MILAN * EUROPEAN FORUM

CONSUMERS AND FINANCIAL SERVICES CREDIT AND PAYMENT CARDS

Firstly allow me to congratulate you, representatives of consumers and professionals, for taking part in this forum. The main purpose of these forums - which the Commission has been organising for some three years now - is to promote dialogue between suppliers and consumers. As you will no doubt have noticed, for each of the subjects on today's agenda, there is a consumer spokesman and a professional spokesman. However, this is a consumer forum. When professionals organise forums, my impression is that they don't give as much speaking time to their consumer partners (or perhaps adversaries).

I am fully convinced of the need for dialogue. This is why this morning, after some general reflections on financial services and consumers, I will propose to you a list which I have dubbed a "progress list". By this I mean a series of work areas which we must address rapidly in order to change a certain number of things.

As you know I am the Commissioner in charge of consumer policy. I intentionally say consumer policy and not consumer protection. The consumer is not an endangered species that needs special protection. But we live in a market economy, and this is an economy in which some players have a lot of economic clout and some do not. This is particularly true for consumers in their dealings with financial institutions. For me, consumer policy therefore means promoting consumer interests. This is why, for example, I am particularly interested in everything to do with information. The consumer needs information if he is to be a player on the market. All measures which generally improve consumer information help promote consumer interests.

Last October, from this perspective of promoting consumer interests, I proposed ten consumer affairs priorities to the Commission. One of these priorities is financial services.

Some explanations concerning this choice:

Financial services are becoming a major consumer concern. Those of who are regular readers of consumer organisation publications are well aware of this. In the past the focus was only on products. Today, financial services, money, the banks, insurance companies - all have an important place. I have also noticed that consumer associations are increasingly publishing special issues devoted to financial services. Here are four reasons why financial services are a major concern for consumers today:

First: changes in lifestyles

First change: consumers are increasingly making investments; in the past, consumers used to rent their homes, but now they are more likely to be owners. This means they have to borrow money. The same applies to transport: consumers used to use public transport, now they own their own cars.

Second change: one paradox of modern society is that when consumers have fewer needs(when they are in their fifties or thereabouts) that they earn most.

Third change: fundamental demographic trends mean that more people are in retirement for longer with all the attendant financing problems.

Second: Financial services are becoming increasingly important in the consumer's everyday life. Just consider the importance of financial services in the typical household budget: loan repayments, insurance policies and banking charges - all in all they cost quite a hefty sum. It is impossible to survive today without a bank account. Even the jobless have to have a bank account to collect their dole payments. They also have to have mandatory insurance for homes and motor cars. Consumers also increasingly have to transfer money from one period of their lives to another. This is the function of saving and credit. And let us not forget the growing role of insurance: how many insurance policies does the consumer have on average?

Third: contracts between consumers and suppliers of financial services have a number of peculiarities. These are long-term contracts often covering a number of products and services. Financial services are complex services which many consumers do not fully understand - something that any consumer who has tried to compare mortgage offers at some stage of his life can vouch for.

Fourth: in the domain of consumer financial services, we are in a supplier's market. It is the financial institutions that impose their products and services on consumers. One simple example at Community level: payment devices differ greatly from one country to another. The British use credit cards, the French prefer cheques; the Belgians go in for credit transfers and the Germans for cash. Of course this is a simplification but the number of examples is endless - every national banking community imposes its choices on its consumers. This supply-side logic prompts a more general reflection in regard to financial services: in future, financial services should be tailored to consumer needs. It is not up to consumers to adapt themselves to the banks' needs.

After these four points, let us address seven progress items, seven fields in which action is urgently required.

Progress item No 1: Information

We live in a competitive economy. Consumers have to pick and choose to identify the best financial product or insurance policy adapted to their needs. Likewise, when negotiating a contract, consumers must be familiar with the costs and terms pertaining to the different transactions, trends in credit charges and in compensation terms. Consumers must also be able to make comparisons.

This question of information is very important. Information is the driving force behind competition. Just as a motor vehicle cannot run without petrol, competition needs information in order to function. Without information the consumer cannot choose. This question of information is very important in the credit field. It is along these lines that, in the wake of the report on Directive 87/102, we intend to harmonise the way in which the annual percentage rate is calculated. But this information-centred approach has to be applied to all aspects of financial services.

Progress item No 2: Mobility

If consumers are to benefit from competition, they must be mobile and not captive.

Increasingly, consumers are being invoiced for banking services. Each service has a cost. But I find that the banks' ingenuity in making consumers pay sometimes goes too far. Certain institutions now impose charges for closing an account. The consumer does not want to keep his account with a given bank, so let him shell out. I think that measures of this kind impede mobility and are a way of preventing the consumer from changing.

It is because of this concern with mobility that the Consumer Credit Directive provides for early repayment of loans, thus allowing the consumer to change his institution. In different kinds of credit, there are no similar provisions in all Member States: consumers should not be a prisoner of the same institution for twenty years. Of course, I realize that every kind of credit has its own merits and constraints; nevertheless, I envisage the consumer as an informed and mobile player who is also capable of switching from one institution to another.

