2012 01 Banks and Consumers2

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lin, Janay 2012

S OSUMERS

The comprehensive consumer policy scheme o theGerman private commercial banks


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BANKs AND

CoNsumers

lin, Janay 2012The comprehensive consumer policy scheme o theGerman private commercial banks


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Contents

I Banks and consumers a relationshipbased on trust 7

II What is consumer policy? 111 Consumer policy rom an economic perspective

ideal and reality 122 Restoring condence: how the private commercial

banks see their role 16

III Consumer policy through service theservices oered by private commercialbanks 21

1 A ocus on the customer milestones in business

with retail clients 22

2 Core competencies 23

3 Partners or secure banking 284 Future developments 30

IV The private commercial bankscomprehensive consumer policyscheme 37

1 More than consumer education the Association o

German Banks Schul|Bank programme 38

2 Transparency through inormation 41

2.1 The inormation pyramid 412.2 General consumer inormation 432.3 Guidelines, product inormation sheets and

customer inormation in the eld o securities

and investments 452.4 Customer inormation about loan products 47

3 Transparency in contracts 513.1 The private commercial banks General Business

Conditions (Allgemeine Geschtsbedingungen

[AGB]) and special conditions 513.2 Price transparency 533.3 Sel-regulation as an alternative to statutory

provisions 544 Out-o-court dispute resolution the private

commercial banks Ombudsman Scheme 60

V Towards a single European nancialmarket 69

1 Consumer policy in the European Union 701.1 The European regulatory ramework 701.2 The EUs consumer policy programme 73

1.3 Consumer protection and nancial services 742 The European home market: integration o European

retail markets 79

VI Requirements or a orward-lookingconsumer policy 81

1 Guiding notion o the responsible consumer 822 Uniorm basic principles 853 Summary 88

VII Annex 91


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I Banks and consumers a relationship based on trust


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I Banks and consumers a relationship based on trust

This credo o the ather o the social market

economy has lost none o its relevance. It

rests on the concept o inormed, responsible

consumers who take their own purchasing

decisions and who bear the economic

consequences o their actions. Viewed this

way, consumer policy is an integral part o

an economic policy which relies as much on

competition and individual initiative as it does

on market transparency and autonomous

decision-making. Without responsible

consumers, competition cannot ourish.

Consumer policy must thereore ensure that the

conditions are in place or consumers to access

thorough, objective inormation. Forward-

looking consumer protection, moreover,

needs to strike the right balance between

the interests o consumers and businesses.

The German pr ivate commercial banks

consider themselves actively involved

in consumer policy. They are aware o

the associated responsibility also and

especially in the wake o the nancial

crisis, in the course o which consumercondence in the banking industry was

damaged. Policymakers and the public are

quite rightly asking what lessons banks have

learned. The private commercial banks are

aware particularly against this backdrop

that special demands are placed on their

business relations with retail clients. In

order to meet this responsibility, they have

adopted a comprehensive consumer policy

scheme. This scheme is being continually

adapted: in response to the changing legal

ramework at European Union and national

level, to changing customer needs and to

questions raised by policymakers and the

public.

Restoring condence in investment

advice, in mortgage lending or in the

handling o problems between customers

and banks it is becoming ever more

important, especially in daily dealings with

customers, to give even more consideration

to diering individual interests. Some

customers want a lot o protective rules

in order to avoid risk. Others avour ewer

rules and restrictions and can manage witha minimum o inormation and explanations

Ldwig Ehad

It is not or the state or or an entrepreneurial

organisation to decide who will dominate the

market . . . ; it is or the consumer alone.


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rom their bank. Consumer protection has to

nd appropriate answers to these diering

needs.

The private commercial banks have

responded to these developments and have

rened their comprehensive consumer policy

scheme. Four key components orm the

centrepiece o the scheme: consumer education,

consumer inormation, transparency in

contracts and last but not least out-

o-court dispute resolution in the event o

dierences o opinion.

Successul, sustainable consumer policy

requires staying power and clear objectives.

This ully revised publication Banks and

Consumers is intended as a contribution to

such a policy.


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II What is consumer policy?


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BANKS AND CONSUMERS

1 Consumer policy rom aneconomic perspective ideal and reality

Economic theory sees the market in its ideal

orm as the best possible instrument or

reconciling the interests o consumers and

producers. Competition or customers orces

companies to produce as cost-eciently as

possible and oer innovative, high-quality

products. As a result, consumers have an

optimal supply o the goods and services they

need and want.

Unortunately, however, the ideal

market is nowhere to be ound in reality.

In practice, a number o actors impair the

ability o the market to unction properly. On

the supply side, or example, producers are

tempted to limit competition by means o

concentration or agreements so as to earn

monopolistic proits. For the companies

involved, this strategy may initially be

lucrative. But rom an economic point o

view, anti-competitive behaviour leads to

a loss o prosperity and hampers the race

to innovate.

Eective competition watchdogs in

Germany and in Europe are a deterrent to such

behaviour. In addition, national markets are

opening up more and more especially in the

European Union. This results in an increasing

number o suppliers, which strengthens the

impact o market orces and gives consumers

access to a wide choice o products.

II What is consumer policy?

It is the task o consumer policy to

eliminate obstacles on the demand side.

The prime objective must be to ensure that

consumers can better inorm themselves about

the quality and benets o products, more

easily obtain an overview o the market and

then nd the product that matches their needs

and preerences.

Several dierent players can help

to achieve this goal rst and oremost,

consumers themselves by developing a clear

picture o their needs, gathering experience

and inormation and conducting extensive

product comparisons. The crucial actor in any

purchasing decision thereore is and remains

the consumers own judgment. In view o

the sometimes very dierent interests o

individual consumers or groups o consumer,

the ability to make sound decisions should

be coached and practised. Part and parcel

o responsible consumer behaviour is that

purchasing decisions should be a clear

reection o preerence. Those who call or

more environmentally riendly products,

or example, cannot base their own buying

decisions solely on the criterion o price. And

anyone seeking an investment which is, above

all, secure should be aware that they cannot

expect a high return as well.

Suppliers are naturally important players

in consumer policy, too. Proactive consumer

protection measures such as adequate

product inormation, voluntary warranties or

strict quality control are in the interest o anycompany that hopes to ensure robust, long-


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lasting business relations with its customers.

Or to put it another way: an attempt by

a company to exploit the inormational

disadvantage o customers or its own

short-term benet is no basis or long-term

commercial success.

Companies in the same industry can

also pursue a joint consumer policy. This

makes sense i suppliers nd themselves

competing or consumer purchasing power

with other sectors beyond the borders

o their own market. Extensive consumer

inormation, voluntary minimum standards or

additional services can boost the condence

o consumers in the industry as a whole and

attract their purchasing power.

The third player to shape consumer

policy is the state. It may impose statutory

inormation requirements on companies or

reinorce the legal position o consumers vis-

-vis suppliers by giving them warranty rights.

The state can even prohibit certain products

entirely, or heavily regulate their use. This

option is requently exercised to prevent

health hazards or avoid other risks associated

with the use o a product.

However, intervention by the state also

exposes the limits o consumer policy. Too

much regulation not only means higher

production costs, which ultimately has an

adverse eect on supply, but also restricts

the ability o customers to make their own

decisions. The conict between the states

right to protect its citizens on the one

hand and the risk o inecient allocationo goods and nannying on the other is


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BANKS AND CONSUMERS

urther exacerbated i a states consumer

policy is linked with other political aims be

they social, cultural or environmental. This

ultimately robs consumers o their autonomy,

and the state-regulated supply o goods and

services may not match their needs at all.

