AS338 - REGULATION OF RIGHT TO MODIFY BANKING CONTRACTS
PRESS RELEASE
PRESS RELEASE
Banks: Antitrust Authority Calls for a Review of Rules on Unilateral Changes to Current Accounts
Report sent to the Government, Parliament, CICR and the Bank of Italy. Notification not to be given in the Official Gazette. Increased time for right of withdrawal. Changes to the rules a first step toward eliminating market distortions.
The provisions which allow banks to change the contractual conditions applied to their clientele by posting a notice in the Official Gazette, and giving only 15 days during which to withdraw from the contract, must be re-examined in the light of the protection offered by the Consumer Code. This point was emphasized by the Italian Competition Authority in a report sent to the Speakers of the Senate and the House of Representatives, to the Prime Minister, to the Inter-Ministerial Banking and Investments Committee, to the Finance Minister and to the Bank of Italy. The report, approved by the Authority at its meeting on 24 May 2006, states that a re-examination of the current rules is essential in order to protect and promote competition in the banking sector in the most suitable and effective manner.The Authority, in fact, has observed that the actual way the current regulations are applied leads to the erection of barriers to the development of competition in the banking sector.
A reform of the regulations is only the first step; it must be followed by the elimination of a number of problematical elements regarding the banks' policies in offering services; these emerged from the early results of the fact-finding investigation.
The report examines in particular Article 118 of Legislative Decree no. 385 of 1 September 1993 (TUB), and its implementation as decided by the Inter-Ministerial Banking and Investments Committee (CICR) on 4 March 2003 (Regulation of Transparency in Contractual Conditions for Banking and Financial Transactions and Services). Based on these regulations, changes to interest rates, charges and other transaction and service conditions may be notified to the clientele in an impersonal way, via announcements in the Official Gazette of the Republic of Italy. From the date of publication, the customer has 15 days to exercise his right of withdrawal. In the Authority's view, these regulations do not fully comply with the stipulations of the Consumer Code, because they contain no reference to the “good reason” which must underlie changes to contractual conditions and do not stipulate an adequate flow of information with sufficient notice for the customer to exercise his right of withdrawal, the time allowed for this being unduly short. In the report, the Authority points out that, under the Consumer Code, clauses are improper, and therefore illegal, if they impose a significant asymmetry which penalizes the consumer in his rights and obligations deriving from the contract. The regulations in question, which incidentally do not correspond with banking laws or common practice at an international level, encourage the continuance of a situation where the banks' market strength allows them to set less favourable conditions than would be the case in a truly competitive environment. In fact, almost all banks, with a few exceptions, operate using the limits permitted by the regulation. In a number of cases, the unilateral changes are used to introduce new charges and sometimes modifications specific to the customer or, in a few instances, to make changes to the very structure of the contract.
The result, according to the first conclusions of the fact-finding investigation, is that the number of account holders who have actually withdrawn from their contracts in the last two years under Article 118 has been entirely marginal.
In its report, the Authority also emphasizes that these recommended changes to the regulations will not eliminate all existing obstacles to the migration of customers, who have to face other regulatory hurdles and other aspects of the banks' conduct. Specifically, on the basis of the initial data gathered, the Authority points out a number of problematical aspects which need to be addressed:
1) the difficulty bank customers have in finding out about contractual changes and understanding their true extent and impact on the overall cost of keeping a current account;
2) the difficulty of researching alternative offerings in a short space of time and at a reasonable cost: contractual conditions for current accounts are extremely heterogeneous in their manner of charging, so that it is hard to read the contracts offered by the different banks and to compare their conditions;
3) the fact that it is impossible for the customer to count on a contract with conditions having a specified minimum duration: the large number of unilateral variations communicated by the banks creates a state of uncertainty as to the permanence of the chosen contractual conditions and this discourages research and switching to better alternative offers, which may also not be long-lasting;
4) disincentives to changing banks due to the difficulty of exercising one's right of withdrawal in a limited timeframe and at limited cost: the time and cost involved in transferring a current account are closely dependent on numerous other services offered to the account holder by the same bank (direct debiting of utility bills, credit cards, overdrafts and mortgages, securities accounts, etc.), all of which, although governed by separate contracts, generally cease to be offered if the current account is closed. This further increase in the time and cost of leaving is often the result of a strategic choice by the banks to undermine any chance customers may have of taking their business elsewhere.
Rome, 26 May 2006