Payment Directive and New EU-Strategy to Further Expensive Multiple Credit Card Credit in the Name of Competition: Non Banks Enter Consumer Credit in Central Europe - Has the EU Parliament been Correctly Informed on the Impact of the Payment Directive on National Credit Culture and will the EU even abolish the Healthy Relation between Bank Account and Credit Cards in the Future PAYMENT DIRECTIVE IS IN FACT A CONSUMER CREDIT DIRECTIVE The passing of the Payment Directive has been widely celebrated in Europe as a big success for consumers. Council and Parliament passed it without major concern for its effects on consumer credit. The Commission kept telling the public that “by removing the legal obstacles blocking the creation of a Single Payments Market, the Directive aims to introduce more competition in payment systems and facilitate the realisation of economies of scale. This will improve efficiency and reduce the cost of payment systems to the economy as a whole.” Thus single passport, mutual recognition and maximum harmonisation have all been swallowed with delight by the European consumer business including the press. Even the French le Monde (April 24, 2007) praised the advantages of this regulation without obviously having read it to its end. « Consumers can be happy : from November 2009 on they will have the money a day on their account after it was transferred to them … “ citing BEUC. “Les consommateurs peuvent se réjouir : à partir du 1er novembre 2009, lorsqu'ils effectueront un virement, leur argent sera crédité le lendemain sur le compte destinataire. C'est l'une des principales dispositions de la directive sur "les services de paiement dans le marché intérieur", que le Parlement européen devait adopter de manière définitive, mardi 24 avril. "Actuellement, les banques se gardent bien de débloquer les fonds de leurs clients, aussitôt qu'elles les reçoivent", accuse le Bureau européen des unions de consommateurs (BEUC). » Already a year ago iff has warned that through a tiny wording in the Annex of the Direcitve where Credit Card was defined as including the right to extend consumer credit to citizens the whole system of continental European credit regulation has been made obsolete. The European Parliament hold in its final motion literally that this Directive would not change the consumer credit system in the Member States. They were deeply wrong and misled and from personal experience we know that deputies did indeed think likewise. DG MARKET: “PAYMENT INSTITUTIONS ARE ALLOWED TO GRANT CREDIT” Instead the Commission which hesitated to admit that this Directive would open the sluices for high price Credit Card Credit of Non-Banks now openly admits it. Its release tells us: “1. Why should payment institutions be allowed to grant credit? While the Payments Services Directive is not about regulating cross-border credit, there are some existing payment products, such as credit cards which are used for payments and which typically allow customers to repay over an extended period. Consequently, payment institutions should be allowed to grant credit in accordance with the rules laid down by the Payments Services Directive.” This is clear and open. The restrictions of the Directive itself are minimal and the deliberations of the Commission cited below heavily misleading. Banks or whoever wants it can now create credit card companies and stuff them with sufficient capital to extent small credit at high prices. While in the USA and the UK most of overindebtedness already comes from high priced revolving credit card credit Germany, France, the Netherlands, Italy and Spain can felicitate itself that this flood now has reached the continent via Brussels. ARE WE PREPARED? The Commission tells us that the Consumer Credit Directive will at least apply to it. This is no comfort as especially credit card credit has to a large extent been exempted from the rules of this Directive and national rules will no longer apply if only the Maximum Harmonisation principle can be pushed through. Debt Advisors can already train to deal with an average of 16 different credit card credits all taken at a final stage and with usurious pricing. When firms like the English Providential who together with the Credit Card lobbyist will distribute their 200% p.A. payday credit on the continent with the help of credit cards mailed to people in need or petrol stations will give such cards away free of charge like other drugs credit card addiction will get its place in the national drug legislation. REPLACING TRANSPARENT OVERDRAFT CREDIT IN FAVOUR OF DETACHED MULTIPLE CREDIT CARD CREDIT - NEW STRATEGY ANNOUNCED BY COMMISSIONER McCREEVY IN HIS GREENBOOK ON FINANCIAL SERVICES Now DG Internal Market seems to go on further to give any kind of lenders free access to vulnerable consumers. In a recent statement Commissioner McCreevy showed concern with the "lack of competition with payment systems" and expecially credit cards. This did not concern as one might assume the monopolistic high interest rates on credit cards in those countries like the UK and Ireland where credit cards off own credit. On the contrary McCreevy assumes that those other credit cards which offer low price overdraft credit need some more "competition". McCreevy is worried that people have too little credit cards with own credit because continental banks still link their credit cards to the overdraft credit and thus to the bank account. In the present system most credit cards do not provide separate credit but use the overdraft from the bank account which is normally given only to those who channel their monthly income to this account. Thus consumers know how much credit they have taken up through the use of credit card in shops or on the Internet. While bank accounts are socially quite sensible to overpricing and exclusion this system provides access also to poor people and guarantees a risk spread in pricing which again give affordable credit to all. Where the system has loopholes the state intervenes like in Belgium, Germany and France and pressures banks in providing such bank accounts. In future one can argue that such minimum or lifeline accounts are no longer necessary because poor people can use the credit cards of non-banks. This is indeed the message migrant workers in South Africa is presently given. But due to its special approach the Commission sees in this system a restriction to competition. The consumer is not disadavantaged because he or she is trapped in 16 different credit card credit contracts (“flipping”) but because he does not get the offer to indebt herself with 16 different cards from unsupervised foreign lenders. As competition lowers fees the Commissioner assumes that having reached the Anglo-Saxon freedom in credit card credit the consumers will enjoy ever falling fees and interest rates. Our colleagues tell in these countries tell us the opposite of what one could experience in the credit card markets of the USA, UK, Australia and recently South Africa. The more credit cards are available with seducing credit lines the higher the prices, the more exploitation and the