The European Commission’s proposals to limit transfer costs to non-euro members and currency conversions abroad were welcomed by consumer and transparency activists, although NGOs complained that it would not benefit migrants’ remittances.
Right now, euro area customers could end up paying €24 for transferring 10 euros to a bank account in Bulgaria. Meanwhile, clients across the EU are ‘scammed’ when they choose to pay abroad in their national currency instead of the local currency.
In order to tackle the “inequality of treatment” and lack of transparency, Commission vice-president for financial services, Valdis Dombrovskis, unveiled on Wednesday two proposals to address these issues.
The first proposal would ensure that fees charged for cross-border transactions in the eurozone are the same as those that would be imposed for equivalent transactions between a euro area and non-euro country.
As a result, transfers that could now cost €24 in charges would cost only a few cents, if any.
“These are very high disproportionate fees for the transactions,” Dombrovskis told reporters.
Customers travelling around Europe are also offered to pay (or withdraw money at ATMs machines) either in the local or their own currency. If they chose the second option, the so-called dynamic currency conversion involves hidden costs that are not disclosed to them.
Consumers prefer to pay in the currency they are used to but in most cases they lose money compared to the alternative of paying with the local currency.
The second proposal would require that consumers are fully informed of all costs of a currency conversion before they make the payment.
Dombrovskis explained that the European Banking Authority will develop transparency standards. At the same time, a cap on currency conversion costs will apply.
End of opacity
Consumers welcomed the executive’s initiatives.
Referring to the dynamic currency conversion, Monique Goyens, director general of the European Consumer Organisation (BEUC), said that “it is high time that the opacity surrounding this practice is lifted”.
“I applaud the Commission’s action to increase transparency,” she added.
BEUC described the conversion as a “scam”, as pointed out in studies from Germany, Norway and the UK showing that almost every time the consumers lose money.
Finance Watch also welcomed the executive’s proposals.
However, Olivier Jérulsalmy, senior researcher at the organisation, voiced regret that the initiative did not include transfers made to third countries. As a result, migrant families living in Europe would continue facing around €3.6 billion in “unjustified” extra charges per year.
He explained that one of the main reasons for these costs is the lack of competition and the “exclusivity agreements” that limit access to distribution and payment systems.
Finance Watch asks for transfers to third countries to be included so that remittances are covered and for a 3% cap on fees to be applied to them.