Cross-border euro payments: the Latvian case
The European internal market needed a single currency. So, the EU introduced the euro: as of January 1, 2008, the currency of 15 EU Member States. But what about the internal market for euro payments? Or in EU speak: is there a Single Euro Payments Area (SEPA)? Not yet, according to the European Commission. Hence the proposal for a Directive on a New Legal Framework for Payments in the Internal Market.
In April of this year, the European Parliament welcomed this proposal and adopted the Directive on Payment Services (PSD). The aim of the PSD is to ensure that payments within the EU become as easy, efficient, and secure as domestic payments within a Member State, by providing the legal foundation to make the SEPA possible. The PSD is send to the ECOFIN Council for final adoption.
But what about the current legal framework, that is inter alia, Regulation 2560/2001 on cross-border payments in euro. This Regulation attempts to eliminate the difference of price between cross-border and national payments. It applies to credit transfers, cash withdrawals at cash dispensers and payments by means of debit and credit cards. The basic principle is that the charges have to be the same whether the payment is national or cross-border.
The European Commission issued a Consultative Document on the application of Regulation 2560/2001 and invited interested parties to submit comments. Professor John Burke published a paper on the application of this Regulation in Latvia. His assessment focuses in particular on one aspect of the Regulation, that is, cross-border credit transfer of funds. In addition, his article examines from an empirical perspective, the implementation of the Regulation by 23 banks in Latvia.
Burke concludes as follows:
“The Regulation appears to have partially achieved its objectives in Latvia. As at the date of the study, more than 66 per cent of the banks comply with the requirements of the Regulation.44 However, the data demonstrates that the Regulation had not induced a system of inexpensive fund transfers for cross-border payments in euro. Third, individual consumers that may be victims of overcharging, lack incentives to file complaints against banks due to the limited amount in dispute. Fourth, a Community level revision of the Regulation should address the market reality of the complex pricing patterns including: BEN, OUR and SHARE mode transfers, discounts to associated groups of banks that are not branches of a single institution, and the effect of the CREDEURO and ICP conventions. Any revision should also remove any ambiguity of language stemming from interpretations of the terms ‘‘same institution’’ and ‘‘corresponding payments’’. These arguably ambiguous terms leave a large margin of discretion for banks to implement the Regulation in a non-uniform manner contrary to the objective of establishing a single payment market. Finally, a revised Regulation should address the question of requiring banks to provide audit trails of transfers based on the actual cost of producing the document. At the national level, authorities must address the question of providing a remedy for violations of the Regulation resulting in overcharging. In Latvia, the study has demonstrated that, in certain instances, banks may have charged consumers rates based on price lists in apparent violation of the Regulation.”
John J.A. Burke, “Application of Regulation 2560/2001: An Empirical Study of the Latvian Banking System”, [2007] J.I.B.L.R. 17-38
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