- Question ID
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2023_6777
- Legal act
- Directive 2015/2366/EU (PSD2)
- Topic
- Other topics
- Article
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45
- Paragraph
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1
- Subparagraph
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(c), (d)
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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5 CBPR2
- Name of institution / submitter
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Wise Europe
- Country of incorporation / residence
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Belgium
- Type of submitter
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Other
- Subject matter
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Exchange rate mark-ups part of 'all charges payable'/'currency conversion charges'
- Question
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Is an exchange rate mark-up (the difference between the interbank rate and the exchange rate offered by the PSP to its PSUs) to be considered as part of ‘all charges payable’ as per PSD2 and the ‘currency conversion charges’ as per CBPR2 prior to the initiation of the payment? How should PSPs disclose this in the payment flow?
- Background on the question
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One of the aims of both the PSD2 and CBPR2 have been to further strengthen consumer understanding of the fees charged to them when making cross-border payments and prohibit non-transparent pricing methods.
Notably, Recital 84 of the PSD2 states that “In order to strengthen the trust of consumers in a harmonised payment market, it is essential for payment service users to know the real costs and charges of payment services in order to make their choice. Accordingly, the use of non-transparent pricing methods should be prohibited, since it is commonly accepted that those methods make it extremely difficult for users to establish the real price of the payment service.”
The European Commission’s Impact Assessment of CBPR2 clarified that there was a need to increase transparency and comparability of currency conversion charges, in addition to the requirements set out in Article 45(1) of PSD2, among others.
As such, the CBPR2 builds upon the requirements set out in the PSD2 and introduces additional consumer protection measures, .e.g, by stating in Recital 8 that “currency conversion charges represent a significant cost of cross-border payments when different currencies are in use in the Member State of the payer and the Member State of the payee. Article 45 of Directive (EU) 2015/2366 requires the charges and the exchange rate used to be transparent, [...] It is necessary to provide for additional measures in order to protect consumers against excessive charges for currency conversion services and to ensure that consumers are given the information they need to choose the best currency conversion option.”
Following the entry into force of both legislative acts (PSD2 and CBPR2), in practice, we see that the way in which PSPs disclose their fees upfront in cross-currency transactions in Europe varies a lot and has led to diverse practices undermining the policy objectives. Some PSPs transparently disclose the exchange rate mark-up upfront in addition to any transaction fees each time a consumer wants to make a cross-border payment. However, most providers across the EU hide their fees in inflated exchange rates. These mark-ups over the mid-market or interbank rate are not disclosed upfront. Some providers hide these mark-ups in Terms & Conditions (i.e. Framework Agreement) or behind ‘tooltips’, while others do not show any exchange rate information at all.
Such practices go against the intention of both PSD2 as well as CBPR2, as not all fees are shown upfront in a clear and comprehensible manner. This lack of consistency raises a material consumer protection issue and causes consumer harm due to the inability of consumers to effectively compare providers and establish the real price of the payment service. The aforementioned impact particularly pertains to PSUs domiciled within EU Member States wherein a minority currency is employed and thus, are more susceptible to incurring the aforementioned charges. It also limits fair competition between PSPs. The diverse practices are also spread across the EU, impacting a broad set of stakeholders, including PSPs, SMEs and consumers.
A currency conversion charge is not defined in PSD2 or CBPR2. Only a ‘charge’ has a clear definition: “any charge that is directly or indirectly linked to the payment service”. This would imply that an exchange rate mark-up is a charge that should be disclosed under the PSD2 and CBPR2. Additional guidance would be helpful in order to avoid further customer harm.
In the context of Article 4(1) CBPR2, the European Commission deemed it necessary to provide a uniform benchmark, specifically the ECB rate, for application by all Payment Service Providers (PSPs). This measure was considered crucial as it enhances transparency and comparability of services falling under the scope of the aforementioned article.
Similarly, in pursuance of transparency objectives, Article 5 of the CBPR2 aims to achieve similar goals for credit transfers (albeit between different PSPs). Consequently, the same benchmark would apply and would serve as the point of reference for disclosure of markup fees and other related charges.
Finally, as the PSD2 is one of the legislative acts referred to in Article 1(2) of the EBA’s founding regulations and the CBPR2 builds upon the requirements within the PSD2, the legislative acts are within the EBA’s remit.
Therefore, a clarification or guidance by the EBA is necessary to ensure the effective and consistent application of legislation pertaining to the activities of payment service providers, including credit and payment institutions and to ensure the same levels of consumer protection across the EU when making cross-border or cross-currency payments in the EU. We are asking the EBA to clarify whether these exchange rate mark-ups should be disclosed to the consumer as part of “all charges payable by the PSU” in PSD2 and the “currency conversion charges” in CBPR2, as they are ultimately a charge to the customer.
Legal act
- Directive (EU) 2015/2366 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (Payment Services Directive 2 or PSD2)
- Regulation (EU) 2021/1230 of the European Parliament and of the Council of 14 July 2021 on cross-border payments in the Union
Legal reference
- Article 45 (1) (c), (d) of Directive (EU) 2015/2366 (PSD2)
- Article 5 of Regulation (EU) 2021/1230 (CBPR2)
- Submission date
- Final publishing date
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- Final answer
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Article 4 of Regulation (EU) 2021/1230 on cross-border payments in the Union (Cross-Border Payments Regulation – CBPR21) sets out how the total currency conversion charges related to card-based transactions in the Union shall be expressed, namely as a percentage mark-up over the latest available euro foreign exchange reference rates issued by the ECB. This mark-up shall be disclosed to the payer prior to the initiation of the payment transaction.
The CBPR2 does not provide for this mark-up requirement for currency conversion charges related to credit transfers in the Union (Article 5).
Article 45 (1)(c) and (d) of PSD22 states that “all charges payable by the payment service user to the payment service provider and, where applicable, a breakdown of those charges” (lit. c) as well as “where applicable, the actual or reference exchange rate to be applied to the payment transaction” (lit. d) are provided or made available to the payment service user.
The percentage mark-up over the latest available ECB reference rate is a means to indicate the currency conversion rate used for better comparability, but, in contrast to currency conversion charges, it is not considered a charge as proposed by the submitter within the meaning of the information requirements of PSD2. It follows that the mark-up requirement which is only stipulated to express currency conversion charges related to card-based transactions in the Union (Article 4 CBPR2) is not covered by the information requirements in Article 45(1)(c) and (d) of PSD2.
Disclaimer: The answer clarifies provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.