Suppliers, meanwhile, may be burdened with

very high compliance costs.

To minimise this conict as much

as possible, an economically eective

consumer policy should be based strictly

on the principle o subsidiarity. In concrete

terms, this means that extensive voluntary,market-oriented measures such as in-house

quality management, supplier-independent

consumer inormation or product certication

are preerable to legal rules and regulations.

State regulation should thereore conne

itsel to the necessary minimum, because, as

everyone knows, too much o any medicine

is poisonous.


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The banking industry is one o the major

sectors o the German economy. Its

contribution to gross value added is just

over 2.4%.a) Banks economic output is

comparable to that o the metalworking

industry, the chemical industry or

energy and water suppliers. As

employers too, banks play an important

role in the economy: 663,000 people,

or almost 2% o the total workorce, are

employed in the banking industry.b) But

it is not true, as is sometimes claimed,

that the nancial sector (banking and

insurance industries) has grown more

quickly than the rest o the economy. In

Germany, its contribution to gross valueadded has remained static or a long

Sc:a) Fdal Statitical Oc 2010 (ha g val addd

in 2008).b) bitgbvband d pivatn ankn

(ply aciatin pnting th pivat b anking

ct); g a at 31 cb 2009.c)

IF, 2010 Financial Sct Rpt.

The economic importance of the banking industry

a key sector of the economy

time.

At the end o 2009, loans by German

banks to non-banks totalled 3.2 trillion

while total deposits by non-banks

amounted to 3 trillion. At 7.5 trillion,

the total assets o German banks are

second only to those o banks in the UK,

with London as its international nancial

centre. I deposits are considered in

relation to overall economic output, the

German banking sector in 2009 ranked

third behind the UK and Spain in the

league table o big European nations.

And when it comes to total bank lending

to non-banks as a proportion o GDP,

Germany came in ourth in 2009 behind

Italy, Spain and the UK.c)


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2 Restoring condence:how the private commercialbanks see their role

Consumer condence in the banking industry

was badly damaged by the nancial crisis. Both

policymakers and the public have quite rightly

asked what lessons the banks have learned.

The main criticism by consumer and

investor groups is that banks ailed to take

adequate account o investors interests when

oering investment advice. Instead, investors

were persuaded to opt or riskier investments

than they had originally intended or were not

adequately inormed about the risks and costs

associated with the securities they acquired.

Private commercial banks have

responded to these criticisms by highlighting

where they have already taken action or

intend to step up their eorts to win back the

trust which was lost as a result o the crisis.

Mid-2009 saw the Association o German

Banks take a rst, important step towards

doing so by issuing its Guidelines or

Enhancing Retail Investor Condence, which

sets standards or work with retail clients in

the eld o investments. Further measures

called or by policymakers, such as voluntary

undertakings, are either on the drawing

board or have already been introduced by

some banks. Product inormation sheets

became compulsory in mid-2011. The banks

have adjusted their voluntary inormation

sheets to ensure they comply with legal

requirements.

Policymakers have generally respondedavourably to the guidelines. The private

commercial banks are well aware that

standards o this kind will only succeed in

restoring consumer condence i they do not

just exist on paper but are also rigorously

observed in practice.

The measures set out in the guidelines

represent a yardstick against which the

private commercial banks wish to be judged.

The criticism sometimes voiced in the media

about a gap between rhetoric and reality is

something private commercial banks take

very seriously. Such reservations show that

condence has not yet ully returned. It is

repeatedly claimed that there is still a lot o

pressure on bank sta to meet sales targets

pressure which conicts with the guidelines

call or advice that aims to deliver the right

product to the right investor. The commercialinterests o a bank must never be allowed to

eclipse the interests o its clients.

Forward-looking consumer protection

means striking a air balance between

consumer interests and the interests o

suppliers. This cannot be achieved without

oering straightorward, transparent product

descriptions and advising customers o

the benets and mechanics o individual

products. For this reason, banks already use

standardised product inormation to explain

the main eatures o the nancial instruments

in which customers show an interest. These

and many other measures orm a sound basis

or a return o consumer condence.

It is also important to take even greater

account o dierent individual interests,especially in day-to-day dealings with


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customers. Some clients desire a high level

o regulation because they hope this will

oer them maximum protection against

potential risks. Others, by contrast, want ar

ewer rules and regulations, including those

o a statutory nature, and are prepared to

accept only a minimum o inormation and

explanation rom their bank. There are also

clients who seek no inormation or advice

rom the bank at all and preer to make their

own decisions. Those wishing to act completely

independently should have the same access to

client-tailored services as do those expecting

help with their investment decisions. Consumer

protection must nd appropriate answers tothese very dierent needs.

The private commercial banks have

responded to this trend by updating and

rening their comprehensive consumer

policy scheme so that its key components

consumer education, consumer inormation,

transparency in contracts and out-o-court

dispute resolution cater or dierent

consumer interests. The long-term objective is

to empower all consumers to make their own

inormed decisions. Education has a special

role to play in this context.

What does this mean precisely? The

declared aim o the Association o German

Banks is to promote a better understandingo economic and nancial matters,


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BANKS AND CONSUMERS

particularly among children and young

people. It is or this reason that private

commercial banks have long advocated the

introduction o economics as a compulsory

subject in schools. Customers also need

to be ully inormed about products and

product terms in readily understandable

language. The right amount o inormation

creates a basis on which customers can take

decisions independently and on their own

responsibility. Responsible consumers make

their own nancial decisions and assume

responsibility or them, too. The rights and

obligations o banks and customers should

be regulated in a way which is air to both

sides. They should be balanced, clear and

comprehensible and provide or appropriate

solutions in the event o a dierence o

opinion. An eective and unbureaucratic

out-o-court dispute resolution mechanism,

the private commercial banks Ombudsman

Scheme, rounds o this approach.

Eective consumer policy requires

dialogue. But to be realistic and relevant,

it also requires experience and knowledge

o what is actually going on in the market.

Any discussion o investor and consumer

protection should not conine itsel to

addressing current issues, but also raise

proactively matters in the policy arena

which, in the view o the private commercial

banks, have the potential to deliver

real improvement or consumers. This

means, or instance, drawing on academic

surveys (e.g. on consumer behaviour)

when developing practical proposals or

solutions. Equally important are debates

and events to support the opinion-orming

process among policymakers, consumer

groups and banks.

The comprehensive consumer policy

scheme is embedded in an ever denser

network o laws designed to protectconsumers and investors. Banking and


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nancial services are the subject o particular

attention rom legislators at both national

and European level. The legitimate desire

to reduce the asymmetrical distribution o

inormation between investors and issuers or

between borrowers and lenders has given rise

to a large number o statutory inormation

requirements. In addition, case law has

oten helped to raise levels o consumer

protection, or instance by developing the

appropriateness criteria which have become

the standard when drating contracts or

banking services. Also in place are rights

or consumer or investor associations to

bring collective action lawsuits. This trend

has not been without consequences. First, it

is important not to lose sight o the overall

body o existing law. Many a new rule

currently under consideration as a civil-law

obligation or suppliers already exists in a

similar orm as a regulatory requirement.

Conversely, much that is determined by

regulatory requirements has long been the

norm in civil case law. Second, i new rules

are needed, a sense o proportion should be

exercised.

The best consumer policy that companies

or in this case private commercial banks

can ollow starts with an attractive range o

products.

The best consumer policy that

companies or in this case private

commercial banks can follow starts

with an attractive range of products.


