The Payment Services Directive (PSD) as currently in effect was implemented in most European Union (EU) Member States by 1 November 2009. Article 87 of the PSD requires the European Commission (the Commission) to present a report on the implementation and impact of the PSD together with proposals for its revision by 1 November 2012. On 24 July 2013 the Commission published its proposal for the revised . (The formal title of this proposed legislative act is “Proposal for a Directive of the European Parliament and of the Council [of the EU] on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC.”) The proposed remains subject to review and adoption by the EU co-legislators, i.e. the European Parliament and the Council of the EU. (The Council of the EU is the EU institution where the EU Member States’ government representatives sit, i.e. the ministers of each EU Member State with responsibility for a given policy area.)
will continue to be of particular relevance with respect to Direct Debit () services due to the fact that it defines common rules for the authorisation and the refund of direct debits. This blog details the ’s key considerations regarding the payer’s direct debit refund rights included within the proposed revised Directive. The sees a pressing need for a review of the proposed new Article 67, (entitled ‘Refunds for payment transactions initiated by or through a payee’), regarding the details of the unconditional refund right for direct debits. In the view of the , the Commission’s proposal for risks undermining the consumer’s unconditional refund right for direct debits included with the Core Scheme developed by the in close dialogue with all stakeholders.
In addition, this blog updates on the state of play of and next steps in the legislative process leading to the adoption of . Provisions in the proposed mentioned in this blog refer to the Commission’s proposal for published on 24 July 2013. (Sources cited in this blog and other related information are included in the ‘related links’ below.)
To ensure that consumers making payments can continue to rely on the ‘no-questions-asked’ refund right provided with the Core Scheme, the sees a pressing need for a review of the new Article 67 included in the Commission’s proposal for
The Core Scheme, as set out in the Core Rulebook (see links below), goes beyond the requirements of the PSD currently in effect, by granting consumers a ‘no-questions-asked’ refund right during the eight weeks following the debiting of a consumer’s account. This means that during this time, any funds (money) collected by will be credited back to the consumer’s account upon request. (In the event of unauthorised direct debit collections, the consumer’s right to a refund extends to thirteen months as stipulated in the PSD.)
Article 67(1) of the Commission’s proposal for contains a new (last) paragraph regarding the payer’s refund rights in case of direct debits. Article 67(1) , which builds on the existing Article 62 PSD, reads as follows:
"For direct debits the payer has an unconditional right for refund within the time limits set in Article 68, except where the payee has already fulfilled the contractual obligations and the services have already been received or the goods have already been consumed by the payer. At the payment service provider’s request, the payee shall bear the burden to prove that the conditions referred to in the third subparagraph."
The appreciates the Commission’s apparent intention to align the with the Core Rulebook, which already provides payers (consumers) with an unconditional refund right for direct debits. However, upon a closer review of the proposed new last sentence of Article 67(1) in , it appears that the text proposed by the Commission risks missing its goal. Indeed, the existing ‘no-questions-asked’ refund right under the Core Rulebook would be undermined by such provision proposed by the Commission, which effectively allows the payee (businesses and other entities or persons collecting direct debit payments) to unilaterally limit the refund right of the payer when the payee has fulfilled its contractual obligations and the payer has received the related services or consumed the related goods.
The proposed Article 67(1) also has some undesirable practical effects, since it is questionable whether it would be sensible for the payee’s payment service provider () to argue with the payee, in accordance with the last sentence of Article 67(1), about whether or not the services have already been received or the goods have already been consumed by the payer. The factual details of consumption of services and / or the receipt of goods are in principle outside and disconnected from the customer-to-bank relationship and thus are distinctly more difficult to establish between the payee and his . are not in a position to have first-hand knowledge of whether or not services or goods have been consumed or delivered. The relationship and the contractual details between the creditor customer (the payer / consumer) and his would become significantly more complex if the would have to get involved in the details of the underlying commercial transactions which they are not party to. Simply put, should remain outside disputes regarding the underlying contract between the payer and the payee.
The therefore suggests the following amendment to Article 67(1), last subparagraph (underlined new wording proposed by , strikethrough relates to deletions proposed by ):
“For direct debits the payer has an unconditional right for refund within the time limits set in Article 68. The payer and the payer’s payment service provider may agree on an exclusion of the refund right provided that the absence of the refund right is clearly mentioned in a specific mandate under a payment scheme which does not provide for the right to a refund.
where the payee has already fulfilled the contractual obligations and the services have already been received or the goods have already been consumed by the payer. At the payment service provider’s request, the payee shall bear the burden to prove that the conditions referred to in the third subparagraph.”
