On the EU Commission consultation on Distance Marketing in Financial Services Directive review

The publication of the European Commission proposal amending Directive 2011/83/EU and repealing Directive 2002/65/EC, follows the public consultation carried out last year. The Distance Marketing in Financial Services Directive (DMFSD) has historically provided a legal basis for the distance selling of financial products and a minimum safety net for consumers, when there is no specific text (for example, when new products are introduced or for products outside the scope of a specific directive).

ESBG supports the scenario chosen by the Commission for its proposal to retain the relevant and still valid elements of the DMFSD by integrating them into a broader directive (the Consumer Rights Directive 2011/83/EU which is not currently concerning financial products) and to make some adjustments. Thus, a specific chapter dedicated to “Financial services contracts concluded at a distance” has been added to this directive, making it possible to retain the specificities of the DMFSD.

related


Customer protection

Proposed Solutions and Actions

Simplification of information

Consumer credit is normally partially executed through the granting of a handful of small operations to consumers. Those operations are of limited complexity and – in comparison to mortgage credit – of small amounts, but are, in turn, regulated by considerably complex rules.

As an example of that, the CCD requires creditors to give excessively detailed information to the consumer prior to entering a consumer credit agreement. Nonetheless, consumers ignore information which is too complex or difficult to remember and there is evidence that simpler information with fewer figures is much more effective at landing critical messages. That information may refer to information that only reflects the specifics of the product and meets with client’s expectations for short and clear information – for example – the repayment periods, the amount of the repayment instalments and the applicable interest rate.

Reduction of information

Regarding the pre-contractual information, it is important to focus on diminishing the number of precontractual documents, which banks are obliged to serve to consumers in any case. This approach has not proved itself to be useful for consumers and for that reason the requirements for serving precontractual information and Standard European Consumer Credit Information aren’t helping in achieving the objectives of the Directive. Bearing digitalisation in mind, the required information can barely be presented in a clear and comprehensive way on mobile devices.

A critical look should also be taken at the amount of mandatory information to be included in the credit agreements themselves. From the consumer’s point of view, the agreement should contain only what is necessary, i.e. in addition to the total amount of credit, above all the repayment plan, the default interest rate and information about the typical consequences for the borrower during the performance of the contract (consequences of overdue payments, rights of withdrawal, early repayment conditions).

The reduction of information may be also observed through the role of the right of withdrawal. The right of withdrawal is an instrument for the consumer’s protection and when it is granted to the consumer it should diminish some of the requirements for the service providers, especially in the field of the pre-contractual information that needs to be provided to consumers. If the amount of information is not diminished, there is not a substantial meaning of the right of withdrawal.

Regulate activities rather than institutions

In ESBG’s opinion, gold plating practices in the implementation of the CCD by Member States have limited its effectiveness. The use of innovative technologies has prompted the arrival of new operators to the consumer credit market. Unregulated entities can take advantage of the consumer trust that regulated entities have gained through the years, and even put that trust at risk if they fail to deliver fair and transparent results, increasing regulated entities’ reputational risk. Therefore, a strict implementation of the CCD by all Member States would give consumers better visibility on their level of protection in Europe. In this sense, the CCD should regulate that consumer credit activity should be a reserved activity and should require the application of policies on responsible lending, transparency and customer protection. Any revision to the CCD should be based on the principle “same activity, same rules”.

Creditworthiness assessment requirements should be flexible and preserved for each Member State and each credit institution. There is no need for harmonisation.

In our view an effective creditworthiness assessment can’t be standardised, because of the following nonexhaustive reasons:

  • it should be based on the knowledge of the borrower and on the ability to take into account the specificities of his situation, not on a mechanically applied criterion. This knowledge – inherent to the banker’s job – can’t be standardised.
  • standardising the assessment of risk profile would block the market without taking into consideration the peculiarities of each Member State.
  • it also may lead to a legal risk of not being able to deny credit if the European criteria are met.
  • common indicators wouldn’t allow to take into consideration the economic and cultural background: the same indicators will not necessarily mean the same in different countries (e.g.: savings habits, national rates of divorce, cost of education for children).

