The goal of a single financial market for consumers was one of the driving forces for the creation of a single currency. The introduction of a Single Euro Payments Area (SEPA) in 2009 was a milestone on the road to that ultimate goal, as the ability to make cheap and secure cross-border payments was a necessary condition for consumers to use cross-border financial services.
However, the financial crisis showed dramatically that there were risks lurking for the unwary consumer – most vividly for foreign customers of Icelandic banks and Northern Rock (just as non-UK customers of Equitable Life were also left exposed a decade ago). Investors who found they had been sucked into the Madoff fraud also wondered how they could have been left unprotected.
So the European Commission has now launched a consultation into virtually every aspect of consumer protection – both domestic and cross-border.
As Michel Barnier, the internal markets commissioner, said: “European consumers deserve better. They need reassurance that their savings, investments or insurance policies are protected, no matter where in Europe they are based.”
There are some concrete proposals as well as consultation:
Bank accounts: For holders, the measures adopted mean that, if their bank failed, they would receive their money back faster (within seven days), increased coverage (up to €100,000) and better information on protection.
Insurance: Options to improve protection for insurance policy holders, including the possibility of setting up Insurance Guarantee Schemes in all member states.
Investors: The Commission proposes faster compensation if an investment firm fails to return an investor’s assets due to fraud, administrative malpractice or operational errors. The level of compensation is to increase from €20,000 to €50,000. Investors will also receive better information on when the compensation scheme would apply and get better protection against fraudulent misappropriations where their assets are held by a third party, such as in the recent Madoff affair.
This latest consultation is but one in a long line of reviews. While the driving force may be the desire to create a pan-EU retail financial market, there are still many problems within national markets. Last year, the then-consumer commissioner, Meglena Kuneva of Bulgaria, said: “Retail bankers are letting consumers down. There is widespread evidence that basic consumer principles are being violated with problems from complex pricing to hidden charges and information that is unclear and incomplete. Banks need to put their house in order with a culture change in the way they treat customers. And member state authorities need to fulfil their obligation to enforce EU consumer laws.” The latter comment was focused on some aspects of the 2008 Consumer Credit Directive.
However, these goals highlight the perennial problem of “more Europe or less Europe”. It may well be that the only way to achieve the objective of providing a high level of consumer protection with that of creating a genuine single market is “full harmonisation” of some specific, targeted measures.
In 2009, there was a public consultation on the Green Paper on retail financial services, as “tying” was identified by financial services users as a key barrier to the integration of EU retail financial services markets. Another report on bank charges cited specific problems, including: information that is often difficult to understand; opaque bank fees; problems with advice; and low levels of switching. That report described the price structures of current accounts as “very opaque, making it almost impossible for consumers to know how much they are paying and to compare different offers”.
After the financial crisis, “responsible lending” is the new guiding principle, so credit products should be appropriate for consumers’ needs and be tailored to their ability to repay.
Correspondingly, “responsible borrowing” is expected, so consumers should provide relevant, complete and accurate information.
Because of the single currency, consumers are now able to make cross-border payments easily. All participants in retail financial markets should expect further rounds of legislation to ensure that consumers are adequately protected – both in their home market and across borders.
Graham Bishop provides monitoring services on EU financial legislation and is the founder of Graham Bishop.com
© Graham Bishop
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