Fancy taking out a 20-year mortgage at a rate of less then 3 per cent or getting a return on your savings of more than 1 per cent? As part of a review of retail financial services across the European Union, Irish consumers may soon be able to do just that, by being able to shop around the EU for everything from a credit card to a loan to a mortgage.
The European Commission is soon to publish a Green paper on retail financial services, "Better products, more choice, and greater opportunities for consumers and businesses", which will be followed first by a consultation process, and next summer by an Action Plan, in which it will set out an agenda to remove obstacles to cross-border activity.
The paper, which has been seen by this newspaper, covers the areas of insurance, loans, payments, savings accounts and other retail investments, and asks how these markets can be further opened up, “bringing better results for consumers and firms”. The paper aims to identify the specific barriers faced in making full use of the single market.
“Consumers lack choice and do not get the best offers because a single Euorpean market does not yet exist in many areas of retail financial services,” the paper says, arguing that one of the most direct ways of improving compeition would be to reduce obstacles to cross-border trade.
Cross-border activity remains limited across the EU -for example just 3 per cent of people have purchased credit cards, mortgages or a current account in another member state, while just 5 per cent of loans have been obtained cross-border.
This means that competition is muted, and the paper points to evidence of price differentials. For example, annual fees for a credit card can vary from €9.10 in Romania, to almost €114 in Slovakia.
When it comes to mortgages, Irish consumers are paying considerably more than their European neighbours. For example, the average variable mortgage rate in Ireland is 4.18 per cent, almost 2 per cent higher than the Eurozone average.
Insurance is also priced differently. A 25-year term life insurance product would cost you from £10 in Slovakia for example, but £65 per month in the UK, while the paper also shows that Ireland is one of the most expensive places in the EU for car insurance.
Currency exchange fees, which are not subject to European rules, are also highlighted in the paper, as fees for non-euro transfers "tend to be very high in all Member States and are not always disclosed clearly to customers". The Commission has also highlighted withdrawal fees and currency conversion rates associated with payment cards, with consumers often encouraged to opt for so-called "dynamic currency conversion". But, these rates are "not systematically better for consumers and need to be compared on a case by case basis with the rates offered by bank of the consumer".
Portability of products is another issue, with European consumers frequently unable to transfer financial products from their home country to another
Strengthening the union's redress architecture is another item for discussion, given that "it is particularly difficult to find an adequate redress mechanism in cross border situations".
Of particular interest perhaps to Irish customers of the failed Setanta Insurance, is ensuring that consumers are protected where motor insurers are insolvent.
Proposals for a pan-European life insurance product are also mooted, building on existing EIOPA research on the pan-European personal pension product.
Next steps
Once the paper is formally published, interested parties will be asked to respond to the 33 questions it sets out, as part of a consultation process, offering suggestions on possible ways to reduce obstacles to a single market. This will be followed by a conference in Spring 2016, to discuss priority areas, and will be followed by an Action Plan on Retail Financial Services, due to be published next summer.