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III Consumer policy through service the servicesoered by private commercial banks


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III Consumer policy through service the servicesoered by private commercial banks

1 A ocus on the customer milestones in business withretail clients

Until the end o the 1950s, the private

commercial banks traditionally did business

almost exclusively with the corporate

sector and with small and medium-sized

enterprises (SMEs). Then the German

economic boom, the rapid rise in disposable

income among broad sections o the

population, and the resulting German

savings miracle gave rise to a wholly new

and extremely attractive target clientele.

The banks previously exclusive client base

was opened up or good and the term

universal bank,

which in the past

had stood rst and

oremost or the

variety o services

on oer, took on a

new, wider meaning:

private commercial banks became banks or

everyone. The most obvious sign o change

was the eorts by banks to attract retail

customers no longer just as investors, but

as borrowers, too.

That banks consciously promoted their

new services to non-clients as well as existing

customers was considered downright

revolutionary at the time, yet it reected their

view o themselves as money and lending

entrepreneurs. Ater 1960, retail bankingoperations were systematically expanded and

intensied. The introduction o standardised

personal loans, the switch to cashless wage

and salary payments, the breakthrough o the

investment mentality and the maintenance

o securities accounts are just a ew o the

milestones in this evolution. Ater radically

increasing their number o branches and

broadening their range o services, the

private commercial banks were able by the

end o the 1960s to oer their services to

private households virtually everywhere

in Germany. Since then, retail banking has

joined corporate banking as a mainstay o the

private commercial banks business. Today,

private commercial banks compete or clients

with domestic and oreign institutions in allareas o the ever more varied retail banking

sector. The most important elds in which

competition takes place are the product

range (including traditional lending and

investment products), account maintenance

and payments processing, the quality o

advice and service (which is determined

mainly by sta skills and qualications), and

price.

Since entering the marketplace, the

private commercial banks have ound

themselves aced with particular competitive

challenges: or many decades, regulatory

strictures have prevented mergers between

private and public-sector banks, thus

precluding the associated economies

o scale. This makes it that much more

necessary or private commercial banksto develop lending and deposit-taking

After 1960, retail

banking operations

were systematically

expanded and

intensified.


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products and, above all, payments services

that satisy both the varied needs o clients

and their wish or security, convenience

and low cost. In addition, they need to

provide an advisory service which urnishes

inormation and guidance while always

placing the customer centre stage. And

last but not least, they have to oer terms

and conditions that are transparent and

competitive in the long term. The key to

the uture success o private commercial

banks in retail banking will continue to be a

successul combination o customised, cost-

intensive advisory services and standardised

(and thus attractively priced) products. Like

an o-the-peg suit that ts a large number

o customers like a glove, banking services

must be tailored or mass use, as it were,

through simplication and standardisation.

2 Core competencies

Like lending, the deposit-taking and

investment business is geared to the

consumers individual needs. A distinction

in terms o maturity is made between

demand, time and savings deposits and

direct investment in capital markets via the

clients securities account. The main types

o investment are shares, bonds, derivatives

and indirect investment in investment unds,

or example. Innovative mixed orms o

investment (certicates) are also attracting

growing interest. To provide clients with

comprehensive inormation on the risks

and opportunities associated with various

investment types, the private commercial

banks have produced a publication entitled

Basic Inormation on Investments in

Securities.

Banking and minors

Business with minors, who are not allowed to take out loans o any

kind, is inevitably only possible to a limited extent. Within these limits,

however, young people must be made ready step by step or the multi

aceted and complex world o nance. Banks, in collaboration with

parents and teachers, have the important task o introducing young

people to nancial transactions and helping them to take responsibility

or their nancial decisions. This also means giving young people

the reedom to learn by doing. The statement issued in 1995 by the

Federal Banking Supervisory Ofce (since 1 May 2002, the Federal

Financial Supervisory Authority) on banking business with minors was

strongly supported by the banks in its drating phase and continues to

oer important practical guidance.


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Investment advice is one o the most

important areas in the relationship between

banks and their clients. 60% o Germans

obtain advice rom their bank when investing

money (source: Association o German

Banks; survey in April 2010). Anyone wanting

to save or their retirement or build up a nest

egg rightly expects a high level o quality i

they make use o a banks advisory services

rather than using an online brokerage, or

example, and making their own investment

decisions.

A banks investment advisory service

is thereore a multistage process. Beore

issuing a recommendation, the investment

adviser will rst build up a basis or providing

advice by asking about the clients nancial

circumstances, investment goals, knowledge

and experience. An extensive internal

process will have already examined the

suitability o potential investment products

or various types o investors and classied

them accordingly. In addition, the client

will be given a publication with important

inormation and explanations about investing

in securities.

On the basis o the inormation

supplied, the investment adviser will seek

a match between the clients goals and

experience and the eatures o potential

products, and then recommend one or more

nancial instruments. This recommendation

will be accompanied by additional material

(in the orm o inormation sheets, yers or

the like). Finally, and irrespective o whether

or not the client chooses to make a purchase

or sale, the investment adviser will make a

record o the conversation and give a copy

to the client.

I the advice is provided over the

telephone, the record o the conversation

will be sent to the client by post or electronic

means without delay. This will enable thecustomer to reconstruct the process by

Certicates are bearer bonds with no

par value that are linked to one or more

underlying assets. These can be shares,

a basket o shares or an index, such as

the German DAX. The redemption price

depends on the value o the underlying

asset(s) on the maturity date or on

conditions set by the issuer on the issue

date.

Certificates


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It is impossible to imagine lie in todays economy

without loans. Major purchases, such as cars or homes,

can oten only be nanced by a bank loan. In their

customers interests as well as in their own, banks have

to be able to process loan applications switly and cost-

eectively and make sound, objective decisions. Credit

scoring is an important tool in this respect.

A credit score is a number indicating the statistical

likelihood o a loan being repaid on schedule. It is

calculated individually by the bank on the basis o the

inormation available on the client in question. The

score takes into account inormation that, according to

the banks empirical data, document borrowers ability

to meet their nancial obligations.

There is nothing new about the principle o creditscoring. Lenders naturally have an interest in recovering

the money they have lent, particularly since it is money

received rom other clients in the orm o deposits. They

have always had to assess borrowers creditworthiness,

i.e. ability to meet their nancial commitments, on

the basis o inormation about the customers and

their nancial circumstances, as well as on general

experience o lending to retail clients.

Nowadays, banks also use computer-based methods

to give them as realistic a orecast as possible about

a clients credit standing. Scoring involves making a

prediction on the basis o past experience. Statistical

and mathematical techniques are used to help identiy

certain borrower characteristics (risk actors) that

have in the past shown a demonstrable link both

in a positive or negative sense to the probability o

deault. The larger the available database is, the more

clearly these characteristics can be determined.

Scoring systems thereore never consider individuals,

but always a group o people with similar combinations

o characteristics. An individual score calculated on the

basis o such characteristics is assigned to a rating class

(a range o scores). The median score in the rating class

reects a certain likelihood o deault. The score is an

important, though not the sole, actor that determines

whether or not to grant a loan. Other considerations

normally taken into account include the clients income-

to-expenditure ratio and nancial situation. The lending

decision is thereore taken on the basis o an overall

assessment o this inormation.

Both customers and banks benet rom the use o

computer-based scoring systems since credit scoring

oers an objective evaluation basis and thus acilitates

swit, sound decisions. The resulting lower processing

costs can be passed on to the customer in the orm

o more avourable borrowing rates. I the terms o a

loan are based on creditworthiness, the specic credit

risk costs associated with each risk class are included

in the interest rate in a air and reasonable way. This

means, or example, that clients with a low risk o

deault do not have to subsidise higher-risk borrowers.