Identified Concerns

The CCD evaluation has so far looked at the relationship between the needs and problems in society and the objectives of the Directive.

However, more importantly for us is the impact that digitalisation has had on consumer credit. The emergence of a variety of new technologies has commanded the development of the digital transformation in the commercial and corporate aspects of banking. It is easy to observe a significant upward trend in the budget share dedicated to R&D.

However, the CCD did not anticipate that technological disruption, and new digital means have brought a diverse set of innovative distribution channels, and along with them, new communication means, new ways to access credit and the uniformity of credit agreements.

The use of smartphones, tablets, computers, headsets, and other devices, for not only searching products, but also for entering into credit agreements, is a reflection of the reality that has exceeded the expectations considered by the legislators when agreeing the CCD.

In this regard, special attention needs to be paid to the information to be provided to consumers before entering into the credit agreement. In some Member States, particular attention must be paid to the actual conclusion of the credit agreement when using these devices. Art. 10 (1) CCD, in which the text form of credit agreements is standardised as sufficient, should be harmonised to a maximum in the future, in order to enable a digital conclusion. At present, many Member States have adopted stricter rules (e.g. written form), representing a real barrier for the single market. In our view, in order to adjust the already adopted measures to the new digital technologies it is necessary to assess how much detailed information is required and how it can best be provided to consumers.

We have noticed that new market players such as crowdfunding platforms or SMS loan-providers have not yet played such a major role in the area of consumer loans. Nevertheless, we see a tendency for this role to increase in the future and for considerable changes to be expected in consumer loans as well.

Why Policymakers Should Act

We fully support the principles of the CCD, but we believe that it is reasonable to measure the objectives of the Directive having in mind that:
consumers want to receive clear and manageable information in a short time.

  • it is important not to overburden the consumers with information.
  • its requirements should be suitable for new technology and distribution channels.
  • a clear balance should be created between the objectives of the Directive and the rights of the creditors.​

Background

The EU Consumer Credit Directive (CCD) is designed to strengthen consumer rights and help potential customers make an informed choice when signing up to a credit agreement. Lenders provide standardised information on the product, allowing clear comparison by the consumer with other products available to them. In addition, lenders provide detailed information on the annual percentage rate of change; including the total cost of the credit.

The EU CCD was finalised in 2008. In 2011, an annex was added to clarify the rules on calculating the Annual Percentage Rate of Charge (APR). Finally, in 2014 a report was published in the Implementation of the directive. In 2019, the European Commission launched a consultation on the evaluation of the CCD, following on from an evaluation and fitness check roadmap. The review – still ongoing – aims to assess the effectiveness, efficiency, coherence, relevance and EU added value of the Consumer Credit Directive.​

related


Proportional and clear guidelines would ensure citizens' data protection and foster innovation

The ESBG, together with eight other associations representing the EU payment sector, has written to the European Data Protection Board, the European Commission and the European Banking Authority about the EDPB Guidelines 06/2020 on the interplay between the reviewed Payment Services Directive (PSD2) and the General Data Protection Regulator(GDPR).

The letter highlights that while the payments sector remains fully committed to ensuring the protection of EU citizen’s data- including within the framework of PSD2 – there are concerns that the enforcement of the Guidelines will lead to an outcome that is not in line with PSD2 objectives. In the end, this would hinder innovation and competition in payments.

