On the 23rd of June, the three European Supervisory Agencies (EBA, EIOPA and ESMA) held the 2017 edition of the Consumer Protection Day in Prague. The venue was chosen in relations to the conference’s focus on CESEE countries which experience specific consumer issues that require more attention from public authorities.
In his opening statement, Andrea Enria, Chairperson of the EBA, stated that “important cases of consumer detriment emerged, for instance, on the widespread provision of loans denominated in foreign currencies. Retail mortgage borrowers complained about the lack of protections when they have difficulties in meeting their obligations. Lack of access to basic payments accounts has also been a source of complaints. The issue of unsuitable investment advice has been widely reported. In these and other areas, EU legislation and work conducted by the ESAs have significantly strengthened the regulatory framework”.
Alin Iacob, Chairman of Romanian Association of Financial Services Users, specifically discussed during his panel session the problem of Swiss Frank mortgage loans which were a clear case of misselling of a financial products to consumers. These loans were pushed on consumers by the sales persons and presented as “safe”. Other issues plaguing Romania include banks charging unjustifiably high fees for transfers which fall under SEPA and PSD2 regulation, and a delay in transposing and enforcing EU regulation (Payment Account Directive still not transposed, delay of 6 months in transposing the Mortgage Credit Directive).
MEP Sven Giegold stressed, in his key note speech, identified broad challenges that will have to be tackled as well as specific recommendations for addressing the issues identified above:
- Control and access over data is key for building a Digital Single Market, thereby, data localization should be forbidden (forcing service suppliers to use local infrastructure or establish a local presence as a condition of supplying services) unless there are legitimate public interest reasons to justify this.
- The EU should set minimum tax rates for off-shore territories.
- The ESAs should be granted more powers in consumer protection as at the moment, their remit is focused primarily on prudential regulation. They should not be afraid to use the powers granted to them, especially the power to set guidelines.
- Whistleblower protection at the EU level has to be stepped up, as whistleblowers have been at the center stage of uncovering major scandals and breaches of EU law: the Dieselgate, Panama Papers and Luxleaks are a few examples.
One recommendation specific to addressing the CESEE country issues, and supported by many speakers following Sven Giegold’s intervention, was the generalization of mystery shopping in all Member States, with a budget line and a common methodology to allow easy comparison and identify countries which breach the EU regulation.
The panel dedicated to digitalization discussed the many challenges ahead in Fintechs and the growing use of algorithms, big data and blockchain technology in financial services.
To avoid exclusion or unjust discrimination of certain categories of consumers, we clearly need some rules and principles in the data that can be used, the purposes it can be used for, and look at the outcomes of the uses of data to assess whether it may lead to problematic cases of exclusion.
Examples of questions that need clarification include:
- Data which does not strictly fall into the category of “sensitive data” like “health data” can still be used for assessing health. For instance, data gathered from a smartphone can help predict dementia. Is smartphone data health data? How do we handle the growing, multiple uses one can make of user generated data?
- Dynamic pricing models can result in injustices: for instance for car insurance, a professional night shift driver could be discriminated for driving at night (even if it is for professional reasons) because driving at night is more “risky” than driving during the day.
- When algorithms learn by themselves (using machine learning for instance), it could result in unforeseen discrimination, exclusion or other ethical issues which cannot be predicted or easily fixed.
- If two or more firms use the same algorithm developed by a third party, it may fall under “price collusion” and be deemed illegal.
- The boundaries between various financial products may become blurred: for instance, in order not to fall under “insurance” regulation, a train company can offer a “customer service” which automatically pays, via a “smart contract”, 1€ compensation for each minute delay, while an airline provides a “smart insurance” to compensate for flight delays. In this scenario, it is difficult to apply the “same activity, same rules” principle.
The experience of sandboxes from the UK may be one way of addressing such “new” challenges, providing a service to innovative firms that bump up against regulation and do not know how to get past that.
COFACE Families Europe is not against sandboxes but wishes to stress that their use should be strictly regulated. Access conditions and the remit of sandboxes need to be clearly defined to avoid any consumer detriment. Of particular importance is for sandboxes to examine the business model of emerging Fintechs to detect possible future consumer detriment, gaps in current regulation or attempts at circumventing existing regulation. Two examples of problematic Fintechs are Dynamic Currency Conversion services (overcharging consumers for a simple service, that of displaying a price in the consumer card’s currency) and Afterpay (a delayed 0% interest payment service which charges high penalty fees on missed payments, potentially an example of circumventing interest rate caps and payday lending regulation).
Finally, Monique Goyens, Director of BEUC, covered more extensively the shortcomings of financial services supervision and enforcement, specifically in CESEE countries.
With regards to public enforcement, the shortcomings include:
- No specific authority in charge of financial consumer protection – in most countries (for instance, in Cyprus, the central bank has no mandate for consumer protection, and the ministry of commerce has only very specific intervention powers);
- Insufficient resources and qualifications to fulfil their mission: especially a lack of training on specific things like marketing and advertising standards;
- No product intervention power;
- Non dissuasive penalties – no disclosure.
With regards to private enforcement, the shortcomings include:
- Out of court redress bodies are not fully independent;
- ADR does not exist for financial services in some countries and the decisions are not binding;
- Going to court is a no go for individual consumer for many reasons including high costs of litigation and low level detriment not worth the burdensome and lengthy legal procedure;
- Collective consumer redress does not exist in many countries.
Some recommendations moving forward include the aforementioned mystery shopping, extending the right to collective redress, separate prudential control and conduct of business supervision – the so called “twin peaks” approach, and more generally, grant the ESAs more resources, effective product intervention powers (and make sure they are not scared to use them), and a mandate to achieve ambitious supervisory convergence.
COFACE Families Europe is a Member of the EBA’s Banking Stakeholder Group and will continue to advocate, in cooperation with other organisations representing the users of financial services, for better rules and principles to ensure families all over Europe have access to quality, fair, safe and accessible financial services.