MONDAY 23 JULY 2007

Mr Dominique Forest

  Q220  Lord Haskel: It allows you to compare prices more easily.

  Mr Forest: In a way, yes, in some sectors, but it is not because you can compare that, you can buy.

  Chairman: There is one supplementary from Lord Powell on this point and then Lord Whitty.

  Q221  Lord Powell of Bayswater: What makes you think that consumers want to buy cross-border? For instance, if you take the example of the United States, if you live in Massachusetts you are unlikely to order a washing machine from Idaho. What matters surely is that if European producers of washing machines want to sell easily in each country of the European Union they can do so. It seems to me the whole issue of consumers wanting to shop cross-border, apart from in those narrow areas where they live right beside the border, is a relatively minor one.

  Mr Forest: You are quite right about this. Whilst we do not see cross-border purchasing as a priority, what really matters is the concrete benefits to consumers and that could come from providers from other Member States settling in your country and making the home market more competitive. At the same time there can be some instances where, as a consumer, you would like to buy cross-border. For instance, the price differentials in terms of motor vehicles are still quite high across the EU so there would be some benefit for consumers in being able to buy cross-border and acquire a car in Denmark, for instance, as a UK citizen. Although there are limitations to the priority being given to cross-border purchasing there are some instances in which consumers would be better off if they were given the opportunity to buy cross-border.

  Q222  Lord Powell of Bayswater: Maybe some intrepid British consumers do already purchase their cars in Denmark. If enough of them did so then the price of cars in Britain would come down very smartly.

  Mr Forest: Yes.

  Q223  Lord Powell of Bayswater: I quite agree that consumer protection is an important issue generally but cross-border purchasing seems to me to be a very minor aspect of the Single Market and should remain so in future, the important thing is to get rid of the barriers to businesses being able to establish and do business and offer their products and services in all the European Member States.

  Mr Forest: I think you are quite right but, at the same time, there can be instances in which it is to the benefit of consumers.

  Q224  Lord Whitty: Taking a slightly different angle on that point, it is certainly true that there must be an inertia amongst consumers to buy goods unless they are travelling or close to the border, but in the developing markets of services and financial services there is no obvious reason why only one per cent of EU citizens should shop cross-border in terms of financial services or, indeed, any service which is pursued through the Internet, and yet very few do. Would you put this down to the same kind of inertia that Lord Powell was talking about in relation to motorcars where clearly very few would shop cross-border, or would you put it down to different regulatory patterns in each of the national markets, or would you put it down to business inertia whereby if you are ordering something, even a virtual product like a financial service, in Britain you always get referred back to the British provider if you go into the Internet and do not have access to the Germans or Spanish who may be better, or vice versa? What is the balance of the inhibition on cross-border purchases, particularly in the e-commerce field in general terms?

  Mr Forest: There are two aspects to consider. First of all, there is an element of market segmentation, that is suppliers do not want to sell to you because you are not a national consumer. This can apply in the area of motor vehicles simply because they think you will not come back to them if you need to get your car fixed. This can also work in the area of financial services simply because they think in terms of what they call a global relationship with your banker. It is a bit like marrying your banker. They want you to come to them to get a mortgage, for instance, and stay with them to get consumer credit, insurance, a bank account, whatever, you name it. That is also an obstacle to you being offered these kinds of services. In the area of financial services there is also the very important aspect of lack of consumer confidence. This can be linked to a number of reasons, like in terms of language. I would not try to get a contract from a Greek bank because I do not speak Greek. In terms of taxes, if you get a product from a provider located in your Member State you might benefit from some kind of tax break if you meet certain conditions. All of these concrete aspects have to be considered. Also there is a key element in terms of consumer uncertainty about their rights and obligations even at national level. The level of financial literacy is very limited. By the way, I think there was a survey conducted by the FSA a couple of years ago which showed that 70 per cent of consumers did not know what a percentage was. If you start from this very basic level of financial literacy, or illiteracy, then it is very difficult for consumers to feel confident about contacting a provider which is located in another Member State which means you would fall under a brand new set of rights and obligations whilst you might not even know about the rights and obligations that apply in your Member State. That is why for many financial services consumers tend to go local, to the branch which is closest to their home, because they feel they can have some kind of personal discussion with the banker or the branch manager. That has to be considered also and that is why we would like the priority being given to consumers having basically the same level of protection cross-border as compared to their national level so that they can feel confident and also that redress is in place otherwise consumers will not even think about going to—I will not mention a Greek bank—a Spanish bank or a Portuguese bank simply because they do not feel confident and they cannot go back to the branch manager and ask him or her questions whenever they are not certain about meeting their obligations.