It is extremely important to note that such a separate payment scheme would not provide for a refund only in the case of authorised transactions. For unauthorised transactions the 13-month refund period will remain applicable; no scheme rule can deprive the consumer of that fundamental right. The suggested rewording aims to ensure the agreement of both payer and payee on the limitation of the payer’s refund right, through the use of a dedicated direct debit scheme. This can already be catered for via the usage of the ’s Business to Business (B2B) Scheme for professional customers. Provided that there is sufficient market demand, the could additionally contribute to the provision of a no-refund scheme open to consumers. This suggestion is also aligned with Article 5(3) (d) (ii) of the Regulation () No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro, commonly referenced as the Single Euro Payments Area () Regulation which speaks about ‘a mandate under a payment scheme not providing for the right to a refund’. The ’s approach would furthermore avoid the payee’s being involved in the assessment of the underlying transaction.
The recognises that its proposed rewording would imply the introduction of the concept of a ‘payment scheme’ into . Currently, the notion of a payment scheme does not exist in but it already exists in the Regulation, Article 2(7), and is also present in the Commission’s proposal for a Regulation on interchange fees for card-based transactions (the MIF Regulation). Article 2(13) of the proposed MIF Regulation contains a definition of ‘payment card scheme’. (The link to the Commission’s proposed MIF Regulation is included with the link ‘European Commission (24 July 2013): Payments Legislative Package’ below.) As such, the addition of a definition of a ‘payment scheme’ in the proposal would only appear logical.
The legislative process leading to the adoption of : state of play and next steps
legislation proposed by the Commission related to payments is considered by the European Parliament Economic and Monetary Affairs Committee (ECON) prior to the European Parliament taking a vote on a proposal. The ECON agreed its proposed version of including amendments to the Commission’s proposal on 20 February 2014. The members of the European Parliament (MEPs) approved the final ECON report on at its plenary session on 3 April 2014. However, the European Parliament postponed the vote (in first reading) on the related draft legislative resolution until after the elections due to take place in May 2014. According to the European Parliament press release, entitled ‘MEPs push for card payment fee caps and online payment safeguards’ (3 April 2014) the “European Parliament voted on its amendments to the draft rules in order to consolidate the work done so far and hand it over to the next Parliament. This ensures that the MEPs newly elected in May can decide not to start from scratch, but instead build on work done during the current term.”
The Council of the is planning to progress its work on in the second quarter of 2014.
The calls on the MEPs to be elected in May 2014 and the government ministers represented in the Council of the to further review the new Article 67 included in the Commission’s proposal for . It is now the responsibility of the co-legislators to ensure that consumers making payments can continue to rely on the ‘no-questions-asked’ refund right provided with the Core Scheme in a consistent fashion across except if otherwise agreed between the consumer and the payee through a specific mandate.
- EPC Blog: PSD2: EPC Identifies Considerable Scope for Amendments of the Proposed New Set of Rules Related to the Activity of Third Party Payment Service Providers Offering Payment Initiation or Payment Account Information Services
- EPC Newsletter: Articles Published in the Section ‘Legal and Regulatory Issues’
- EPC Website: SEPA Direct Debit Core Rulebook (Version 7.1)
- EPC Website: SEPA Direct Debit Business to Business Rulebook (Version 5.1)
- EPC Website: The Creditor-Driven-Mandate Flow (CMF)
- EPC Website: What is a Payment Scheme?
- European Commission (24 July 2013): Proposal for a Revised Payment Services Directive (PSD2)
- European Commission (24 July 2013): Payments Legislative Package
- European Central Bank (5 February 2014): Opinion on a Proposal for a Directive of the European Parliament and of the Council on Payment Services in the Internal Market and Amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and Repealing Directive 2007/64/EC
- European Parliament Economic and Monetary Affairs Committee (ECON) Website
- European Parliament Economic and Monetary Affairs Committee (ECON) (11 March 2014): Report on the Proposal for a Directive of the European Parliament and of the Council on Payment Services in the Internal Market and Amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC
- European Parliament Press Release (3 April 2014): ‘MEPs push for card payment fee caps and online payment safeguards’
- European Parliament Website: ‘Minutes Thursday 3 April 2014 Brussels. 7.4 Payment Services in the Internal Market’
- Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (the SEPA Regulation) (see Article 5(3) (d) (ii))
- European Parliament Website: Legislative Powers
- European Commission Website: Application of EU Law/Directives
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