AML rules. The Commission will continue monitoring PAD implementation and enforcement in member states.
If you would like to discuss any aspect of the Commission’s findings, please contact one of the Hogan Lovells lawyers listed above.
The UK angle: HM Treasury consultation on Payment Accounts Regulations information requirements
As part of the Edinburgh Reforms announced by the Chancellor of the Exchequer on 9 December 2022, HM Treasury (HMT) has consulted on the customer information requirements in the Payment Accounts Regulations 2015 (PARs) which implemented the PAD. The consultation considered the need for certain information requirements in the PARs (including the provision of fee information documents and statements of fees) for the UK market, and asked for input from stakeholders, particularly payment service providers, on their benefits and drawbacks. For more on the consultation, take a look at our Engage article 'UK government consults on future of consumer information requirements for payment accounts'. The consultation closed on 17 February 2023 and HMT's response is awaited.
Authored by Virginia Montgomery.