The principle o risk-based pricing has been applied or

decades in areas such as third-party car insurance or

private health insurance. This has worked to the benet

o many consumers.

Credit scoring part of a fast, low-cost loan approval process


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BANKS AND CONSUMERS

which the recommendation was reached

even at a later date.

The core competencies o the private

commercial banks go beyond product

development and investment advice. They

also ensure that transactions are processed

and securities account services are provided

promptly and reliably. The large market

share o the private commercial banks in

the sae custody o shares, investment

certicates and xed-interest securities

bears witness to their long-standing

competitive edge in securities investment.

According to statistics compiled by Deutsche

Bundesbank, more than 60% o securities

holdings are managed by private commercial

banks. Private commercial banks have never

conned themselves to marketing only

state-sponsored capital ormation schemes.

With the help o a broad range o products

rom savings plans and savings bonds to

sophisticated investments in securities

they actively promote capital ormation by

employees, thus ullling a responsibility

towards society that goes well beyond a

conventional business relationship. Given

the growing problems aced by state

pension schemes, the development o new,

innovative products or the purposes o

long-term capital ormation and retirement

provision has a key role to play. Private

commercial banks, in competition primarily

with the insurance industry, oer a variety

o private pension products which qualiy

or allowances and tax breaks under the so-


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Provision for retirement

The demographic trend in Germany poses great

challenges to provision or retirement. Ever

ewer contributors to the statutory pension

scheme will have to und an increasing number

o pensioners.

This has clear consequences or the statutory

pay-as-you-go pension system. Should

as some orecast there only be a single

contributor or every pensioner by the year

2030, it will no longer be possible or the

statutory scheme to provide most o the

populations retirement income more or less

single-handedly, as has been the case until now.

Moreover, broad sections o the population

continue to underestimate the amount o

money they need to set aside or their old age.

Many Germans will not be able to close the

resulting pension gap unless they change

their savings habits. There is a need or urther

awareness-raising. The statutory pay-as-you-

go scheme must be complemented by unded

occupational and private retirement provision

to secure a decent standard o living or uture

retirees.

The introduction in 2002 o the so-called

Riester pension, which is subsidised by the

state through allowances and tax breaks, was a

rst step in the right direction. To date, around

14.4 million o the over 30 million people

eligible or the subsidy have taken out a Riester

pension. (Figures as at the end o 2010; source:

Federal Ministry or Labour and Social Aairs.)

called Riester pension plan and cater to

client preerences with regard to availability,

risk and return.

The Association o German Banks has

repeatedly highlighted the problems posed to

the pension system by demographic change

and has put orward proposals or reorming

social security systems. The objective must

be to urther strengthen and simpliy

unded usually meaning occupational or

private retirement provision schemes.

To date, policymakers have adopted these

proposals only in part.

Leaving aside concerns about the

ideal type o unded pension scheme, the

act should not be overlooked that recent

reorms have brought about a undamentalchange in pensions policy. More and more

German citizens have recognised the

necessity to assume personal responsibility

or their old age. Targeted inormation

about nancial products and nancial

planning can provide the necessary help.

The Association o German Banks and its

members view this as an important task.

The association publishes regularly updated

customer inormation on private retirement

provision which answers the most important

questions in easy-to-understand language.

It has also produced a series o booklets

explaining the basic eatures o unded

pension plans and warning o the risk o

poverty in old age.


28/10628

BANKS AND CONSUMERS

can also be used in online banking. When

an iTAN is used, the banks central computer

asks the customer to enter a particular TAN

rom the list placed at his or her disposal so

that no attacker will know which one has

been requested. The mobile TAN (mTAN) is

sent by SMS to the customers mobile phone

shortly beore the transaction is carried out.

What is more, it is only valid or a short time.

Combined with a card reader, a GBIC chip

card is able to generate a TAN on demand,

making paper-based TAN lists superuous.

The GBIC card has a chip with state-o-the-

art security architecture known as SECCOS

To prevent unauthorised persons rom

accessing bank accounts and to avoid

misuse and loss, the Association o German

Banks has issued the ollowing security tips

or customers using bank cards and PINs

at automated teller machines (ATMs) and

point o sale (POS) terminals:

Keep your PIN secret

Do not write it down anywhere.

Never tell anyone your PIN.

Watch out or anything suspicious

I anything about the machine or its

environment seems suspicious, cancel

the transaction immediately.

Enter your PIN discreetly

Do not let anyone look over your

shoulder when using an ATM or POS

Security tips for using bank cards and Personal identification numbers (PINs)

terminal.

Keep your distance

Keep a discreet distance rom a person

entering their PIN and demand the

same.

Do not get distracted

Do not accept help rom anyone you

do not know when using your bank

card and PIN.

Take care o your bank card

Never give your bank card to anyone.

Cancel lost cards immediately

Be sure the number you need to cancel

your card is always to hand.

Check your bank balance regularly

Check your account statements at

regular, requent intervals. Report any

suspicious activity to your bank.

3 Partners or secure banking

Payments should be processed switly and

securely. A eature o internet technology

is continuous innovation. The banks take

this into account by adapting their systems

to accommodate the latest advances in

technology. This naturally includes upgrading

authentication procedures. In addition to

procedures acilitating customer mobility,

such as indexed transaction numbers (iTANs)

or the one-time transaction password (TAN)

generator on the German Banking Industry

Committee (GBIC) chip card, electronic

signatures generated by the GBIC chip card


29/106

BANKENVERBAND

29

(Secure Chip Card Operating System). This

allows the addition o a signature unction

in line with the German Digital Signature Act.

Using the internet carries various security

risks as well as advantages. The technical

inrastructure set up by banks to ensure secure

handling o electronic transactions oers

eective protection when data are transerredvia the internet or processed by banks. To

prevent banks security precautions rom

being undermined by attacks on the clients

equipment, users o online banking also need

to have adequate protection in place. Banks

naturally have no inuence on the systems used

by their clients. In particular, equipment such as

a PC connected to the internet is normally used

or many other, non-bank-related applications

as well. This exposes them to risks that are

beyond the banks control. To make customers

aware o these risks, the Association o German

Banks has produced a booklet on online

banking explaining how to make PCs saer or

online banking and keep the remaining risk

to an absolute minimum. The above products

and accompanying security tips illustrate the

top priority given by the banks to their clients

wish or security when perorming bankingtransactions.

Secure online banking

All customers should observe the ollowing security rules:

1. Do not send sensitive inormation over open networks

unless it is encrypted.

2. Check the security o your internet connection using

the inormation provided by the browser.

3. Protect your access codes and access media

(e.g. PINs, TANs, chip cards) rom unauthorised use.

4. Choose a secure password.

5. Only download programs o the internet rom

reputable sources.

6. Use the most recent versions o your internet

browser and operating system because these will

meet the highest available security standards.

7. Run security checks by activating the operating

systems security eatures.

8. Check the browsers security settings.

9. Use virus scanners and additional security sotware.

10. Make regular backups o your data.


30/10630

BANKS AND CONSUMERS

4 Future developments

Consumers expectations o the private

commercial banks are constantly changing,

thus bringing about changes to banking

itsel. The private commercial banks have

responded by continually adjusting their core

competencies so that they can continue to

compete successully or retail customers.

