PSD2 Fact 5: The Rise of Consumer Complaints?
One of the areas that PSD2 is enhancing is consumer protection. Customers of Payment Institutions have the right to bring their claims to court, however the European Commission offers an alternative dispute resolution (ADR) route under PSD2 for payment service users.
Pursuant to consideration 98, Member States should ensure “…easily accessible, adequate, independent, impartial, transparent and effective ADR procedure between payment service providers and payment service users arising from the rights and obligations set out in this Directive.” Articles 101 and further provides further requirements.
For merchants or for consumers?
Since the rules explicitly refer to payment service users, it would mean that the ADR procedures can be utilized by both the customers of the Financial Institution or their customers/consumers. The ADR process is meant to hold Financial Institutions accountable for their obligations and for payment service users to exercise their rights under Titles III and IV of this Directive. Title III covers the transparency conditions and information requirements and title IV covers the rights and obligations for the provision and use of the payment services. I would not envision the medium-sized/bigger merchants to really utilize the ADR process, but it can certainly be of interest to many SMEs.
First: a complaint process
In order to establish an efficient and effective dispute resolution procedure, Member States will require that Payment Institutions put in place an effective complaints procedure that can be followed before the dispute is resolved in an ADR procedure or before a court. The complaints procedure must be available in all the languages of the Member States, unless Payment Institutions are able to agree upon differently with payment service users. Timeframes must be short and clearly defined: with a maximum of 15 business days to respond in writing and 35 business days for a final reply. Complaints can be lodged not only by consumers, but also by other interested parties, such as consumer associations. Class-actions can potentially emerge.
Member States should ensure further that de ADR bodies have sufficient capacity to engage in an adequate and efficient way in cross-border cooperation with regard to disputes. However, PSD2 also let Member States determine whether the supervisory authorities granting licenses might also be the competent authorities for the ADR process. Article 102 specifies that using existing competent bodies where appropriate is preferred. The EBA is again tasked with issuing guidelines on the complaints procedures.
Brazil leading by example?
In Brazil a similar ADR process for consumers already exists for many years, being the country known for the most complete consumer defense system in the world. Procon (Procuradoria de Proteção e Defesa do Consumidor) offices have been established already in the 1970’s and are responsible to guide consumers in their complaints, give information about theirs rights and intermediate an agreement between the consumer and the provider. It can also issue fines. For any foreign company with a branch/establishment in Brazil, this ADR process drains heavily on resources time-wise and cost-wise. The barrier for consumers to complaint are heavily decreased and claims are made even for the most insignificant amounts, claiming incredible monetary (punitive) damages for their grief which in no way relate to the transaction amount involved.
Financial institutions will need to change their website and contracts with payment service users to include this ADR procedure, clearly indicating the ADR body and how further information on the ADR entity concerned and on the conditions for using it can be accessed. It will be interesting to see how this develops, whether the supervisory authorities will outsource this to another body and if there is any consistency throughout the Member States. Let’s hope Brazil is not an example of what is yet to come. Elements of punitive damages are present in several European jurisdictions as well and in the common law countries (Ireland and UK) it is even permitted. Payment institutions will need to man-up their resources on customer support to prepare for this change. With this decreased barrier, I would expect a huge increase in customer complaints (both from consumers and from SMEs).