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The European Commission has ruled out any changes to the Payments Account Directive (PAD) at present, despite suggesting areas in need of improvement.
The commission has published its report on the application of the PAD, which was first adopted in 2014, to conclude whether it needs to be revised at all.
Among its goals, the PAD aims to promote financial inclusion in the trading bloc and establish the right of EU citizens to basic payment account services.
It also allows for account switching, prohibits the unjustified refusal to open bank accounts and requires financial institutions to provide clear and easily understandable information regarding account fees, transaction costs and terms of service.
The publication of this report, initially expected back in 2019, was postponed due to the need for a thorough assessment of the directive's effectiveness after it came into force.
Despite the report highlighting areas for improvement in the PAD, particularly regarding account switching, the commission has concluded that there will be no legislative proposal to revise the directive at present.
For example, in the report, the commission suggests that account switching remains low in some member states; however, it also notes that increasing the number of account switches was not necessarily the goal of the legislation.
“Given the general availability of a well-functioning switching service, the aim of making it easier to switch seems to have been achieved,” the commission says.
However, the report suggests that it “could nevertheless be useful to take additional measures”.
In particular, to raise consumers’ awareness of their right to switch payment account.
Further, the commission has hinted at extending rights in the PAD to allow for cross-border switching in the trading bloc.
Extending the switching service to cross-border cases would make it easier to switch payment accounts, the report suggests.
There are several different ways to extend the current switching service within a single market so that it can be applied to work across two member states, the commission suggests.
For example, this could include interconnecting the different switching services at national level or creating a standardised EU-wide switching service, which would replace the existing systems for domestic switching.
Cost-benefit analysis
In its report, the commission raises the possibility of creating a framework for the automated redirection of payments.
Such a framework would ensure that for a certain period of time, after a consumer has switched payment accounts, payments to the previous account would be redirected to their new account.
Redirection services already exist, for example, in the Netherlands as an additional feature of its domestic switching service.
Further, the commission suggests the potential benefits of EU-wide account number portability, which would allow users to keep the same payment account number when switching payment accounts within the EU.
Consumers would no longer need to notify creditors and/or debtors who they have recurrent transactions with when they have a new payment account number and their creditors/debtors would not need to update their accounting systems.
Although the commission seems enthusiastic about these ideas, it said that it is for now unjustified based on a cost-benefit analysis, considering current switching rates.
The report also highlights problems that exist with the opening of basic payment accounts.
For example, the report acknowledges that there can be difficulties in opening a payment account due to a lack of specific identity documents.
The verification of the customer’s identity required by the EU’s anti-money laundering/counter-terrorism financing (AML/CTF) directives is generally done on the basis of these documents.
However, a requirement to possess a standard identification document issued by member states may create particular difficulties for asylum seekers and refugees, as well as in general for nationals of other member states.
This issue has already been partly addressed in the European Banking Authority’s (EBA) opinion on the application of customer due diligence measures to customers who are asylum seekers from higher-risk non-EU countries or territories.
The EBA further reiterated this in a statement on "financial inclusion in the context of the war in Ukraine", which was released in April 2022.
De-risking practices on AML grounds can also be a problem for nationals coming from high-risk countries and can also be linked to the US Foreign Account Tax Compliance Act (FATCA), where the commission report points out that there have been difficulties for consumers with double EU/US nationality.
Yet, as the EBA stated in its opinion on de-risking, some credit institutions may have decided not to provide payment accounts to US nationals in view of the obligations and possible sanctions under FATCA, meaning that there is little scope for change.
