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The EU’s banking watchdog has said that concerns about the level and lack of transparency in fees and charges applied to retail banking products are justified, as it publishes its first thematic review on the matter.
The European Banking Authority (EBA) has published a thematic review on the transparency and level of fees and charges levied by financial institutions on retail banking products in the EU.
The review was triggered by feedback in its biennial Consumer Trends Report, which has frequently raised fees as an issue.
The EBA’s review shows that, overall, fees and charges vary greatly in terms of level and type, not only across the EU’s internal market, but also across institutions operating in individual member states.
Furthermore, the variety of types of fees and charges cause different levels of detriment to consumers, and, with the exception of payment accounts, fees and charges are difficult to compare between providers.
Payments regulation has done much to enhance the market in the last decade, with standards and caps set through EU legislation like the Interchange Fee Regulation, the Payment Accounts Directive, or the second Payment Services Directive (PSD2).
However, the market is not perfect, and the report does point out the main issues identified for payment accounts, including their lack of transparency.
In relation to the most common fees applied to payment accounts and causing detriment to consumers, consumer associations reported debit card fees, overdraft fees, maintenance fees and fees for cash withdrawals as problematic.
Meanwhile, financial institutions complained of high default interest rates, ATM withdrawal fees and unclear fees applied for the opening of a payment account.
Regarding payment institutions, some of the reasons for changes in fees and charges were competition pressures, the introduction of new products and services, the removal of fees related to some credit cards and the introduction of new tariffs and cancellation of some services.
Meanwhile, electronic money institutions cited changes to business strategy and changes to the operative costs, such as statement provision, processing and issuance of new cards and SMS services.
EBA’s conclusions
Of the findings within the report, the EBA concludes that national legal frameworks are subject to a general principle of freedom of contract — the process by which individuals and groups form contracts without government restrictions.
Consequently, it is only in a few instances that national regulators have the power to intervene when the level of fees charged is considered to be unreasonable compared with the service offered, and this is limited to payment accounts.
Likewise, only a few national frameworks have implemented specific requirements in addition to those imposed through European legislation, such as limitations on fees and charges for payment services or payment accounts with basic features.
The EBA also found that not only do fees and charges vary widely both in terms of level and type across the EU, but in the specific case of credit institutions’ source of revenue, the reliance on fees varies significantly.
Furthermore, some authorities and consumer associations that took part in the survey identified the scenario when fees that had previously been agreed are subsequently increased as one of the most detrimental scenarios for consumers.
According to these two categories of respondent, this circumstance is particularly detrimental in cases where consumers face financial and non-financial costs.
These could include efforts required of the consumer to find an alternative provider, sign a contract with them, and gain access to services comparable to those before, which might discourage the consumer to switch away from the provider.
The EBA concludes that despite the level of harmonisation that has been achieved on payment accounts, consumer associations and financial institutions still perceive this product — which is the most frequently used of all products — as the most detrimental due to the lack of transparency and the level of fees and charges, especially for cards linked to it.