The growing demands o clients, who are

becoming more afuent, better educated,

more mobile and also more cost-conscious,

prompt the private commercial banks time

and again to demonstrate their passion

or innovation. They oer their clients a

product range that is continuously being

updated and adapted to meet evolving

needs. These are new, intelligent products

that deliver additional benets to clients

and thus also strengthen customer loyalty.Fierce competition in the area o standard

banking services makes it dicult or an

individual bank to stand out solely on the

strength o a products basic uses. For this

reason, banks increasingly oer additional

services targeting specic client groups.

These include, or example, individually

tailored, all-round nancial planning

services ranging rom asset planning, asset

accumulation, asset management and

provision or retirement to the transer o

assets to legal successors. Property-related

services (valuation and location analyses,

structuring o property assets) are a

urther key area o expertise. The private

commercial banks have realised that only a

quality-oriented approach to these value-

added services will enable them to build

brand recognition, serve clients needs in

an optimal way and compete successullyover the long term.


31/106

BANKENVERBAND

31

Retail banking is constantly evolving

because technological advances are

opening up new ways o dening closeness

to customers. Todays consumers expect

standard banking services, in particular, to be

available on demand. They want to be able to

take care o their banking business quickly and

easily even outside traditional opening hours.

While a close-knit network o branches is still

helpul in acquiring customers and retaining

existing ones, it is no longer sucient in

the internet age. The private commercial

banks were quick to seize the opportunities

created by new technology, especially in the

retail sector, and oer customers a ull range

o access channels. These include rst and

oremost online banking, telephone banking,

mobile banking, sel-service terminals and

mobile sales.

In the online banking sector, the private

commercial banks played a pioneering role by

establishing various direct banks. According to

gures published by Deutsche Bundesbank,

around 16 million online accounts were

held at private commercial banks in 2009,

representing 36 % o the total online banking

market. There is still sometimes a perception

that ees or retail banking services should be

social prices. It is not always ully appreciated

that payment services, in particular, require

a cost-intensive inrastructure, whose

continuous maintenance and upgrading has

to be nanced. All banking products should

be priced on a user-pays basis. Advisory

services and the time invested in providing

this advice are increasingly being viewed as

services that have a price. Cross-subsidisationand the resulting at ees no longer satisy

consumer demand or transparency. It is likely

that product diversication will increasingly

be accompanied by a diversication o prices

to meet individual consumer needs.

Even though there has been demand up

to now or less complex, less dierentiated

pricing, there are signs that uture retail

business will comprise a wide variety o

approaches eaturing many more user-

pays components. In addition to xed-

price models (at-ee schemes) or advisory

services, volume-based models, hourly rates

and prot-sharing plans will emerge or

various types o service. Overall, the trend is

towards cost-based, more customised pricing,

which or the consumer means a noticeable

improvement in price transparency.


32/10632

BANKS AND CONSUMERS

Ordinance comes into orce.

1976 The private commercial banks

deposit guarantee scheme protects the

deposits o each and every client up to 30%

o the liable capital o the bank. In practice,

this means ull protection or almost all

depositors.

1977 Introduction o the rst sel-service

terminals by private commercial banks.

Automated teller machines (ATMs) and

statement printers enable clients to withdraw

cash or check their account balances outside

regular opening hours.

1977 EUROCARD, already owned by

private commercial banks, becomes the

credit card o the German banking industry.The credit card oers both convenience and

a high degree o security. I a card is lost or

stolen, the clients liability is limited to no

more than 100 Deutschmarks. I the customer

reports the loss beore misuse occurs, liability

is suspended altogether.

1978 Introduction o interactive videotext

(BTX), which enables customers to do their

banking rom home. Users identiy themselves

to the computer-based BTX service by

means o a personal identication number

(PIN). Transactions are authorised using an

individually assigned one-time transaction

password (TAN).

1984 The eurocheque organisation

run by the banking industry introduces the

internationally machine-readable magneticstrip. This allows cash to be withdrawn rom

1959

1976

19601977

1977

1966

1978

1968

1970

19711984

Milestones in private

commercial banks' retail

business

1959 Private commercial banks are rst to

oer standardised consumer loans (personal

loans).

1960 Introduction o payroll accounts

at private commercial banks. Beore this,

the usual practice was to pay wages in cash

(wage packets), even at banks.

1966 Establishment o a common deposit

insurance und (re-ghting und) by the

Association o German Banks to protect

private investors.

1968 Launch o the eurocheque system.

Led by the private commercial banks, the

German banking industry introduces a cheque

guarantee card. A standard pan-European

cheque encashment scheme evolves. Soon

aterwards, the eurocheque card can be used

to guarantee eurocheques.


introduce overdrat acilities. They oer clients

with regular incomes the exible option o

overdrawing their accounts or a short period

without obtaining prior approval.

1971 By displaying their ees and

commissions in their branches, the

private commercial banks increase market

transparency long beore the Price Disclosure


33/106

BANKENVERBAND

33

ATMs outside Germany.

1985 Introduction o telephone banking.

Customers can now contact their bank around

the clock rom anywhere in the world. The

customers identity is veried by means o a

password or via a voice recognition program.

1986 Introduction o internet banking.

Ater initially using the internet merely as a

platorm or their own inormation services,

banks soon begin to oer online banking.

Options range rom securities orders to

customised services and products oered via

the internet.

1989 An industry-wide point o sale (POS)

system is set up. This allows cashless payments

using a eurocheque card and bank card at

electronic tills in retail stores (electronic cash).

1992 The private commercial banks are

the rst to introduce an Ombudsman Scheme

to resolve disputes between retail clients and

banks.

1992 In addition to the electronic cash

system used across Germany, the banking

industry establishes a global POS system

under the brand name Maestro or cashless

payments at electronic tills in oreign retail

stores.

1993 The private commercial banks new

general terms and conditions o business

(AGB) come into eect.

1995 The leading German banking

associations issue the recommendation

Current Account or Everyone (Basic Account).

Banks undertake to provide on request a

current account on a credit-only basis to every

citizen, regardless o the nature or level o his

or her income.

1996 The banking industry introduces

a chip card with a prepaid electronic purse

(GeldKarte or money card) or small payments.

1997 Cards with the Maestro logo can be

used at ATMs worldwide.


endorse the Code o Conduct on Pre-

contractual Inormation or Home Loans

drated jointly by the European Credit Sector

Associations (ECSAs) and consumer groups.

2002 The eurocheque cards guarantee

unction is discontinued due to the steadily

declining use o eurocheques. Retail customers

make increasing use o electronic cash to pay

or goods and services and preer to make cash

withdrawals rom ATMs.

2002 Establishment o the European

Payments Council (EPC), an initiative o the

European banking industry dedicated to

implementing the Single Euro Payments Area

(SEPA) on a sel-regulatory basis. From 2008,

pan-European direct debit and credit transer

schemes and a ramework or card payments

are to be made available to customers.

1985

19961986

1997

2001

1989

20021992

1992

1993

1995

2002


34/10634

BANKS AND CONSUMERS

2003 Introduction o the EU-Standard-

berweisung (German EU standard credit

transer) to allow cross-border credit transers

in euros to be provided at low cost within

the European Union. Customers have to use

the recipients International Bank Account

Number (IBAN) and the Bank Identier Code

(BIC) o the recipients bank.

2005 Introduction in online banking o the

mobile TAN and TAN generator. The ormer

is transmitted to customers via their mobile

phone. Both TAN types are tied to a specic

transaction (e.g. credit transer).

2006 First direct and bilateral settlement

o debit card payments between German and

Italian banks. This is a urther important stepby the banking industry towards SEPA or card-

based payment transactions.

