The European Commission has said interest rates are not payment account fees and so do not need to comply with criteria in the Payment Accounts Directive (PAD), but ultimately this is a matter for the Court of Justice of the European Union (CJEU).
The PAD, which was first passed into EU law in 2014, introduced measures that banks and other payment service providers (PSPs) must comply with, aiming to improve financial inclusion and competitiveness among retail banking services in the trading bloc.
In particular, this includes comparability of fees related to payment accounts, payment account switching and the requirement that payment accounts with basic features are made available to all EU consumers.
EU member states had to implement the PAD by September 2016, but issues with the PAD itself do not seem to have subsided for EU authorities.
This month, the European Commission has responded to a query from the Danish Financial Supervisory Authority (DFSA) regarding the interpretation of the PAD, and whether it is applicable to the charging of negative interest rates.
“Article 18 only regulates fees for the specific services referred to in Article 17. These services only relate to the transactions that a basic payment account must include. Therefore, according to this interpretation, the PAD does not regulate negative interest rates,” the DFSA has reasoned in its interpretation.
However, the Danish Consumer Ombudsman has taken what the European Commission’s letter described as a “diametrically opposed” conclusion, which makes determining whether negative interest rates should be recognised as a regulated fee on payment accounts more complicated.
At the time of the adoption of the PAD, interest rates were clearly understood as interest paid by a bank to the customer, and the possibility of charging negative interest rates was “definitely not” envisaged by the co-legislators, the commission has acknowledged.
This is something confirmed in Article 2 of the PAD, which defines “credit interest rates” as interest that is “paid to the consumer in respect of funds held in a payment account”.
This excludes negative interest rates, but as the commission has admitted, it does not ban them.
The commission’s financial services department has concluded that, for this reason, it leans towards a conclusion whereby negative interest rates are not to be considered as “fees” in the sense of the PAD and do not, therefore, need to comply with the “reasonableness” criteria in Article 18.
“However, the final assessment of this question and the final interpretation of PAD, of course, lies with the European Court of Justice,” the commission has summarised.
If the issue does make it to the CJEU, then the judges will need to assess whether negative interest rates are, in fact, a type of fee as legally set out in the PAD.
Here, there are two issues. On the one hand, it could be said that the word “fee” ought to be interpreted in a broad way, given the objective of the PAD is to ensure financial inclusion. When following this reasoning, negative interest rates would be regarded as a fee linked with the service of placing funds.
Alternatively, the co-legislators wanted to distinguish between fees for a specific service and interest rates, which the commission says are not linked to a specific service, as both are legally defined in the legislation.