Intervention of Commissioner Emma Bonino

Introduction

As we are all consumers, no-one is a consumer. This expression of how we pursue the multitude and diverse interests of humans as "economic actors" - as opposed to humans as "political actors" or citizens - has interesting consequences for a speech about consumer policy. The speaker should never talk about the consumer aspects of the interests of her audience: an audience will invariably put its specific or professional interests ahead of its diffuse consumer interests. So never speak to food producers and foodstuff manufacturers about food quality or safety, speak to them about, for example, financial services: that's an area where they see themselves as consumers!

I ought therefore to speak to you about, say, food policy. Besides, being in the U.K., this subject is particularly "hot" ; but alas! this is not what you want to hear about. I shall therefore embark on a theme which is as fascinating as food, but where you probably never see yourselves as consumers - and yet: maybe one or two of you have had experiences that will make what I have to say seem more relevant than you initially thought.

The title of my intervention recalls the two most important documents published by the Commission on consumers and financial services in the last couple of years: the Green Paper on how to meet consumers' expectations of May 1996 and the Communication on how to enhance their confidence, adopted in June this year. Both papers were submitted by a joint proposal from Commissioner Monti and myself.

The importance and salience of financial services for consumers have been driven home in a recent Eurobarometer: In this specific sector 58% of respondents consider their national legislation to be insufficient and no less than 96% call for Community action in this area, notably in response to technological developments.

Objectives of EC consumer policy.

The objective of EC consumer policy, in general and in relation to financial services,

is simple: it is to make the markets genuinely competitive by putting consumers on an equal footing with suppliers and industry.

You will say that competition is already cut-throat. I grant you that within the industry this may well be the impression.

Seen from a consumer perspective, the view is not the opposite, but more nuanced. The market in financial services is characterised by:

Diversity & Complexity: The market offers a wide palette of products - which of course is excellent - but these products are often difficult to understand and to compare to other, similar products. The consumers is a layman; the supplier, however, is in mastery of the techniques involved - or ought to be;

Globalisation & Concentration: The financial markets were among the first to be influenced by these developments; while the macro-economic effects may well be largely beneficial, there are also some of the classical "monopolistic tendencies". More importantly, there is an increased grey zone between the various service categories. When your bank, starts offering you insurance, it is hardly the product offered by an independent or competing insurance company: it is a product developed within a sort of "financial supermarket". But what are the consequences for competition, for market transparency, and for market response to consumer needs and specificities?

Long-term Commitment with the risk of Captivité to use the French expression: a life insurance or pension scheme is not changed as often as you change shirt; but one commitment often leads to another: a mortgage credit with a bank often obliges the customer to have his current account with the same bank - which also offers credit in the form of overdraft facilities and credit cards - not to mention the offers of insurance referred to above. Through this process the consumer becomes a prisoner of his supplier and hence unable to profit from competition

Aggressive Marketing: as the competition for the attention of consumers and for access to their purse increases, so does the intensity of marketing instruments. I understand that the telephone marketing in this country of car insurance has lead to marketing methods which occasionally cause doubts about what the consumer disclosed of his "insurance history": did the consumer try to hide past accidents or did the insurance telephone salesperson conveniently forget them to be able to offer a lower premium? Apparently, the insurance industry may soon begin tape recording these conversations with customers and start advertising this fact as a tool to gain competitive advantage.

It is the view of the Commission that consumers are adults capable of taking care of themselves. It is not the job of public authorities, national or European, to "protect" consumers. This is why I prefer to talk about "consumer policy" and not about "consumer protection".

However, this general statement immediately calls for other comments:

Consumers must be put in a position to act as responsible adults;

While the first statement can apply to the average consumer, there may be marginal groups that need an increased element of protection;

"Free market" does not mean "Jungle"; it means clear and transparent rules of the game.

While we live in the "information society", this is also a society of growing technical complexity and specialisation: no one cannot be an expert on everything - how many of you understand the formula for the calculation of the Annual percentage rate of charge (APR) for consumer credit?.

Nevertheless, the objective of putting consumers in a position to act as responsible adults is pursued in all the initiatives taken by the Commission services in charge of consumer affairs: their Leitmotif is to create a level playing field between demand and supply:

Initiatives on information, such as the APR of consumer credit, serve a double purpose: to teach consumes that "there is no such thing as a free lunch" and to make them aware what the real cost of a financial product may be.

Transparency measures such as written contracts serve to make it clear what the commitments on both sides are about, and to make consumers aware of problems that may appear in future.

Opportunities for cooling off are a simple, but effective instrument for consumers to escape the "hard sell", while still leaving ample space for serious commercialisation even by unorthodox or new means, such as electronic commerce.

Our aim is to make the market function properly, not to stifle it. But we are as committed to the "free movement of consumers" as to the free movement of goods and services. It would seem bizarre, if the huge marketplace that will be created by the combination of the Single Market with a single currency, the Euro, was a marketplace where a consumer cannot shop around for financial services.

It goes without saying that the measures taken for the benefit of the "normal"consumer will also benefit the weaker ones. A second observation is that the meekest consumers will probably always meet the meanest businesspeople - but there is no way to legislate against this lamentable fact.

