Locke Lord QuickStudy: Remember to Make Your Disclosures. The Cross-Border Payments Regulations

Just keeping business operating “as usual” at this time is occupying most, if not all, of ‎everyone’s time.  In spite of this, it seems there is no relaxation of the looming implementation ‎deadline imposed on payment service providers (PSPs) by Regulation (EU) 2019/518 (amending ‎the Regulation (EC) 924/2009 on cross-border payments) (CBP2).

CBP2 imposes additional disclosure requirements on PSPs. Some of the new rules on currency ‎conversion rate disclosures come into force on 19 April 2020. ‎

Re-cap on CBP2 Requirements

CBP2 imposes several requirements relating to charges on cross-border payments and currency ‎conversion rate disclosure with different application dates.‎

Equality of Charges
The changes relating to the equality of charges rules applied from 15 December 2019. Those ‎rules required charges for cross-border payments in Euro must be the same as those for ‎corresponding national payments of the same value in the national currency of the member ‎state where the PSP is located. This also applies to non-Euro payments in the national currency ‎of a member state which has extended the application of these rules to its own currency.  This ‎equality of charges requirement does not apply to currency conversion charges.‎

Pre-Transaction Disclosure Requirements
The imminent requirements (applicable from 19 April 2020) concern pre-transaction currency ‎conversion rate disclosure requirements for card-based transactions and disclosures on charges ‎applicable to currency conversion services provided with credit transfers.‎

1. Card-Based Transactions

Under the new requirements, PSPs must express their total conversion charges as a percentage ‎mark-up over the latest Euro foreign exchange reference rates issued by the European Central ‎Bank (ECB).  The mark-up must be disclosed:‎

‎(a) to the payer prior to the initiation of the payment e.g. as part of the pre-contractual ‎information required under the Second Payment Services Directive ‎(EU) 2015/2366‎ (PSD2).  ‎This is often provided in the framework contract such as the cardholder terms and conditions; ‎and

‎(b) in a comprehensible and easily accessible manner on a “broadly available and easily ‎accessible electronic platform” e.g. on a customer-facing website or mobile banking app.‎

Firms providing currency conversion services at an ATM or point of sale, commonly known as ‎dynamic currency conversion or “DCC” must also disclose, before initiation of the payment:‎

‎(a) their total conversion charges as a percentage mark-up over the ECB reference rate to the ‎payer and clearly display this information at the ATM or point of sale e.g. on-screen for online ‎transactions or on POS terminals; and

‎(b) provide the payer the amount to be paid to the payee (i.e. merchant) in the currency used ‎by the payee and the amount to be paid by the payer in the currency of the payer’s account.‎

In each case, the above information must be available to the payer on a durable medium after ‎the initiation of the payment (presumably by way of a downloadable on-screen confirmation for ‎online purchases or receipt). ‎

In addition, DCC providers must, before initiation of a payment, inform the payer of a choice of ‎paying in the currency used by the payee (i.e. local currency).‎

2. Credit Transfers‎

PSPs who offer currency conversion services in relation to credit transfers initiated directly via ‎‎‎their website or mobile banking app must inform (e.g. as part of the PSD2 pre-contractual ‎‎‎information) the payer prior to the initiation of the payment in a clear, neutral and ‎‎‎comprehensible manner of the estimated currency conversion charges applicable. PSPs ‎‎must ‎also communicate to the payer the estimated total amount of the credit transfer in the ‎‎‎currency of the payer’s account and the estimated amount to be transferred to the payee in the ‎‎‎currency used by the payee.‎

On-going Disclosure Requirements for Card-Based Payments

CBP2 also introduces other on-going disclosure requirements relating to card-based ‎transactions. From 19 April 2021;‎

• whenever the payer uses a card for a cash withdrawal at an ATM or payment at the ‎point of sale in any member state currency (other than the currency of the relevant ‎payment account), the PSPs must without undue delay, send to the payer the mark-up ‎over the ECB rate information (as discussed above) via an “electronic message” e.g. by ‎text, email or in-app push notification. This electronic message must be sent once every ‎month in which the PSP receives the cash withdrawal/point of sale transaction order ‎denominated in the same currency as the first withdrawal/point of sale payment. This is ‎to serve as a reminder to the payer of the markup rate that the payer was informed of ‎when it made its first transaction. ‎
• PSPs must agree with its payment service users (e.g. in its cardholder terms and ‎conditions) on the “broadly available and easily accessible electronic communication ‎channel(s)” though which such notifications will be sent and provide the option for the ‎user to opt out of receiving it.  A corporate opt can be applied for users who are not ‎consumers. ‎

COVID-19 Impact

At a time where resources are diverted to manage the COVID-19 fallout, a lot of PSPs may well ‎be struggling to meet this looming implementation deadline.‎
The European Banking Federation (EBF) together with other banking groups have reportedly ‎written to the European Banking Authority and the European Commission to ask for an urgent ‎postponement of the 19 April 2020 implementation deadline of the CBP2 requirements. ‎However, until and unless any such postponement is confirmed, PSPs would be wise to continue ‎with their preparations for the implementation.‎

Brexit

‎The future status of Cross Border Payments Regulation in the UK after the Brexit transition ‎period (to expire at the end of 2020) is also not certain. In September 2018 the UK government  ‎proposed not to retain this regulation after Brexit (in which case the requirements would not ‎apply to PSPs authorised in the UK). It said that it would re-examine the position after the final ‎version of CBP2 was in place. Subsequently, in October 2019 there were reports of HM ‎Treasury indicating  that the UK Government did  not have plans to retain this regulation. ‎However, this gives no relief to UK PSPs because the imminently effective part of CBR2 ‎requirements come into force before the end of the transition period and thus will apply to ‎them. It is also possible, given the disclosure requirements have a consumer protection aspect, ‎that CBP2 may well be retained by the UK government, at least in part.  There is also the ‎practical issue that many PSPs operate cross border, so whilst the UK may choose to bow out of ‎CBP2, PSPs will be bound by these requirements through their activities in the other member ‎states.‎