  Q225  Lord Whitty: Yet some of those banks operate as multinational companies right across Europe, they are the same companies, but even within the same large company you will get referred back to your local bank. Before I pass on, can I ask you one other question? A part of what you say is the natural inertia of consumers, part of it is company practice and part of it is different regulatory patterns. If the Commission are looking at greater harmonisation of the regulatory protection of consumers, one of the MEPs told me last week that for every 100 business lobbying efforts he gets, he perhaps gets one from consumers. Do you think that can be rectified? Do you think it should be rectified? Do you think that is an accurate description of the way lobbying pressure is exerted within the EU legislative process?

  Mr Forest: It is quite an accurate description, yes. Most of the time it is one against 250 or one against 300.

  Q226  Lord Whitty: It is worse.

  Mr Forest: It is the nature of the game, so to speak. There is bound to be an imbalance between the representation of business and consumer organisations or NGOs in general. It will be very difficult to redress the imbalance as such in terms of numbers. What needs to be done is to take into consideration the need for this imbalance to be redressed, that is for the Commission and the other institutions to keep in mind the consumer dimension and for this dimension to be reflected in the proposals for directives in terms of the impact assessments that are being conducted, but also the way the consultations are being conducted in terms of giving enough time for consumer organisations to reply to consultation and also having a level playing field. If someone is replying to a consultation there should be very good reasons indeed for this reply not to be published instead of having some kind of blanket exemption: "If you do not want your contribution to be published, it will not be published". That is to the detriment not only of transparency but your ability to reply to arguments which you might not agree with.

  Baroness Eccles of Moulton: My Lord Chairman, I was going to pursue the question of the personal touch in financial services but you probably want to move on to other questions.

  Chairman: No, by all means.

  Q227  Baroness Eccles of Moulton: Certainly nowadays the chance of actually coming face-to-face with a human being when you are talking about financial services is a very rare experience, as is getting a live voice on the end of a telephone, let alone if you are operating through a computer screen where it is about as impersonal as it could be. I would have thought that the tendency would be for people to become much more used to the remote service rather than the personal service. The last time any of us probably confronted our bank manager I should think was 20 years ago. Is there not a tendency now for it not to be, as it were, direct human contact?

  Mr Forest: Yes and no. The situation might vary from one Member State to another. There is a tendency for financial services to become more and more virtual services. I do not want to generalise too much because I am not speaking on behalf of the banking sector but I feel, and it is the feeling from the European Commission, there is a limited willingness from the banking sector to consider the need for cross-border supply of financial services to be facilitated. They have always mentioned the local factor as an element in that respect. Another explanation, apart from the need for some kind of human relationship, would be in terms of the marketing from big companies and from banks in particular. If you consider the UK banking sector, one of our member organisations, Which?, launched a campaign, "Switch with Which?", which was quite successful in terms of telling consumers "You will find a better offer for your banking services in another bank" and there were quite a few consumers switching to other banks but it was quite limited still in terms of the overall numbers. That might have to do with the marketing efforts from the big companies, especially because all the banks dominating the UK banking market are the well-established banks with a history in the market. It is very difficult for new entrants to get a share of the market simply because in terms of marketing they have to face huge expenses because there is this history and also because of the limited mobility of consumers. In terms of the opportunity costs they are still very high in terms of switching from one bank to another which means that you would need to come up with a very, very good offer indeed as a new entrant to attract consumers. That would mean on top of these very, very good offers, which need to be recouped with lots of new consumers coming to you, you would need to add all the expenses in terms of marketing which would mean the new entrants would have to face very high barriers to entry. This might explain also why there is this tendency for consumers to go to the local supplier, which might not be the better offer but which is easy, it is close to home and it is also the brand name they know best. That might be an explanation for this phenomenon.