2007 Introduction o the banking

industrys account-linked electronic purse

card as a chip-based identication instrument.

As o 1 January 2007, all publicly accessible

cigarette machines must be retted to prevent

their use by children and underage youths.

Tobacco wholesalers opt to use the banking

industrys account-linked electronic purse card

to comply with this requirement.

2008 Launch o the SEPA or credit

transers and card payments in Europe.

2009 The Single Euro Payments Area

is extended to cover a urther payment

instrument. The SEPA direct debit enables

euro payments to be collected across borders

or the rst time. The scheme includes key

eatures o the widely used German direct

debit scheme.

2009 The Association o German Banks

issues guidelines to enhance retail investor

condence. The aim is to establish standards

or dealing with retail investors, especially

when providing investment advice. The

guidelines cover the internal procedures

normally ollowed by banks in this area. Many

banks already have extensive rules in place.

These are incorporated in the guidelines and

rened into a single standard or all private

commercial banks.

2009 It becomes easier or consumers

in Germany to switch banks. The member

associations o the Zentraler Kreditausschuss

(ZKA) predecessor body o the German

Banking Industry Committee issue a joint

recommendation on switching consumer

bank accounts, eective rom 1 November

2009. The recommendation is based on

the Common Principles or Bank Account

Switching agreed between the European

Banking Industry Committee (EBIC) and the

European Commission. The objective o this

European recommendation is to make it

easier to switch banks in member states.

2003

2009

2005

2009

2006

20092007

2008


35/106

BANKENVERBAND

35

2010 Reorm o protection against bank

account seizure. The holder o an existing bank

account can apply to register it as a so-called

P-Konto (short or Pndungsschutzkonto).

This means that a basic monthly amount

currently 985.15 is exempt rom seizure.

2010 Introduction o a standard record-

keeping ormat or documenting advice

provided to retail investors. The aim is to

protect investors and improve the quality o

advice. The inormation recorded includes the

reason or seeking advice, the length o the

conversation, relevant details o the clients

personal situation, eatures o the nancial

instruments and services discussed, the clients

main objectives and their relative importance,

the recommendations issued in the course o

the conversation and the rationale or making

these recommendations.

2010 Availability o a standardised product

inormation sheet or investment products.

Clients are able to see at a glance how the

product works and what risks and costs are

involved. The inormation sheet is based not

only on proposals by the Federal Ministry o

Food, Agriculture and Consumer Protection

but also on guidelines issued by the European

Commission.

2010 New pan-European legal ramework

or consumer loans. A number o new

requirements covering issues rom advertising

and pre-contractual inormation to mandatory

explanations are designed to help consumers

make inormed borrowing decisions.

2011 Private commercial banks lower

ees or withdrawals rom their ATMs by non-

customers to a maximum o 1.95. Since 15

January 2011 this ee has applied not only

to customers o private commercial banks,

but also customers o savings or cooperative

banks. Beore making a withdrawal, the

customer can see exactly how much it will

cost at the machine in question.

2011 Product inormation sheets become

a statutory requirement. The banks adjust the

inormation sheets already in use to comply

with the new rules.

20102011

2011

2010

2010

2010


36/106


37/106

BANKENVERBAND

37

IV The private commercial bankscomprehensive consumer policy scheme


38/10638

BANKS AND CONSUMERS

Inormation and independent decision-

making take centre stage in the comprehensive

consumer policy scheme o Germanys private

commercial banks. Clients are equal partners.

A long-term partnership based on trust is

essential or both customers and banks. Help

in evaluating products and selecting the right

one is available not only rom the banks

client advisers, but also rom the Association

o German Banks, which oers a wide range

o independent product-related inormation,

presented below.

Educating people to become responsible

consumers begins at school. Grasping

how the economy works, understanding

the principle o competition and learning

to keep a cool head in a complex economic

environment are things that should be taught

as part o the school curriculum. For this

reason, the Association o German Banks calls

or economics to be made a subject in its own

right and has been committed to promoting

economics education or over 20 years with its

extensive Schul|Bank programme.

Investor condence has been seriously

undermined by the nancial crisis. The

Association o German Banks wants to restore

this condence be it with its May 2009

guidelines or restoring investor condence

or the private commercial banks 2010

standard or product inormation sheets.

The key concern in each case is to ocus even

more strongly on the customers needs in all

internal business processes.

A customer-bank relationship based on

a spirit o partnership involves more than

merely providing inormation about products

and services, however. Contracts, too, as the

legal basis or customer-bank relations, mustbe ramed in such a way as to be readily

understood by customers. And i problems

nevertheless arise, the private commercial

banks Ombudsmen are standing by to resolve

them quickly, unbureaucratically and ree o

charge to the customer.

1 More than consumereducation the Associationo German Banks Schul|Bankprogramme

All consumer education starts at school. The

Association o German Banks has set itsel

the goal o getting more young people

interested in economics and making the

subject more accessible to them. More than20 years ago, it launched an initiative under

IV The private commercial banks comprehensiveconsumer policy scheme


39/106

BANKENVERBAND

39

the name Schul|Bank, comprising a whole

package o services. This commitment by

the private commercial banks to education

is intended to help build bridges between

businesses and schools. The aim is also to

improve students economic and nancial

literacy. It is against this backdrop that

the Association o German Banks oers

teachers and students an extensive, tailored

inormation programme on economics.

Inormation booklets or students

Booklets about economics, banks, dealing

with money and choosing a career teach

students how the economy unctions.

Rund ums Geld (All about Money), or

instance, leads students through a role-play

exercise, in the course o which they learn

a lot about managing money. Simulations

o real-lie situations make them aware o

their saving and spending behaviour. They

practise managing their own nances and are

amiliarised with a variety o banking services

and investment opportunities. The series

entitled Wie Wirtschat erleben (How the

Economy Works) teaches young people basic

economic concepts and principles with the

help o material drawn rom their everyday

lie and experience. These publications also

Promoting economic

literacy

The Association o German Banks

has or many years campaigned or

economics to be put on the school

curriculum as a subject in its own

right. In cooperation with the Institute

o Economics Education at Oldenburg

University, it published a blueprint

in May 2008 or teaching economics

in primary and secondary education.

The publication sets out an economics

syllabus or all levels o education

rom primary school to Abitur

(university entrance qualication). In

2010, using this blueprint as a starting

point, the Joint Committee o German

Industry and Commerce, o which

the Association o German Banks is amember, issued standards or teaching

economics and standards or teacher

training. These initiatives and the

call or a place or economics on the

curriculum are gaining ever broader

support not least rom students

themselves, who want to see schools

ocus more strongly on teaching

economic literacy.

Economics or the classroom


40/10640

BANKS AND CONSUMERS

contain a number o exercises and checklists

that can be worked through together in the

classroom.

Special teaching material or teachers

Teaching sta are given extensive support

in teaching economics. A Schul|Bank

newsletter provides 65,000 teachers with

up-to-date inormation about the economy

every month. The Schul|Bank le entitled

Wirtschat Materialien r den Unterricht

(Economics Material or the Classroom)

contains a wide selection o source texts and

pedagogical material or use by teachers in

the classroom.

Nationwide student contests

Young people can get an inside look at

the world o work and business by takingpart in competitions. In the nationwide

SCHUL|BANKER bank management game,

students take over the management o a

virtual bank over the course o our months.

Twenty teams go through to the nal round,

in which the winner is determined during

a three-day event. In the Jugend und

Wirtschat (Youth and the Economy) project,

which is organised jointly by the Frankurter

Allgemeine Zeitung (F.A.Z.) newspaper and

the Association o German Banks, students

write or the business section o the F.A.Z.

