Bundled practices corrupts efficient competition, a call to MEPs in ECON voting on CARRP:

The treatment of bundled practices in the proposal for a directive on credit agreements relating to residential property (CARRP) came in the later stages of compromises and is found under Article 8a.

The proposed Article 8a is an important article and consumer organisations in Europe are strongly in favour of the proposed prohibitions of tying practices.

As a consumer organisation we have legitimate opinion and experience on how bundled practises work.  Bundled practices serve as an obstacle for transparency and effective competition. If member states should allow bundled practices, it must – as a minimum – be conditional.

Rapporteur Sanchez Presedo has proposed an amendment (#490) that deals with our concerns. The amendment opens for bundled practices as long as the bundled practices provide overall fiscal befits to the end-user which would not otherwise be available.

Bundled practices create a climate of opaque consumer contracts. It will make it difficult for consumers to recognise prices and conditions and by that hinder rational choices. 

In our domestic bank market, 46 percent of consumers are member of a customer program. At the same time only 5 percent of all consumers say they have changed bank last year.

Scarcity of migration of bank customers has traditionally been higher among consumers inside a customer programs compared to those outside.

The annual survey of the FNO tells us that only 21 percent of the members of customer program find any great benefits of their membership in the program. Knowing this, one should expect a massive withdrawal from these types of programs. But no. The proportion of consumers inside a customer program has only varied been between 50 percent and 46 percent for the past four years.

Figures above are provided by the annual survey of the FNO – the trade organisation for banks, insurance companies and other financial institutions in Norway.  

Customer programs are the prime example of bundled practices. Having several products bundled increases moving barriers.

This leads to a secondary argument for conditional acceptance of bundled practises. Bundled practices harm sound business development and the growth of new businesses and niche industry. The biggest challenge for newly established financial companies is obtaining a levelled playing field in competitions with well-established competitors. Various strategies are made in new establishments to obtain competitive advantage. The most desired strategy of consumers and society in general, is a strategy simply based on providing better products hopefully to a lower rate. Bundling practises puts pressure on new establishments to provide a broad range of products. This is of course more difficult and more capital intensive. The end result would probably be less industrial development.

Our national regulation on bundled practises is quite close to the proposed amendment to article 8a in CARRP. It showed its usefulness when the Financial Supervisory Authority of Norway decided to refuse DnBs sale of one of its most common customer program in the summer of 2011. DnB is probably best known among European Financial Supervisory Authorities for its push sale of unsuitable loan financed structural products in the Baltic region and in Scandinavia, which national authorities finally prohibited. DnBs ban on sale of the distinct customer program was announced as “a general principle and will also include all other parties”. Today, almost a year later, the Financial Supervisory Authority is pursuing no less than 25 banks due to the composition of their customer program. The extensive supervision measures were taken after initiative from the Norwegian Consumer Council.

Our experience could be useful for MEPs in ECON when voting on CARRP. Allowing bundled practises has a risk of consumer detriment as well as less effective markets. In order to minimise these risks, members of the European Parliament should vote in favour of the restricting amendment in article 8a. Voting against is incommensurable with consumer protection and improved bank market functionality.

In general when voting on draft on CARRP, MEPs should learn from the experience of past years and finally regulate the financial sector in a comprehensive way.

Stikkord: Alfredo Pallone, Antolin Sanchez, Antolin Sanchez Presedo, Arlene McCarthy, Carl Haglund, CARP, CARRP, credit agreements relating to residential property, Dan Jørgensen, ECON, Economic and Monetary Affairs Committee, Emilie Turunen, European Parliament, Gunnar Hökmark, IMCO, Internal Markets and Consumer Protection Committee, Liem Hoang Ngoc, Markus Ferber, Mortgage Directive, Olle Ludvigsson, Olle Schmidt, Presedo, Robert Goebbels, Sampo Terho, Sanchez Presedo, Sari Essayah, Sharon Bowles, Sirpa Pietikäinen, Sven Giegold, Vicky Ford