less solvable are the problems which arise from this form of improvident credit extension facilities. WHY THERE IS STILL NO PROBLEM OF ACCESS TO CREDIT IN GERMANY It is the merit of the continental system wherein banks do mostly not offer credit detached from the overdraft credit that consumers still are forced to consolidate all their credit shopping into one account where they even get the monthly information how much they can still afford and where they still are. This system has helped to keep payday loans out of Germany and the Benelux as well as Scadinavia. DG Market which by its philosophy, language, origin and people seems to merge with the Financial Services Authority and Department of Trade and Industry of the UK seems to feel that consumer credit systems in Europe have to freed from the concerns of those who feel that overindebtedness has become one of the major social problems of the future. “MINISTRIES OF MARKETS” WILL DEFEND MARKETS – THE UNHOLY TRINITY Why should we argue with the General Department of Markets if we have created it as such? If national governments would finally replace their ministry of economics or of finance by a ministry of markets nobody would wonder that these ministries would defend markets wherever they are thinkable. We ourselves have created such an ideological institution which instead of using a tool to achieve political and economic goals has turned its name into a faith based political institution that now dominates even consumer protection and is about to conquer labour protection as well with the freedom of services. Why should we complain if a special bureaucracy is alimented who if common markets would not be the only sustainable goal for Europe would just have to be dismissed. If we cannot get a competent Department of Internal Affairs, a powerful Department of justice, of economics and one of culture affairs, of social affairs and of labour issues instead of the holy trinity of market, competition and economy The Payment Services Directive and the Consumer Credit Directive together with the Services Directive have shown that we cannot just walk on towards European unity if at the same we are not able to at least involve a bigger public into a discussion on the destruction of national cultural and legal achievements in the name of “removing the legal obstacles blocking the creation of a Single Payments Market”. HOW NEO-LIBERAL ARGUMENTS WORK People suffer from credit card credit all over the world. Credit Card addiction, usurious secured credit cards, flipping, high interest rates, total intransparency OF household finance with up to 16 parallel small credit card credits, campaigns to get rid of more than one credit card in the US and default rates of up to 13% all this is typical for this kind of credit in the free market world. For the Commission the opposite is true. More credit cards will enhance competition, lower fees and interest rates. It will (as the campaign of Cetelem/Cofinoga in France reveals) give especially young people multiple access to credit which will offer a big variety of productive forms of credit. Banker's knowledge and experience is neither needed nor wanted. More is better. This is neo-liberal religious fundamentalism. The sharks appear as the victims. Instead of providing all people access to affordable, productive and transparent credit (as defined in the ECRC principles) the industry gets access to the poor irrespective of the quality of the offered credit. It is a freedom where the wolves and the sheep are liberated to live together without fences and supervision and as Martin Luther argued the sheep may perhaps be happy but not live very long. COMMISSION's STATEMENT ON CREDIT CARD CREDIT UNDER THE PAYMENT DIRECTIVE CREDIT GRANTING BY PAYMENT INSTITUTIONS 1. Why should payment institutions be allowed to grant credit? While the Payments Services Directive is not about regulating cross-border credit, there are some existing payment products, such as credit cards which are used for payments and which typically allow customers to repay over an extended period. Consequently, payment institutions should be allowed to grant credit in accordance with the rules laid down by the Payments Services Directive. Under the Directive, any credit provided by a payment institution has to be provided from the payment institution's own funds or monies that it has raised in capital markets, not from the funds received or held for the purpose of execution a payment transaction. National supervisory authorities must also be satisfied that the own funds of the payment institution are appropriate to the overall amount of credit provided. 1. What are the rules applying to payment institutions on credit duration? There is no restriction on credit duration for national rules on credit cards. (National rules may provide for a credit duration period longer or shorter than 12 months.) However, when a payment institution wishes to trade in a Member State other than the home Member State in which it is authorised, credit provided through a credit card must be repaid within a short period which must not exceed 12 months. So if an authorised payment institution wishes to start marketing credit cards to users in other Member States, the maximum credit duration period is 12 months. This situation must be clearly distinguished from the use of a national credit in other Member States. For example, if a user is entitled to a credit duration period exceeding 12 months for national payments, this extended credit period will also apply to payments carried out by the same user when using the credit card in other Member States. 1. Are there any other restrictions on credit granting by a payment institution? Yes: • In all cases the credit must be ancillary and granted exclusively in connection with the execution of a transaction. • Furthermore, any credit provided under the Payments Services Directive will be subject to the future rules of the Consumer Credit Directive as well as existing national and community rules on credit, e.g. national rules which aim to stop card-users falling into too much debt. • Finally, as noted above, any credit provided by a payment institution has to be provided from the payment institution's own funds or monies that it has raised in capital markets, not from the funds received or held for the purpose of execution a payment transaction. In addition, the national supervisory authorities must be satisfied that the own funds of the payment institution are appropriate to the overall amount of credit provided. ID: 39672 Author(s): UR Publication date: 03/05/07     URL(s): DG Market FAQs to Payment Directive Le Monde iff comment on the Drafts of the Payment Directive Parliament Report on directive on payment services (COM(2005)0603 – C6 0411/2005 –2005/0245(COD))

World Partner       EU-Partner

Created: 03/05/07. Last changed: 14/05/07.
Information concerning property and copy right of the content will be given by the Institut For Financial Services (IFF) on demand. A lack of explicit information on this web site does not imply any right for free usage of any content.