Progress item No 3: Education

Financial services are becoming increasingly complex, households now have a budget to manage and must take financial decisions. Apart from information, there is an extraordinary need for education. I have high expectations of this afternoon's discussion on this subject. Once again, the more consumers know, the more efficient the market, and this is in the general interest. Consumer groups and trade associations have been active at this domain, but more has to be done: financial services change more rapidly than consumer knowledge about them.

Progress item No 4: Payment devices

The field of payment devices commonly used by consumers poses numerous problems. This afternoon we will specifically address the question of theft or loss of payment cards. This question does not apply to cards alone. For example, the rules governing thefts of cheques in certain countries are I think quite exaggerated. If a consumer's cheque-book is stolen it is he who has to foot the bill when the cheques are cashed by a thief - even a year after the theft and the declaration of theft. This is hard to swallow in the era of information technology. In certain Member States, these problems have been tackled by a voluntary approach: I don't know if it is the right solution. Nevertheless, it is clear to me that consumers must be fully and previously made aware of their liabilities in this field.

As regards credit cards, there is a Commission Recommendation dating from 1988. This instrument has only been partly applied. Yet in this domain we are witnessing such novelties as free-paid cards, the electronic wallet or even cybercash. In the face of these trends consumers have been pressing for directives, professionals want to draft codes of conduct...The Commission is presently examining the possible updating of the old 1988 recommendation or the adoption of other instruments.

I think that in this area nobody has got it right. I have yet to see an intelligent document on the subject of new payment devices. By intelligent document I mean a description of the problems posed, accompanied by a summary, taking into account the interests of all players, including consumers. I hope that we will, all of us together, rapidly get around to doing this.

Progress item No 5: Selling techniques

In the domain of financial services, who sells what?

Italy recently adopted a new law on usury. Political attention has focused, also thanks to the work of the consumer organisations, on the black market for consumer credit. But this black market exists only because the Community rules are not applied. These rules include mandatory monitoring or approval of institutions that provide consumer credit. This is the general problem of the provision of financial services and the roles of brokers and intermediaries. I personally believe that the problem is not only the one of fixing the maximum level of the interest rate.

Another aspect of credit provision is consumer indebtedness.

Certain credit institutions and intermediaries seem to be unaware of the extent to which certain consumers are in debt. The prevention of excessive indebtedness, a subject which is being addressed this morning, means we must think hard about the market for credit as a whole.

Other aspects of selling techniques are the commercial methods used, including publicity, doorstep selling and distance selling. Financial services - both in the banking and insurance field - are generally less regulated than others in this respect. As regards contracts concluded at a distance, we will shortly be presenting a Communication designed to resolve the difficulties arising from application of the general directive.

Progress item No 6: Dispute resolution

The Commission recently adopted an action plan on dispute resolution. This document, which I can only urge you to read and discuss, proposes the creation of out of court procedures for settling disputes and launches a debate on how the systems should operate. Financial institutions also have considerable experience in this area.

We lack information on the number of disputes throughout the European Union. Only some countries provide summary information in this domain. From this angle, the annual report on financial services in France prepared by the Banque de France is quite a remarkable document. Reading this document, one cannot but be surprised at the repetitive nature of certain disputes. If a dispute recurs frequently, this means that there is a problem somewhere.

So why not seek out the causes of the problem? Of course this is no easy task and means that the bank has to recognise that its system has shortcomings. But complaints are a gold mine for financial institutions. They enable them to spotlight the things that don't work. A consumer who complains should be thanked for the information he gives the firm on its dysfunctionalities - presuming of course that the firm uses the knowledge to shape its quality policy.

In the field of disputes it is necessary to address more closely the problem of consumer indebtedness: what happens when, following a major misfortune in life such as unemployment, a consumer is no longer able to pay off his debts? This is a human problem which all of us must address together.

Progress item No 7: Single currency

With the single currency we are building a cathedral of our age. When Euro-coins and Euronotes enter into circulation, consumers will have a daily reminder of Europe's existence. They will have a currency to rival the yen and the dollar. We will give our citizens new pride inbeing Europeans.

In face of this extraordinary challenge I believe that the only effect of many discussions is to dishearten consumers. On the one hand, the irrationality of the debates on the convergence criteria beggars belief: all a government has to do is manage its budget and, lo and behold, it is the criteria that are to blame. On the other hand, bankers and traders tell us: beware, this is going to cost a fortune, notably in adapting our computer software.

Are these discussions worthy of the issue at stake? In my opinion they are not.

The single currency is in the general interest. We will all gain in the long term. But without consumer support there will be no single currency. So let us buckle down and start explaining. Let us explain what is going to happen, let us explain how it is going to happen.

In a nutshell here again are the seven zones of progress I have just described:

Consumers, in order to benefit from competition, need information (progress item 1) and must be mobile (progress item 2). They obviously need education (progress item 3) and payment devices adapted to their needs (progress item 4). They must have confidence in the selling techniques used (progress item 5) and have access to dispute resolution procedures (progress item 6). Finally, they must understand and aspire to the single currency (progress item 7).

I hope that today's dialogue will be the first step towards great improvements.