Although the final Guidelines help in clarifying certain aspects of the interplay, our letter emphasises and reiterates common concerns:

  • Provisions on data minimization create uncertainties and are potentially in conflict with PSD2;
  • There is lack of coherence with the Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication (RTS on SCA & CSC);
  • Financial transaction data should not be considered as special category of personal data (SCPD). As such, if financial transaction data is not processed in order to infer SCPD, Article 9(1) GDPR should not apply.
  • There are resulting concerns that national Data Protection Authorities could start taking a differentiated approach to the interpretation of the provisions, resulting in fragmentation across the EU and adding to a growing trend when it comes to GDPR implementation.

Overall, the EU payments industry welcomes further discussion between all relevant institutions and stakeholders in the GDPR-PSD2 ecosystem to address these challenges and to provide legal certainty for all actors to enable them to meet their obligations and continue to provide top-tier services for their customers.

READ THE FULL JOINT LETTER

related


ESBG welcomes the financial competence framework by the European Commission and OECD

ESBG Managing Director, Peter Simon, shares the vast experience of European Savings and Retail Banks on financial education during panel discussion.

BRUSSELS, 25 January 2022 – The European Savings and Retail Banking Group (ESBG) applauds and welcomes the ‘Financial competence framework for adults in the European Union’ launched today by the European Commission (EC) and the OECD’s International Network on Financial Education (INFE).

“This framework provides much needed guidance to ensure citizens are prepared to make sound financial decisions that help them prosper and build resilience across all Member States”, said ESBG Managing Director, Peter Simon, who participated in a panel discussion to launch the initiative.

“Building financial education and literacy is part of European Savings and Retail Bank’s DNA and history, who have been carrying out for decades a number of different financial education programmes with the greatest dedication. Together with our members, ESBG can only celebrate an initiative from the public sector that aims at the same goal, which is to empower citizens to make the right choices for their financial well-being”, he added. “We all need to work together”.

In particular, ESBG applauds the fact that this framework, which includes 563 personal finance competences, focuses not only on building knowledge but also skills across all age groups.

The framework builds on the OECD’s existing one, updating it to the EU context and enriching it with more detailed digital and sustainable finance competences. It is made available for voluntary uptake in the EU by public authorities, private bodies and the civil society.

It was published on 11 January and launched today on a virtual event by European Commissioner Mairead McGuinness, and OECD Secretary General, Mathias Cormann. The announcement was followed by a panel discussion with industry experts.

WATCH THE RECORDING OF THE PANEL DISCUSSION

related


Isidro Fainé re-elected as WSBI president

Isidro Fainé, president of “la Caixa" Banking Foundation, was re-elected for another three years as president of World Savings and Retail Banking Institute (WSBI) at the organisation's 2021 General Assembly, held in Paris. The Institute's Managing Director will be Peter Simon of Germany.

WSBI members devote 1.8 billion dollars annually to the fight against poverty and social inequality.

The priorities for the coming years are: financial inclusion, promoting sustainable finance, innovation and embracing digitisation to forge ever-closer relations with customers, and strengthening solvency within the framework of Basel IV.

Besides Isidro Fainé and Peter Simon, the WSBI President’s Committee is formed by Dominique Goursolle-Nouhaud, president of the Fédération Nationale des Caisses d’Epargne (France); Rebeca Romero Rainey, president & CEO of the Independent Community Bankers of America (USA); Macario Armando Rosales Rosa, president of Fedecrédito (El Salvador); Helmut Schleweis, president of the German Savings Banks Association (Germany); Isara Wongrung, executive vice-president of the Government Savings Bank (Thailand); and Redouane Najmeddine, chairman of the Management Board of the Banque Al Barid (Morocco).

The members of the Assembly of this Institute, which represents the interests of 6,500 savings banks and retail banks in more than 60 countries, unanimously re-elected Isidro Fainé as WSBI president for the next three years. Peter Simon of Germany will be managing director over the same period.

The priority lines of action established for the coming years include financial inclusion, promoting sustainable finance (reflecting the fact that WSBI member institutions are characterised by their social commitment to the communities in which they operate), exchanges of good practice in the implementation of the new Basel IV solvency framework, and innovation, seeking to make digitalisation a tool to bring members closer to customers.