During the course o a school year, they take

an in-depth look at the papers business

reporting, nd their own stories, do research,

conduct interviews and nally produce their

own articles. The best o these articles are

published once a month, and additionally

once a quarter, on a special Jugend und

Wirtschat page in the F.A.Z. businesssection.

Sc: ciatin Gan ank, 2009 yth vy, all g in p cnt. Sc: ciatin Gan ank, 2009 yth vy, all g in p cnt.

More economics should be taught at

school

Economics should be introduced as a

subject in its own right

90

80

70

60

50

40

30

20

10

0

90

80

70

60

50

40

30

20

10

0

ll adlt ll adlt14- t 24-ya-ld 14- t 24-ya-ldSchl tdnt Schl tdnt

76 7780 7878 77

6872

807474 74

78 75

8377

8479

2003 2006 2009 2003 2006 20092003 2006 2009 2003 2006 20092003 2006 2009 2003 2006 2009


41/106

BANKENVERBAND

41

Internet

Teachers and students can nd extensive

inormation and a variety o activities

related to the Schul|Bank programme at

www.schulbank.de. Eight dierent quizzes

allow them to test their knowledge o

economics and the economy. The Geld-

Special (Money Special) section enables

young people to access online inormation

about various aspects o money, calculate

interest and do an interactive money test

to discover what kind o money type they

are. Teachers can download a wide range o

pedagogical material to help them address

money-related issues in the classroom. The

monthly Schul|Bank newsletter is available

online as well. The website also lists ull

details o various publications, all o which

can be ordered online.

2 Transparency throughinormation

2.1 The inormation pyramid

Customers need correct, adequate and readily

understandable inormation beore entering

into a transaction. Only then can they make a

decision be it about making an investment

or taking out a loan that is tailored to their

personal and nancial circumstances.

But customers nowadays ace a

bewildering number o options. On top o

that, the instruments available to retail clients

have become signicantly more complex,

especially in the area o investments. And in

todays inormation society, the number o

sources o inormation that can be consulted

has also increased. So it is more necessary

than ever or customers to have assistance


42/10642

BANKS AND CONSUMERS

in ltering inormation and extracting that

which is really relevant.

There is no quick x to the situation.

A multiaceted approach is required,

beginning with general education,

continuing with economic literacy training,

and ollowed where investments, or

instance, are concerned by the provision

o general inormation on the main typeso investment and nally by specic details

about the particular instrument under

consideration.

Each step is dependent on the others.

Customers will only be able to make sense

o specic product inormation i they

have developed a basic understanding o

how securities transactions unction and

what risks are typically involved. This basic

understanding in turn presupposes anadequate general knowledge o economics.

Investment advice

Specific

product information

General information about

certain types of securities

Economic literacy

Information pyramid for investments in securities


43/106

BANKENVERBAND

43

Conversely, some types o securities are

o such a specialist nature that general

inormation alone will not always suce.

General and detailed specic inormation

thereore complement one another and are

at the same time mutually dependent.

With this in mind, the Association o

German Banks acts on all levels to assist

customers in accessing the inormation they

require to make decisions that match their

needs.

2.2 General consumer inormation

Consumers have or many years been the

ocus o the Association o German Banks

public relations work. At regular intervals

the association makes available provider-

independent inormation and reports on

nancial topics.

The okus:verbraucher series

In 2006 the Association o German Banks

launched its okus:verbraucher series,

an inormation service o the private

commercial banks aimed specically at

consumers. The series brings together

all publications specially tailored to the

needs o this target group. These include

the annual Ombudsmans Report, and

inormative booklets and leaets on issues

o current interest, such as the general range

o services oered by private commercial

banks, deposit protection, secure online

banking or making payments across Europe

using international bank account numbers

and bank identier codes.

News service

Bank-News has been providing consumers

with easy-to-understand tips and inormation

on all aspects o money or more than 30

years. This consumer newsletter is published

every two weeks. Issues covered include

consumer rights (e.g. the Ombudsman

Scheme), inormation on withholding tax,

online banking security tips, warnings about

dubious investment schemes and advice on

managing holiday nances.

The Association o German Banks has

provided a graphics service to newsrooms

since 1989. Even complex topics rom the


44/10644

BANKS AND CONSUMERS

world o business and nance are presented

to consumers in an easy-to-understand and

inormative way.

Last but not least, the Association o

German Banks reaches consumers through

press work directed at popular magazines,

newspapers and journals.

Phone-ins

As early as 1979, the Association o German

Banks began cooperating with editorial

departments at newspapers and magazines to

oer expert advice by telephone. Employees

o the Association o German Banks and

experts rom private commercial banks

answer readers questions over the phone.

Along with the Ombudsman Scheme, this is

one o the direct lines to the consumer. Thisservice, which has proved highly successul

over the years, shows again and again that the

demand or inormation about money matters

knows no bounds. Topical subjects such as

private provision or retirement or the saety

o investments are oten what interest readers

most, particularly in times o nancial crisis.

Those who call in with questions appreciate

above all the chance to obtain expert and

impartial advice. Neither individual banks nor

products are advertised a principle that has

convinced not only large national newspapers

but also numerous regional dailies and mass-

circulation magazines to oer this service on

a regular basis.

Radio service o the Association o German

Banks

The Association o German Banks alsouses the radio to inorm consumers and

amiliarise them with the broad range

o highly specialised nancial services

in an easy-to-understand way through

interviews, reports, bulletins and analysis.

A subscription-based online podcast service

was launched in April 2006.

Internet

A comprehensive communication and

inormation platorm is available online

at www.bankenverband.de. Consumer

inormation about money and nancial

matters can be ound by clicking on

Geldinos + Finanzen (money ino and

nances). This platorm gives consumers

direct access to news and radio services and

to publications that can be ordered online

or downloaded.

The Association o German Banks on the

internet:

[email protected]


45/106

BANKENVERBAND

45

But inormation provided over the

internet is not a one-way street the

Association o German Banks receives

hundreds o inquiries every month via its

email address, [email protected].

A large proportion o these enquiries are

rom consumers, who make ull use o the

opportunity to contact the associations

experts quickly and directly. This enables the

association not only to respond personally

to consumers questions, but also to nd out

what consumers expect o it and the private

commercial banks.

Since 2006 customers have also been

able to access consumer inormation by

going to the private commercial banks online

consumer portal at www.inos-nanzen.de.

By clicking on headings entitled Customer &

Bank, Account & Card, Saving & Investing,

Credit & Finance and Pensions & Retirement

Provision, consumers can obtain inormation

o interest to them quickly, easily and at a

glance.

All o the Association o German Banks

consumer-related activities are interconnected.

News and radio services reer to publications

and key topics on the consumer portal. During

phone-ins, or instance, newspaper and

magazine readers are inormed directly about

services provided by the private commercial

banks such as the Ombudsman Scheme or

deposit protection scheme.

2.3 Guidelines, product inormation

sheets and customer inormation in

the eld o securities and investments

Guidelines

The Guidelines or Enhancing Retail Investor

Condence, issued in May 2009, set out

guiding principles or providing investment

advice to consumers. The private commercialbanks put the client centre stage. It is not

sufcient to give clients appropriate and readily

understandable inormation: mechanisms are

also required to protect their interests. The

private commercial banks consider it a top

priority to maintain long-term partnerships

with their clients based on trust. This means

that a number o organisational measures

need to be in place to ensure the quality o

banking services at all times.