Communication of 26 June 1997

As I mentioned earlier, the Commission adopted on 26 June this year a Communication on its plans concerning consumers and financial services for the remaining time of its mandate. The Communication constitutes the reply by the Commission to the issues raised by the Green Paper and the ensuing consultation process.

It represents a "working plan" which is a balanced mix of legislation, dialogue and voluntary measures.

The Communication covers in fact a comprehensive programme for new and updated legislation in the form of directives on

distance contracts for financial services,

unregulated financial and insurance intermediaries,

consumer credit, and finally,

rapid and simple means for solving the problems of victims of car accidents abroad.

This legislative programme represents a recognition of the importance of financial services for consumers and of the need to respond to their preoccupations. In particular the directive on distance contracts is a demonstration of this. You will recall that the proposal for a general directive could only be adopted by excluding financial services. The Commission believes that this specific sector deserves a specific instrument. The draft directive will be presented this Autumn and I am convinced it will meet with, if not enthusiasm, at least with respect by financial service providers: the draft will take into consideration the particularities of financial services - it is clearly impossible to introduce the opportunity of regret or cooling off when buying shares - while maintaining that distance contracts are distance contracts, no matter the subjects covered.

The importance of this Directive is of course also demonstrated by the technological developments in the field of electronic commerce. You will no doubt all be quite familiar with the initiatives my colleague Professor MONTI has taken in this area.

Intermediaries may play a crucial role for the efficiency of the market: as "go-betweens" they may assist consumers in finding the right products. The conditions for playing this role are, however, that intermediaries are competent and that their degree of dependence of service producers is clear: the word "intermediary" covers many functions, from "one person" branches of a financial institution or tied intermediaries to genuine brokers.

The 1987 directive on consumer credit needs a shake-up to ensure that its provisions cover the realities on the credit market today: it was drafted at a time when hire-purchase was the norm; now I believe it should cover credit provided by cards and overdraft facilities.

The Commission still reserves its position on whether legislation is called for on mortgage credit, New Means of payments and Information & Redress:

concerning mortgage credit, this is the most important kind of credit a consumer may be committed to; a study on the opportunities for including this kind of credit in the rules applicable to consumer credit is underway and we will examine its findings ;

an updated Recommendation on the relationship between card issuers and card holder has been adopted in July by the Commission and will now be given time to show its impact; the main change compared to the Recommendation of 1988 is that the principle of "innocent until proven guilty" now shall also apply to consumers who become victims of theft or abuse of their cards: while maintaining the concept of own risk for the consumer, it will now be for the card issuers to demonstrate recklessness by the consumer, rather than for the card holder to demonstrate that he was not reckless;

information and out-of-court redress are issues where concrete and service specific results may be reached through voluntary measures by industry developed in co-operation with consumers: a so-called Dialogue on these themes between consumer representatives and the financial services industry, was therefore launched in July and is presently pursued. The Commission expects to have a first assessment of the opportunities for success by the end of this year.

Finally, the Communication touches briefly on the themes over-indebtedness and access to financial services. There is probably not much the Commission can do to prevent over-indebtedness as this is a result of many factors not amenable to regulation such as the overall macro-economic developments, tragic events like death and divorce, and - even - financial irresponsibility of consumers.

In the same context we also consider the problem of access to financial services. As it is impossible to live without a bank or giro account these days - very few amounts of money no matter their source are paid out in cash - the right to such an account is essential.

On both issues, the Commission will monitor closely the situation and measures taken by Member States and consider the feasibility of pilot projects.

SINGLE MARKET FOR INVESTMENT FUNDS

I believe you would expect me to comment on the provisions most close to your direct interests. Although, as you know, it is the responsibility of Commissioner Monti, I can say that the impossibility of making progress in the negotiations on the amended proposal of July 1994 made it necessary for the Commission to start looking for alternative solutions. The aim is to modernise Community legislation on investment funds and to ensure the effectiveness of the single market in this field. These objectives have been highlighted in the Action Plan which includes new proposals for collective investment undertakings among the Commission's priority actions for the next three years. The internal works for the preparation of such new proposals are still at a very early stage.

It is very likely that the proposal of July 1994 will be formally withdrawn at a convenient moment.

EURO

It goes without saying that I cannot speak to an audience like yourself without touching upon the issue of the Euro.

My main preoccupation is that the policies pursued until now have tended let aside the consumers. The main argument for this approach has been that "we are all consumers"; but as I said in my introduction, this will not work: our various professional interests will always overshadow the diffuse consumer interests.

It is therefore important to work together with, shall we say, "professional consumers", the consumer associations in Member States to come to grips with the concrete, outstanding problems.

The central problem is that, while the EMU enters into force 1 January 1999, the Euro notes and coins will not be sole legal tender until 2002: so what happens in the meantime? May consumers pay in Euro? Without any cost? The legal theory is clear: there will be neither a prohibition nor an obligation to pay in Euro. But clearly keeping ordinary consumers waiting for three years will be a disaster. They must become used to this currency as soon and as quickly as possible. It is in everybody's interest and it might allow to do without imposing any supplementary binding measure. I believe therefore that is essential that consumers be allowed to use the Euro if they so wish, and at no additional cost, from day One, January 1st 1999.

I am sure that you, as financial service providers, share this approach, in everybody's interest.