In his speech, Isidro Fainé noted that, “over the coming years, we will have to address major challenges: economic recovery, increasing inequality, demographic changes that will put pressure on natural resources, climate change, sustainability… The urge to help the most vulnerable and strengthen the community forms part of our members’ DNA: members’ social contributions stand at some 1.8 billion dollars per year, aimed at fighting poverty and social exclusion”.

During Isidro Fainé’s first mandate as president (2018-2021), the organisation focused on the following issues:

1) Promoting financial inclusion:

The WSBI has exceeded the targets set by the World Bank in its commitment to Universal Financial Access (UFA2020), increasing the number of banked people by 329 million between 2014 and 2020. Moreover, the organisation’s cooperation with the Mastercard Foundation was strengthened, leading to the launch of such initiatives as Scale2Save, focused on promoting savings in Africa. Collaboration also began with the Profuturo digital literacy project to promote financial education in developing countries.

2) Increasing dialogue with international organisations:

In response to the crisis caused by the pandemic, the WSBI has focused on promoting economic, fiscal and social measures before regulators, aimed at establishing a flexible framework that enables both a successful recovery from the crisis and that the new demands that arise as a result can be satisfied.

3) Encouraging cooperation among members:

The World Savings and Retail Banking Institute is formed by four regional groups (Europe, Asia-Pacific, Africa, and North America/Latin America/Caribbean). The coronavirus crisis has resulted in increased exchanges of good practice in responding to the financial needs of all types of groups, institutions, large enterprises, SMEs and families.

The World Congress also renewed the mandates of the other statutory bodies, including the Coordination Committee. Antonio Romero, Corporate Director of Association Services and Resources at CECA, was elected as chair of this committee, which coordinates the associated activities of the WSBI and the European Savings and Retail Banking Group (ESBG). Similarly, Joan Rosàs, Director of International Institutional Relations at CaixaBank, was appointed as the representative of the WSBI Board for International Relations. This representation strengthens the participation of the Spanish banking sector in European and international working groups.

Founded in 1924, the WSBI represents the interests of 6,500 savings and retail banks around the world. WSBI members have total assets of 15 trillion dollars, employing 2.2 million workers and serving some 1,400 million customers in 63 countries, with a network of 221.577 offices providing banking services all types of groups, institutions, large enterprises, SMEs and families.

related


On the EU Commission evaluation of the Mortgage Credit Directive

After the ESBG meeting with the European Commission on 30 September, we have recently shared some documents as a follow-up.

ESBG members finalised a position paper on the MCD review, and shared two briefing documents on the topics of reverse mortgages and green/energy efficient mortgages. These are topics on which the Commission is keen to receive more information from the national level to consider possible actions at the EU level.

related


BRAC Uganda working in Covid times

Maintaining customer and investor confidence during Covid

Improved liquidity position allows financial service providers to focus on pandemic recovery

The Covid-19 pandemic is the latest crisis that is putting pressure on financial service providers (FSPs) globally. Lockdowns and regulatory moratoriums on loan repayments, together with a lower business activity are putting serious constraints on FSP’s liquidity positions. Early in the Covid pandemic, there was widespread concern that liquidity constraints could wipe out many of the financial institutions that serve low-income customers and small- and medium sized enterprises.

Two recent reports issued by CFI/e-MFP and CGAP point to the vital importance of managing liquidity in the midst of a crisis. After all, the quickest path to failure of an FSP is running out of cash. Available liquidity should be used to retain the confidence and trust of both customers and creditors while continuing to operate and paying staff.  Once stability is achieved, an FSP can start its recovery, but this cannot be achieved without retaining the confidence of customers, investors, staff, and the regulator.