The Association o German Banks

guidelines or its members cover the internal

procedures normally ollowed by banks

in their dealings with retail clients. Many

banks already have extensive rules in place

to govern such procedures. These have

been incorporated into the guidelines and

rened into a single standard or all privatecommercial banks.


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BANKS AND CONSUMERS

Product inormation sheets

Banks have long had inormation sheets, yers

and term sheets available to provide customers

with inormation about products in a concise

orm. These occupy the top o the inormation

pyramid, so to speak, since they describe

individual products, such as a particular share

or bond. They thereore build on an existing

base o knowledge derived rom general

nancial literacy and basic inormation about

a class o products, and supplement it with

specic details o the product in question.

These product data sheets are routinely

supplied to customers when providing

investment advice, but are also available or

inormation purposes rom branches or on the

banks websites.

Unlike a securities prospectus, or

example, a product inormation sheet does

not contain ull details o all eatures o the

product but instead presents the salient

aspects at a glance (how it works, risk/reward

prole, associated costs, etc.).

An ot-repeated criticism during the

nancial crisis was that nancial products

were not explained suciently clearly

to customers and that it was requently

dicult to compare dierent products.

The banking industry took this criticism on

board and developed a standard or product

inormation sheets based on proposals

discussed in Germany and at European level.

Use o product inormation sheets became

mandatory on 1 July 2011.

Customer inormation

When customers place an order to buy or sell

securities, their bank will inorm them about

how the order has been executed.

Once securities are purchased, the

customer will expect to receive certain

ollow-up inormation. The bank will make

this inormation available in a variety o ways.

Guidelines for Enhancing Retail

Investor Confidence

Among other things, the guidelines recommend

making a central selection o investments which may

be suitable or consumers. The banks should:

undertake an individual assessment, when

providing investment advice, o whether aparticular investment product is suitable or the

client in question

pay due regard in their internal organisation and

remuneration policies to the objective o customer-

oriented advice, customer satisaction and long-term

customer relations

draw up an investor prole in cooperation with the

client, base all advice on this prole and give a copy

to the client

ensure that their advisers are and remain highly

qualied

where necessary, provide clients with specic

product inormation explaining succinctly and

without reerence to other documents how the

product unctions and what risks and costs are

involved

regularly review their procedures to ensure that

clients interests are protected and rigorously ollow

up any irregularities


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BANKENVERBAND

47

I an order cannot be executed because

the desired securities are unavailable in the

market, or instance, or because o insufcient

unds, the bank will advise the customer o the

act. The same applies i the purchase does

not go through owing to a limit placed on the

order by the client.

In addition, customers receive a

securities account statement at least annually

showing the value o their holdings at the end

o the year. Customers can also ask their bank

at any time how much their securities are

currently worth or can access the inormation

electronically i they bank online.

Issuers requently need to notiy

inormation to investors. I an announcement

by an issuer is published in Wertpapier-

Mitteilungen (the German securities business

journal), the bank will orward the inormation

to its customers i it may aect their legal

position or impact on their interests. This may

be the case in the event o a conversion or

rights oer, or example. The bank will also

help customers by ltering out dubious oers.

So customers can rest assured that their

bank will keep them abreast o how their

portolio is perorming and inorm them o

any important changes to their investments.

Customers should nevertheless bear

in mind that any recommendation to buy a

security is always based on the situation at

a given point in time. They should thereore

contact their bank again i necessary in

the event o changes in their personal

circumstances or in the market.

2.4 Customer inormation about loan

products

New rules or consumer loans were

introduced in mid-2010 when the European

Consumer Credit Directive was implementedin German law. The changes apply to new

consumer loans, and many o them to

mortgage loans as well. They are particularly

relevant to retail clients. New pre-contractual

inormation requirements are a key element.

To improve the comparability o the loan

agreements oered by banks and enhance


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BANKS AND CONSUMERS

transparency or borrowers, customers are

given pre-contractual inormation about

the loan they wish to take out beore an

actual agreement is signed. In practice, this

means the bank provides the customer with

inormation about the type o credit, the

associated costs and other important eatures

o the loan. This inormation is presented in

tabular orm, as required by law.

The tables used are standardised

throughout Europe but vary depending on

whether an instalment loan, an overdrat

acility or a mortgage credit is involved. This

allows the special eatures o all types o

credit to be accommodated.

Banks now also have to ull more

extensive inormation requirements when

the agreement itsel is concluded, thus

providing customers with a urther basis or

making their decisions. The loan agreement

has to contain additional inormation on

matters such as the responsible supervisory

authority, the relevant Ombudsman Scheme

or details o any loan broker involved. These

additional requirements also make contracts

lengthier than beore, however.

I customers wish to know more about

certain aspects o a loan agreement, they

should contact their adviser direct. Bank

advisers will in uture be expressly required

by law to provide borrowers with adequate

explanations beore a loan contract is

signed so that they are in a better position

to judge whether the agreement really

matches their objectives and inancial

circumstances.

I a bank advertises a specic rate o

interest, the advertisement must indicate

possibly by providing an illustrative

example the interest rate which will apply to

the majority o loan agreements it concludes.

This is to avoid misunderstandings which

might arise i, or instance, the interest rate

mentioned in an advertisement was oered

only to consumers with a certain credit

standing.


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BANKENVERBAND

49

The European Credit Sector Associations

(ECSAs) and consumer groups in the EU

signed a voluntary code o conduct on pre-

contractual inormation or home loans based

on a recommendation issued by the European

Commission. The code envisages providing

consumers wishing to take out a mortgage

loan with the ollowing inormation

general inormation about the home

loans oered by the bank

in a pre-contractual phase, individual

inormation (main eatures o the loan)

in the orm o a European Standardised

Inormation Sheet

The general inormation includes detailsabout the service provider, a description o

the loans oered, details o costs, the type o

interest, the various repayment options, early

repayment terms, a list o possible additional

charges and general inormation on public

subsidies.

In addition, the ESIS contains urther pre-

contractual inormation designed to make

a cost comparison with loans oered by

other providers, including oreign banks,

as easy and transparent as possible. This

inormation includes, above all, nominal

and eective interest rates, the amount

and length o the loan, the number and

requency o instalments, the level o the

interest and repayment rates, additional

one-o and/or recurring costs, early

repayment charges, details o internal

customer complaint handling and an

illustrative repayment plan.

Beore signing a contract, thereore,

customers obtain comprehensive, readily

understandable and above all comparableinormation about all loan products

normally oered by private commercial

banks. Armed with this inormation, the

customer is then in a position to make a

reasoned decision about taking out the

loan.

European Standardised Information Sheet (ESIS)


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BANKS AND CONSUMERS

The changes in the legislation

governing consumer credit which took

eect in June 2010 were incorporated into

the private commercial banks general

terms and conditions o business (AGB)

as early as 31 October 2009 to coincide

with the transposition into German law o

the European Payment Services Directive.

As a result, the private commercial banks

Section 355 of the German Civil Code

Fourteen-day right o withdrawal

To protect consumers rom contractual

obligations to which they may have agreedwithout thoroughly considering all the

circumstances, the law gives them the right

to withdraw rom certain types o contract

in certain situations within a period o

ourteen days without giving any reason or

the cancellation.

Section 312 of the German Civil Code

Doorstep selling

This applies to cases in which a contract

has been entered into on the doorstep or

the consumer has been induced to do so in

a doorstep situation. The aim is to protect

consumers against any risks arising rom

a hasty decision to sign a contract. This

cancellation right is based on EU legislation,

namely the Doorstep Selling Directive.

Section 495 of the G

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