  Q228  Baroness Eccles of Moulton: Does that apply right across the EU or is it particular to the UK?

  Mr Forest: It applies across the EU with a small disclaimer for Germany because in Germany the level of concentration is more limited, but at the same time you have lots of regional banks there which means that at the regional level it is also very, very concentrated. If you take the whole of Germany it is not so concentrated but at the regional level it is concentrated, so that amounts to the same situation.

  Q229  Lord St John of Bletso: I am acutely aware that we are almost up in terms of our time with you today. Clearly one of the major failings of the Financial Services Action Plan has been the fact that there has been far less integration amongst the EU retail services market, and you have raised that several times today in the banking sector. I want to ask a supplementary question on banking. I see in your brief résumé that you were involved in several consultative groups relating to banking issues, one of which was the Mortgage Dialogue on the Code of Conduct on pre-contractual information in the area of Home Loans. That is perhaps one area where from the UK there is a tendency for many consumers to move across and acquire properties in other parts of Europe and they cannot necessarily get that facility from their domestic banks. It is a bigger question but I just want to know what is being done to drop the hurdles for helping integration in the retail services market?

  Mr Forest: In terms of the mortgage market, as you mentioned, there will be a follow-up to this whole exercise of consultation, which is very welcome. What needs to be acknowledged is the fact that it is a really complex area. It is an area in which there are very different traditions from one Member State to another. Here, again, the cross-border dimension might be limited somehow. It is easier when you buy a house in Spain just to go to the Spanish bank next door, not necessarily in terms of the knowledge of your rights and obligations but in terms of having the notary involved, the evaluation of the property, all these complex issues that make it even more difficult for cross-border supply to be realistic, at least in the short-term, unless the Commission wants to have full harmonisation across the board of all the regulations related to the housing market. It might not be better regulation. I would say the key priorities in this area should be to improve the situation at national level and to learn from best practice in other Member States. The difficulty is that some markets are quite competitive, the UK is quite competitive, and other markets are not really competitive, to put it mildly. There is a need to tailor the initiatives to the relative situations in all the specific markets. In terms of improving the situation, and this applies to the whole sector of financial sectors, there is a need for transparency and comparability. That does not mean necessarily that you need more information from the bank, that might mean there is a need for identification of the key features of the product so that you can compare between offers. There is also a need to deal with the obstacles to switching so that you are free to choose and change provider in terms of the early repayment fees, for instance, but also in terms of binding and tie-in because one of the key priorities for the Commission in the framework of the Single Market Review is the field of consumer mobility, at least that is the message they have been sending to us. One needs to deal with the issue of binding and tie-in otherwise as a consumer you are not free to choose your provider and that has an impact on the level of competition. As I mentioned, if you are tied in with a specific provider for 20, 30 or 40 years now, because you have mortgage credits of 40 years' duration on the market, it is to the detriment of competition and new entrants being able to enter the market.

  Q230  Lord St John of Bletso: I suppose the question I ask is with the increasing requirements on KYC, which is essential in good banking practice, it is going to be difficult for consumers to move providers particularly outside of their normal domicile as it will obviously take time to get to understand and know that particular customer and, therefore, the need for greater co-operation between financial services groups will become more and more essential going forward.

  Mr Forest: Yes. There is an element of providers being able to offer consumers their services, but the major obstacle would not really be in terms of the assessment of creditworthiness of consumers, for instance, but the ability of consumers to move providers.

  Q231  Lord Whitty: In terms of the review of the internal market, part of that is a look at the consumer acquis. Do you think there is anything the Committee should take on board as essential for that part of the review of the Single Market to be a success for consumers?

  Mr Forest: I would not like to deal too much with the details of the Consumer Act, but what is a priority for us is for a concrete approach to be taken in terms of not calling into question consumer confidence. We do not see the maximum harmonisation and mutual recognition approach as viable and leading to more consumer confidence. Full harmonisation on the basis of concepts which the Commission has developed, as in the area of consumer credit, does not seem to us to be leading to more clarity or certainty both for providers and consumers. That might not be the right option either.

  Chairman: Mr Forest, thank you very much. Your organisation had influence in our report on roaming charges and I think you will probably have some influence in our report on the review of the Single Market. Thank you very much indeed.