RBS 2010 Annual Report Download - page 372

34 Memorandum items continued
MasterCard appealed against the decision to the European Court of First
Instance on 1 March 2008, and RBS Group has intervened in the appeal
proceedings. In addition, in summer 2008, MasterCard announced
various changes to its scheme arrangements. The EC was concerned
that these changes might be used as a means of circumventing the
requirements of the infringement decision. In April 2009, MasterCard
agreed an interim settlement on the level of cross-border MIFs with the
EC pending the outcome of the appeal process and, as a result, the EC
has advised it will no longer investigate the non-compliance issue
(although MasterCard is continuing with its appeal).
Visa’s cross-border MIFs were exempted in 2002 by the EC for a period
of five years up to 31 December 2007 subject to certain conditions. On 26
March 2008, the EC opened a formal inquiry into Visa’s current MIF
arrangements for cross border payment card transactions with Visa
branded debit and consumer credit cards in the European Union and on 6
April 2009 the EC announced that it had issued Visa with a formal
Statement of Objections. At the same time Visa announced changes to
its interchange levels and introduced some changes to enhance
transparency. There is no deadline for the closure of the inquiry. However,
on 26 April 2010 Visa announced it had reached an agreement with the
EC as regards immediate cross border debit card MIF rates only and in
December 2010 the commitments were finalised for a four year period
commencing December 2010 under Article 9 of Regulation 1/2003. The
EC is continuing its investigations into Visa’s cross border MIF
arrangements for deferred debit and credit transactions.
In the UK, the OFT has carried out investigations into Visa and
MasterCard domestic credit card interchange rates. The decision by the
OFT in the MasterCard interchange case was set aside by the
Competition Appeal Tribunal (the CAT) in June 2006. The OFT’s
investigations in the Visa interchange case and a second MasterCard
interchange case are ongoing. On 9 February 2007, the OFT announced
that it was expanding its investigation into domestic interchange rates to
include debit cards. In January 2010 the OFT advised that it did not
anticipate issuing a Statement of Objections prior to the European
General Court’s judgment, although it has reserved the right to do so if it
considers it appropriate.
The outcome of these investigations is not known, but they may have a
significant effect on the consumer credit industry in general and, therefore,
on RBS Group’s business in this sector.
Payment Protection Insurance
Having conducted a market studyrelating to Payment Protection
Insurance (PPI), on 7 February 2007 the OFT referred the PPI market to
the Competition Commission (CC) for an in-depth inquiry. The CC
published its final report on 29 January 2009 and announced its intention
to order a range of remedies, including a prohibition on actively selling
PPI at point of sale of the credit product (and for 7 days thereafter), a ban
on single premium policies and other measures to increase transparency
(in order to improve customers’ ability to search and improve price
competition). Barclays Bank PLC subsequently appealed certain CC
findings to the CAT. On 16 October 2009, the CAT handed down a
judgment quashing the ban on selling PPI at the point of sale of credit
products and remitted the matter back to the CC for review. On 14 May
2010, the CC published its Provisional Decision following its review of
remedies in the PPI market indicating that the CC still intends to impose a
prohibition on selling PPI at point of sale of the credit product. On 14
October 2010, the CC published its final decision on remedies following
the remittal which confirmed the point of sale prohibition. The CC intends
to make the final order in the first quarter of 2011, with the key measures
coming into force in October 2011 and April 2012.
The Financial Services Authority (FSA) has been conducting a broad
industry thematic review of PPI sales practices and in September 2008,
the FSA announced that it intended to escalate its level of regulatory
intervention. Substantial numbers of customer complaints alleging the
mis-selling of PPI policies have been made to banks and to the Financial
Ombudsman Service (FOS) and many of these are being upheld by the
FOS against the banks.
Following unsuccessful negotiations with the industry, the FSA issued
consultation papers on PPI complaint handling and redress in September
2009 and again in March 2010. The FSA published its final policy
statement on 10 August 2010 and instructed firms to implement the
measures contained in it by 1 December 2010. The new rules impose
significant changes with respect to the handling of mis-selling PPI
complaints. On 8 October 2010, the British Bankers’ Association filed an
application for judicial review of the FSA’s policy statement and of related
guidance issued by the FOS. The court hearing took place from 25 to 28
January 2011 and judgment is awaited. RBS Group is unable to reliably
estimate the liability, if any, that might arise from this litigation or its effect
on RBS Group’s consolidated net assets, operating results or cash flows
in any particular period. Separately, discussions continue between the
FSA and RBS Group in respect of concerns expressed by the FSA over
certain categories of historical PPI sales.
Gender equality in insurance contracts
Aruling is expected in March 2011from the European Court of Justice
(ECJ) in a case relating to gender equality in the pricing of and the
provision of benefits under insurance contracts and whether a person’s
gender can be used as one of the factors in calculating insurance
premiums. At this stage, it is not possible to estimate the effect, if any,
which the ECJ’s ruling may have on the Group.
Personal current accounts
On 16 July2008, the OFT published the results of its market study into
Personal Current Accounts (PCA) in the United Kingdom. The OFT found
evidence of competition and several positive features in the personal
current account market but believed that the market as a whole was not
working well for consumers and that the ability of the market to function
well had become distorted.
On 7 October 2009, the OFT published a follow-up report summarising
the initiatives agreed between the OFT and personal current account
providers to address the OFT’s concerns about transparency and
switching, following its market study. Personal current account providers
will take a number of steps to improve transparency, including providing
customers with an annual summary of the cost of their account and
making charges prominent on monthly statements. To improve the
switching process, a number of steps are being introduced following work
with BACS, the payment processor, including measures to reduce the
impact on consumers of any problems with transferring direct debits.
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Notes on the accounts continued