Brussels, 27 June 2002
Regulation on cross-border payments in euros to apply from 1 July 2002: frequently asked questions
(see also IP/02/941)
Which means of payment are covered, and from when?
Card payments (either face-to-face or remote) at retail outlets and withdrawals at cash points of up to €12 500 are covered from 1 July 2002, and transfers of up to €12 500 from 1 July 2003. The principle of equal charges does not apply to cheques.
There are three types of requirement in the Regulation ((EC) No 2560/2001):
Why 1 July?
The Regulation was proposed by the Commission on 25 July 2001. It was adopted after two readings by Parliament and the Council in less than six months, the procedure having been completed on 19 December 2001. Such rapid adoption for a legislative instrument subject to the codecision procedure is quite exceptional: the work had to be completed in time for the introduction of euro notes and coins.
But the Regulation could not be made to apply from 1 January 2002, chiefly because of the need to modify tariffs and computer systems. All the banks were focusing their efforts on the task of introducing notes and coins and a six-month deferral avoided diverting their attention from that process.
What are the sanctions for non-compliance?
Article 7 states that "compliance with this Regulation shall be guaranteed by effective, proportionate and deterrent sanctions".
Such sanctions are the responsibility of each Member State. This is one of the principles of Community law: each Member State must see to it that infringements of Community law are dealt with in the same way as breaches of national law. The EC Court of Justice recently recalled this principle (judgment of 18 October 2001 in Case C-354/99). At a meeting held in Brussels on 26 June, the Commission invited the national administrations to report on sanctions set in place in their countries.
How should cardholders react if they notice a difference in charges?
Consumers receive a statement indicating the charges applied in respect of each transaction. If they notice that higher charges have been applied to cross-border transactions, they should take the following action:
Consumer associations can also provide valuable assistance, in particular by providing the names and addresses of the competent national authorities.
Why does the Regulation cover the entire territory of the Union although it applies to payments in euros? Shouldn't it have been limited to the euro area only?
The Regulation applies to all payments in euros within the single market because citizens and businesses can and will use the euro even if they are not based inside the euro area. The Regulation therefore applies throughout the Union in order to facilitate the establishment of a single EU payments area.
How does the Regulation apply to transactions with Member States outside the euro area?
A Belgian consumer who withdraws euros from a cash point in France will pay the same charges as for a withdrawal in Belgium. The charges will be debited from his account in Belgium. He will, on the other hand, pay different charges if he withdraws sterling from a cash point in the UK because a foreign exchange transaction is involved.
Doesn't the Regulation interfere with prices and therefore the banks' commercial policy?
No, the Regulation does not set prices; it establishes the principle of non-discrimination between the charges applicable to a domestic and a cross-border payment in euros. The banks remain free to set their charges for each type of transaction. The Regulation merely stipulates that the fact that a payment crosses a border within the Union must not make it subject to a different charge. This is in line with the very definition of the single market as an area without frontiers in which free movement is ensured.
Won't the banks simply increase their charges for domestic transactions?
The Regulation does not ban any increases in existing "domestic" charges. But all the indications are that the banks have decided to react differently and better, by setting up new infrastructures enabling cross-border payments to be handled more efficiently and more economically and by encouraging their customers to switch from manually processed to fully automated means of payment. This is what is happening with cheques, which are gradually being superseded by debit cards.
There are also transparency rules in the Regulation which are designed to prevent abuses. If certain banks were tempted to increase their charges for domestic transactions, the increased transparency and advance notification of tariff changes required by the Regulation would give customers an opportunity to react, for example by changing banks. Competition between banks should consequently limit the risks of unjustified increases in charges for domestic transactions.
Ultimately, the banks need to keep their customers and protect their image among members of the public, who are likely, if they are satisfied with the banking services they are offered, to buy all sorts of financial products from banks throughout their lifetime. It is therefore not in the interests of banks to increase their prices where alternative solutions are open to them.
The Commission is to report to the Council and Parliament in July 2004 on trends in charges for domestic payment transactions.
Are there any other rules which apply from 1 July 2002?
Another extremely important provision which applies from 1 July 2002 is the abolition of systematic statistical reporting obligations for cross-border payments of up to €12 500 (Article 6). The consequence of this is that a bank which makes a transfer between France and Belgium is no longer required to report the transaction to its national central bank. A cross-border transaction in euros is thus treated in the same way as a purely domestic transaction.
How does the principle of equal charges apply in the case of a card payment where the cardholder pays charges as well as the trader?
Let us take the example of a Spanish trader who receives a card payment from a Belgian cardholder. The trader will pay the same charges as if the cardholder was Spanish and the cardholder will pay the same charges as if the trader was Belgian.
Which are the countries covered by the Regulation?
The countries in which the euro is in circulation should not be confused with the countries covered by the Regulation. The Regulation applies in all the Member States of the European Union, but not for example in the Vatican or Kosovo, even if cash points there distribute euros.
It means applying to payments the principle of removing borders. The basic idea is to treat transactions carried out in the same currency - the euro - as domestic ones, even if they involve crossing a border. Ways will therefore have to be found of gradually bringing the cost and payment times of cross-border transactions into line with those of domestic transactions.
In each of the twelve existing national payment areas in the euro zone, transaction costs are the same whether the payment is made across the same street in the capital city or from one remote village to another. The same principle of a single payment area must be introduced for the euro zone. This means merging twelve national payment areas into one domestic euro payment area.
Plans must also be laid for making a similar improvement in cross-border payments involving the three national currencies which have not yet joined the euro. The cost of cross-border payments prevents consumers from reaping the benefits of the single market. All consumer transactions are two-sided: a product or service is transferred from the producer to the consumer and in return a sum of money is transferred from the consumer to the producer. If a product is cheaper in another country, the consumer may be interested in buying it there, provided that the charges for payment do not swallow up the benefits of the transaction.
Is this Regulation technically realistic?
National payment systems are like motorways. Today these motorways have to stop at the border. The banking world is therefore going to build motorways which can be used to cross borders. Indeed this is the whole aim of the Regulation: to encourage banks to set up a system of cross-border payments that is as efficient as national payment systems. In March 2002 the banks announced the creation of the SEPA (single euro payment area) - a work programme extending over eight years. One of the first decisions taken was to set up a European automated clearing house. On 17 June the banks announced that a European Payment Council (EPC) is to be set up to direct and coordinate all the work needed to get the SEPA up and running.
The banking world uses the term SEPA (single euro payment area), while the Commission talks about an SPA (single payment area). Is there a difference?
The efforts of the banking world are concentrated exclusively on the euro. But the single market is bigger than the euro zone. The Commission believes that the single payment area must have the same geographical scope as the internal market. At the moment there are still three currencies outside the euro. There will be even more after enlargement.
Why are cheques excluded from the principle of equal charges?
Cheques are a means of payment that is subject to very different legal rules from one country to another, even though they are in theory governed by the 1931 Geneva Convention. The use of cheques varies considerably from one country to another: they are virtually unknown in Sweden and Finland, but account for more than 40% of non-cash payments in France. In a number of countries there has been a considerable decline in their use since 1 January 2002.
Cheques are not suitable as an automated means of cross-border payment, since, by their very nature, they cannot be processed as efficiently as other means of payment, in particular electronic payments.
The banking world will not develop any infrastructure for handling cross-border cheques. However, the general rules on transparency will apply: banks must inform cheque-book holders of the charges they will incur if they use cheques for cross-border payments.
Since these charges are generally high (more than the cost of transfers), consumers are strongly advised not to use cheques for cross-border payments.
The Regulation does, however, apply the principle of transparent charges to cheques.
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