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Bank charges for sending euros from an account in one EU country to another are now the same as for transferring euros within one country. Credit card payments and cashpoint withdrawals in euros also cost no more elsewhere in the EU than they do at home. All this is thanks to an EU regulation requiring banks to charge equal fees on domestic and cross-border bank transactions in euros, a new law that comes in response to many years of prompting by the European Parliament.
As the day drew closer when euro notes and coins were to come into circulation - 1 January 2002 - concern mounted that businesses and the public might not see some of the benefits immediately. Banks were under no obligation to charge the same for cross-border euro transactions as they did for domestic payments and there was every indication that many would continue making a (by now artificial) distinction between "domestic" and "foreign" payments in euros. Studies showed that a transfer of €100 from one EU country to another could cost as much as €24 in charges. In the light of technological progress and the impending disappearance of exchange rate risks in the euro zone, EU institutions agreed there was no justification for this state of affairs.
Parliament had long supported efforts to reduce charges for cross-border transfers, which remained higher than domestic charges even after the euro was first used in 1999. Banks were also felt to provide insufficient information on charges. Higher charges for cross-border payments and transfers were seen as an obstacle to trade and the internal market, as well as affecting public confidence in the euro. Some banks initially campaigned against a regulation, arguing that market forces alone would be enough to drive down bank charges. However, Parliament believed banks had had enough time, and that the principle of equal charges should be imposed by law.
The European Commission shared this view and therefore drafted a regulation, approved by Parliament in December 2001, that has forced banks to levy equal charges since 1 July 2002 for "electronic transactions" (cash withdrawals and credit card payments), and since 1 July 2003 for transfers from one bank account to another. In both cases this rule is subject to a ceiling of €12,500 for the moment but the amount will go up to €50,000 from 1 January 2006. In addition, banks must inform customers in writing about charges levied on payments and transfers of up to €50,000. The regulation applies to euro transfers in all Member States, not just in the eurozone.
Ceiling of 50,000 euros to be phased in gradually
Commission and Parliament initially agreed that the ceiling should be €50,000. However, the Council pushed for a lower ceiling of €12,500. In order to reach a speedy agreement with Council and have the legislation adopted faster, Parliament finally accepted this as the initial figure on condition that it rises to €50,000 in 2006. Banks will thus have time to adjust to the new legislation.
Under the regulation, financial institutions can compete on the commissions they charge, provided they do not favour domestic transfers. In fact, banks are also free to push up domestic charges, as the regulation does not require them to reduce cross-border charges but just make them equal to domestic ones. However, increasing competition among institutions makes this unlikely. Banks may also offer an all-inclusive fee for different payment services, which can discriminate among types of customers but not between cross-border and national payments. Examples would be a certain number of withdrawals free of charge, whether in the home country or abroad, or an annual fee to activate the card abroad.
The equal charges obligation does not apply to paper cheques, as they are costlier to process than electronic payments. Banks are also allowed to charge more if customers do not communicate the IBAN number of the beneficiary of the transfer.
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