Evidence of successful crisis response

Scale2Save is a partnership between WSBI and the Mastercard Foundation to establish the viability of small-scale savings in six African countries. To analyse the impact of the Covid crisis on the liquidity profile of our partner FSPs, we compared the pre-crisis liquidity position at end of year 2019 with that at end of 2020 when a cautious and gradual recovery of the Covid pandemic had set in. Across our programme partners, we collected liquidity gap reports from four banks and three deposit taking microfinance institutions in four countries: Ivory Coast, Nigeria, Morocco, and Uganda.

Liquidity risk arises from both the difference between the size of positions of assets and liabilities and the mismatch in their maturities. When the maturity of assets and liabilities differ, an FSP might experience a shortage of cash and therefore a liquidity gap. A liquidity gap report profiles assets and liabilities into relevant maturity groupings based on contractual maturity dates and is an important tool in monitoring overall liquidity risk exposure. A liquidity gap report is a standard disclosure included in audited financial statements of our project partner institutions.

Increased customer deposit balances

All partner financial institutions increased their customer deposit volume at the end of 2020 compared to pre-Covid crisis level. Perhaps more importantly, they also mostly managed to increase the proportion of customer deposit funding as part of total liabilities, as seen in the graph below.

The partner banks seem to have been more successful in increasing deposit volume compared to microfinance institutions. However, caution needs to be taken in generalising this conclusion as country and institution specific factors are also at play.

Lower dependency on borrowed funds

International creditors have been very supportive to banks and microfinance institutions during the Covid crisis, granting waivers for breaches of loan covenants, providing for temporary suspensions of interest and loan repayments, restructuring of loan terms and new financing. However, given the ample liquidity available from customer funding and the higher cost associated with international borrowings and debt issuance, most partner institutions chose to run-off these borrowings during 2020 lowering the proportion of borrowings in the funding mix. The average maturity of outstanding debt dropped as a result, as the following graph reveals.

Improved liquidity profile

The maturity of customer loans and advances increased during the crisis due to loan moratoriums and the related rescheduling and restructuring. The loan maturity loan terms of all partner FSPs extended, with one example of a 216% increase, seen below, in the case of an institution which generally has extremely short loan maturities.

On the liability side, contractual maturities of funding decreased for all partner FSPs, except one.  This was mainly the result of international borrowings that expired or that were not rolled over.

When considered from the perspective of contractual maturities, the combination of lengthening loan terms and shorter funding maturities would suggest a worsening of the structural liquidity position of an FSP. However, the anticipated maturity of retail customer current accounts, security and savings deposits is often much longer than their contractual maturity, when taking into account the behavioural characteristics of a large and diversified pool of individual accounts that exhibit “stickiness”. Only a proportion of these retail customer balances will be drawn down on contractual maturity date and the entire pool provides a more stable, long-term source of funding.

This point can be illustrated with reference to the international liquidity standards issued by the Basel Committee on Banking Supervision for the calculation of expected cash outflows for two key liquidity risk indicators, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The Basel standards assume that between 3% and 10% of retail deposits[1] would actually run-off over the next 30 days under an adverse liquidity scenario. The corollary of this is that 90-97% of retail deposit funding can be considered to be stable in nature and of longer duration. As short-term customer account funding (<30days) of our partner institutions make up a significant proportion of the total customer funding (between 30% and 90%), a large part of these funds can therefore be considered as “core” and provide a stable funding base to compensate for the extended loan maturities from Covid impacted loan rescheduling.

The Basel global liquidity standards are meant as guidance and FSPs operating in less developed markets and more volatile environments may experience higher deposit run-off rates in case of liquidity stress.  Nevertheless, a significant proportion of our partners’ customer account and savings balances can be considered as stable.

Institutional resilience in face of the Covid crisis

At the outset of the Covid crisis, our partner institutions invoked their pandemic crisis management plan and took protective measures for customers and staff to prevent infection and transmission.  Partner institutions granted credit relief to borrowers in the form of loan moratoriums in line with regulatory forbearance measures.  Digital access to customer accounts was stepped up, so customers could meet household consumption expenditure during the lockdown.

