WRITTEN QUESTION E-0109/99

by Ernesto Caccavale (UPE) to the Commission

(2 February 1999)

Subject: Unjustified banking charges levied by Italian banks following the introduction of the euro

On 23 April 1998 the Commission adopted three recommendations concerning the euro. One of the recommendations dealt with bank charges for conversions and stipulated that exchange transactions between European currencies should be completely free of charge, that banks should make no charge for the conversion of incoming and outgoing payments or for the conversion of current accounts from the national currency unit to the euro at the end of the transitional period.

Only a few days after the launch of the euro, which was universally hailed as a fundamental step towards the realisation of the single European market and backed by intensive information and awareness-raising campaigns, it has emerged that the Italian banks and a number of European banks are still charging their clients foreign exchange commission, which in Italy varies between ITL 5 000 and 10 000, in addition to a percentage of the amount changed. This is a clear infringement of a previous common undertaking by credit institutions to ensure that no charge would be made on foreign exchange transactions involving national currencies in the euro zone.

There have also been irregularities in cross-border payment and transfer transactions, which are still not dealt with in the same way as national payments since they are subject to additional costs.

It is vital, in order not to undermine the widespread optimism generated during the period immediately after the launch, that consumers are not made to bear the burden of the costs of the transition to the euro.

In view of the above, will the Commission:

- investigate the continued application of these banking charges and, if necessary, say whether or not this constitutes a clear infringement of the Community law on the single market;

- establish whether or not the banks' conduct contravenes the Treaty of Rome as a result of agreements, secret understandings or concerted practices and abuse of dominant position the direct consequence of which is a failure to comply with the rules on competition;

- lastly, say whether it considers that an unjustifiable infringement of consumer rights has taken place, and that appropriate steps should therefore be taken as a matter of urgency?

Answer given by Mr Monti on behalf of the Commission

(29 March 1999)

The Commission Recommendation 98/286/EC of 23 April 1998 on banking charges for conversion to the euro(1) lays down a standard of good practice which concerns mainly the conversion of money from national currencies to the euro and vice-versa. In this regard, Article 2 of this Recommendation provides that the conversion of incoming and outgoing payments and of accounts from the national currency to the euro should be free of charge.

However, this standard of good practice does not cover the exchange transactions between currencies (banknotes and coin) of the euro zone. In this respect, the Recommendation provides only for a general obligation of full transparency. During the transitional period, banks should apply the official conversion rates and indicate separately all charges applied to such operations. Banks shall perform exchange operations free of charge only from 1 January 2002 and subject to certain conditions (i.e. only for their customers, for household amounts and for conversions from the national currency to the euro).

Prior to the introduction of the euro, it was possible for banks to hide, partly at least, the charges for services such as banknote exchange in the (variable) exchange rate which was applied. In other words, banks were able to charge customers the difference, or "spread", between their buying rate and their selling rate for a currency. Application of a "spread" was a non-transparent method of charging, which the Commission has long called on banks to discontinue.

With the introduction of the euro, banks are no longer able to calculate their charges within an exchange rate "spread", for transactions involving the currency units of participating Member States. This is because of the fundamental requirement that the fixed conversion rates are applied for all conversions and exchanges between participating national currency units.

Therefore, from the beginning of the transitional period, Community banks are providing specific information on charges for exchange operations. This new practice has revealed a surprisingly high level of charges, which has understandably provoked strong reactions among the European public and suspicion that banks are trying to make up for revenue lost from exchange transactions by increasing the level of these charges. Moreover, the exchange risk, which no longer exists between currencies of the euro zone, was never a main element of the charges related to exchange transactions. According to the information available, the exchange risk accounted for approximately 20 % of these charges, which are mainly due to handling and overhead costs (transport costs of large quantities of foreign currencies and the labour intensive nature of these operations, which are not suitable for cash machines).

Nevertheless, the Commission expects that, during the course of the transitional period, the charges for exchange operations related to currencies of the euro zone will diminish, since the exchange risk between these currencies no longer exists.

The practice applied by Italian banks concerning exchange operations, while it may be justified, could undermine the consumers' trust in the single currency and jeopardise public support for this project. As underlined in a letter to the main European banking federations in January 1999, the Commission attaches paramount importance that public confidence in the introduction of the euro and the credibility of the banking system as a whole should not be undermined by financial institutions drawing unfair benefit from increases in charges for transactions between former national currencies within the euro zone.

On 5 February 1999, the Commission issued a press statement calling on all banks to make publicly available information, showing changes (before and after the introduction of the euro) in the total level of charges for exchanging euro zone banknotes and cross border cheques, transfers and card payments. The Commission further requested banks in the euro zone to report the state of play to the Commission by 31 March through their European associations.

Also in the press statement, users of financial services were invited to report to the Commission any cases of banks' failure to respect the legal framework for the euro or the Commission Recommendation on transparency of bank charges, using a specially created e-mail and fax service. The Commission will analyse the information received and will take the appropriate actions in order to prevent possible infringements of consumers' rights.

Moreover, the Commission is considering making a study on Community banks' charging practices before and after the introduction of the euro for the exchange of euro zone banknotes, as well as for other cross-border operations (cheques, transfers and payment cards).

Regarding credit transfers, the fact that cross-border operations continue to be more expensive than domestic operations is neither irregular nor directly related to the introduction of the euro. Indeed, the execution of cross-border credit transfers is more complex than that of domestic payments and therefore the related costs are higher. This situation is due to the lack of efficient structures for such payments and to the reliance on correspondent banking. On the other hand, in the majority of the Member States domestic credit transfers are automated and are executed by clearing systems, which link domestic credit institutions. Nevertheless, after the introduction of the euro, citizens will no longer understand why the current charges for cross-border transfers continue to be much higher than for domestic payments. For this reason, a joint effort of all interested parties (banks, Member States and the Commission) is needed to bring them down.

As far as the Commission is concerned, it will issue in spring 1999 a communication on the future of payment systems in the single market, which will be the basis for a comprehensive policy in order to achieve the goal of a single payments area. It will examine existing barriers in cross-border payments and propose concrete measures in order to reduce them. In particular, the Commission will increase the pressure on Community banks to establish more efficient links between national retail payment systems as soon as possible.

Finally, on secret understandings and concerted practices, the Commission has recently launched investigations of possible infringement by banks of competition policy. The Commission will not hesitate to intervene should any infringements be established.

(1) OJ L 130, 1.5.1998.