Brussels Tackles Banks over Fees

The European Commission threatens legal action against banks for alleged anticompetitive behavior, including excessive fees for accounts and payments

The European Commission on Wednesday (31 January) threatened to take legal action against Europe's banking sector which is suspected of charging consumers excessive prices for making card payments and holding accounts.

EU competition commissioner Neelie Kroes told reporters that the damage caused by banks' anti-competitive behaviour amounts to some "hundreds of euros per family."

The damage is allegedly caused by non-transparent charges during card payments; high costs for switching banks; the artificial tying-together of services like mortgages and insurance and new banks being shut out of the market by existing players.

Ms Kroes said Brussels' intention to take on the banking and payments sector is "central" to the interests of consumers—but the commission will not propose legislation to force prices down as it is currently preparing in the area of cross-border mobile calls.

The EU executive will instead use its strong competition policy powers to attack single cases of abuse in member states, with Ms Kroes declaring that "some infringement procedures are inevitable."

"We are already investigating some cases but the inquiries have to be thorough," she said, declining to reveal where Brussels would take action.

Invisible charges

One key commission concern involves so-called "interchange fees" charged by banks to merchants when card payments are made by consumers. They are often invisible to consumers, being included in the price for the product bought.

"I'm afraid to say that the evidence we found rebuts several of industry's arguments for the economic benefits of high interchange fees," commissioner Kroes stated.

The payment industry had claimed that substantial interchange fees are vital because without these high fees, consumers would be worse off.

"We have a different opinion...the evidence shows that several card networks operate efficiently with low fees," said Ms Kroes.

Credit card firms such as Visa Europe and MasterCard are also on Brussels' competition radar, with fresh research revealing that "retailers in some countries pay fees that are up to four times more than in other countries for accepting the same major credit card," according to Ms Kroes.

"In my view these high card fees may result from lack of competition in the market, and I would not like retailers and consumers to be paying more for their cards than they should," said the commissioner.

Switching obstacles

Meanwhile, Brussels found that European banks are also making it difficult for consumers holding current accounts to switch to another bank when they are unhappy with services or rates. Five to seven percent of consumers did so in 2005—a figure qualified by Ms Kroes as "low".

Some banks do not only charge high fees for closing current accounts; they also erect obstacles making it difficult to leave such as the forced purchase of long-term products such as insurance.

"The majority of banks in most Member States force their customers to purchase extra products – such as current accounts or insurance – when taking out a mortgage or a loan," Ms Kroes said with banks explaining this practice helps ensure customer loyalty and reduces their credit risk.

"I'm sure they're right. But it's not so obvious what's in it for consumers," said Ms Kroes.

'The abuses must stop'

European Consumers' Organisation BEUC called upon the commission to let its words be followed by action.

"The facts are clear, banks do not really compete and make excessive profits from consumers. The current abuses must stop."

"Consumers need more information, more transparency, combined with easy and cheap ways to switch banks. We count on the Commission to make this happen," said BEUC's director Jim Murray.

Meanwhile, one major credit card firm signalled it is relieved that Brussels had not taken a tougher approach towards the sector.

Peter Ayliffe, chief of Visa Europe, said he is "initially pleased that EU Competition Commissioner Neelie Kroes is taking a more measured approach and recognises our argument that there is a need to continue the constructive dialogue"

But on interchange fees, he reminded Brussels that "setting interchange at commercially viable rates is a vital element in our system."

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