Our partners have withstood the liquidity stress induced by the Covid crisis and successfully retained the confidence of customers and investors.  With a cautious and gradual recovery from the Covid pandemic underway, FSPs can now focus on recovery steps higher up the hierarchy of financial institutions crisis management needs.  These needs were described in the CFI/e-MFP report in the following order of priority: liquidity, confidence, portfolio and capital.

With stability restored, FSPs can now shift their recovery efforts to managing the loan portfolio by balancing collections of overdue loans with the need to continue lending to reliable low-income customers and small- and medium-sized enterprises and maintaining capital adequacy levels when Covid-related regulatory forbearance measures will expire.

Through surveys and case studies the Scale2Save programme continues to investigate the driving factors that influence the different outcomes of Covid crisis management.

A blog published on the European Microfinance Platform (e-MFP). To read the original version (including graphs) visit this page.

related


Call for all lenders to be equally supervised under Consumer Credits Directive

BRUSSELS, 3 September 2021 – ESBG responded to the European Commission’s public consultation on its proposal for a Directive on Consumer Credits on 30 August. In their response, ESBG members call on the Commission to broaden the scope of the definition of ‘lender’ to any kind of lender (including platforms) to ensure all are supervised at the same level for the same lending activities (including non-banks).

ESBG also calls for keeping the 200 EUR threshold for the lower limit of the scope, as a smaller amount would incur high processing costs disproportionate to the return (and the same can be said for short-term loans of less than three months).

The Commission announced the draft text of the proposal on 30 June. The previous Consumer Credit Directive (CCD), dating from 2008, does not consider recent developments which have a wide impact on credit loans, such as digitalisation. It also overlaps with other legislative texts which have since been updated. These changes should be reflected in the CCD text.

On the required information, ESBG members welcome the Commission’s proposal to provide consumers with simplified, streamlined pre-contractual information. They are concerned, however, that the newly proposed one-pager (SECCO) might actually be in addition to the existing SECCI. If so, this would go against the goal of reducing the information overload on the consumer. As a solution, ESBG believes that the SECCO should be an alternative to the SECCI, and not an addition. We also call on the Commission to embrace digitalisation by allowing information to be provided via a computer or tablet, and not interpret ‘durable medium’ to mean strictly printed paper.

In addition, regarding the creditworthiness assessment, ESBG considers that it should be proportional to the type of credit. The creditworthiness assessment should not be the same, for example, for short-term overdrafts and a considerable loan. In the case of payment in few instalments, the consultation of a database of unpaid credits could be sufficient to grant credits of small amounts and of a duration of less than three months, and this consultation should become compulsory.

Download

FULL REPORT

related


WSBI supports International Day of Family Remittances

Brussels, 16 June - WSBI supports the 2021 Global Forum on Remittances, Investment and Development. This virtual Summit will focus on the role of remittances to strengthen market recovery amidst the current global pandemic, and to improve the resilience of migrant workers and the communities where they live. In particular, the Summit will seek to share and analyze practical strategies and mechanisms related to digital and financial inclusion of migrants and their families.

The Summit will see the observance of the UN-adopted International Day of Family Remittances (IDFR), in recognition of the tireless abnegation of almost 200 million migrant workers who send money home for the wellbeing of their families in communities of origin, and who have demonstrated unprecedented resilience in these times of crisis.

In its efforts to increase financial inclusion, WSBI has always pointed to the importance of leveraging remittances as a stepping stone to financial inclusion. WSBI has created the FairRemit framework and platform with the objective to provide fair and transparent pricing and enable real-time cross-border small value remittances. The objective of the framework is to offer a fair and transparent channel for remittances, in accordance with the World Bank/BIS General Principles on Remittances. For more information on FairRemit, do not hesitate to get in touch with Mina Zhang  at WSB

related