UPDATED: EU businesses cannot demand that customers also based in the EU use payment accounts located in the country they operate out of when setting up euro-denominated direct debit payments, a court has ruled.
The Court of Justice of the EU (CJEU) held that EU law precludes the use of contract terms that exclude payers residing in the EU from setting up euro-denominated direct debits to them on the basis that they are established in a different member state.
Frankfurt-based expert in technology and e-commerce regulations Dr. Nils Rauer of Pinsent Masons, the law firm behind Out-Law, said the court's ruling addressed an important aspect of the EU's digital single market – the freedom over payment choices.
The CJEU was asked by the Austrian Supreme Court to interpret rules set out in an EU regulation on SEPA credit transfers and direct debits. SEPA is the single euro payments area.
Under Article 9(2) of the EU's SEPA regulation, a payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located in the EU cannot dictate which EU member state that payment account is located in, provided that the payment account is reachable.
Austrian consumer group VKI challenged whether contract terms deployed by a German rail company complied with those requirements.
According to the judgment, the rail passengers were allowed to make online bookings for international train journeys on the company's website and to pay for those bookings under the SEPA direct debit scheme, among other potential payment options.
The rail company placed a number of conditions on accepting SEPA direct debit payments. It required customers wishing to pay that way to have a place of residence in Germany. Other conditions included that customers consent to the direct debit being taken from an account held with a bank or savings bank that has its registered office in a SEPA-participating state, instruct their bank or savings bank to honour the SEPA direct debit, and also register on the company's website. To activate the SEPA direct debit scheme, the customer was also required to consent to a credit check.
The rail company has rejected VKI's claims that the conditions it placed on SEPA direct debits were in breach of the SEPA regulation. In particular, it argued that the aim of the SEPA regulation is to protect payments rather than payers and that the legislation does not require it to offer the option of SEPA direct debit to all consumers in the EU. It said there are other payment options for consumers that it provides.
The CJEU said that the SEPA regulation "contributes to the objective of achieving the high level of consumer protection necessary to ensure broad support for SEPA by those consumers" and that a place of residence condition such as that imposed by the rail company "is liable to operate mainly to the detriment of consumers who do not have a payment account in the member state in which the payee has established his place of business" since it is typical for consumers to have a payment account in the country in which they are resident.
A contract clause that makes a distinction on the basis of a consumer's place of residence "therefore indirectly indicates the member state in which the payment account must be located" and produces comparable effects to clauses that are specific about which EU country the account must be located in, the court said.
The rail company claimed that the place of residence condition was justified by the need to credit-check would-be payers. This argument was rooted in its view that the risk of default on SEPA direct debits is "particularly high". The fact there is no payment guarantee on offer from payment service providers for SEPA direct debits underpinned the company's view.
The CJEU said, though, the way Article 9(2) SEPA regulation was worded was determined by EU law makers after they had given consideration to "the various interests at stake between payers and payees". The court said, though, that "nothing prevents a payee from reducing the risk of abuse or of default on payment by, for example, providing that delivery or printing of tickets will only be possible once the payee has received confirmation that the payment has actually been collected".
Rauer said: "The judgment resonates. It touches upon an important aspect of e-commerce – the free choice of payment methods within the emerging digital single market. Both direct restrictions and more indirect obstacles need to be moved out of the way to safeguard a truly unified economic market throughout the EU, including in the context of e-commerce. Having said this, the concerns raised by the rail company are not trivial or unreasonable either. However, secure e-cash flows are essential and there is a need to create a safe payment environment within the digital single market."
In its ruling the CJEU briefly considered the EU's regulation on geo-blocking, which took effect last year and prohibits discrimination based on means of payment. The geo-blocking rules do not apply to transport services.
However, even if the geo-blocking rules did apply, EU law makers have provided for the need to efficiently protect online traders against fraud in the context of electronic payment. In particular, in the case of direct debit, traders are allowed to request advance payment via credit transfer before goods are dispatched or before the service is provided.
In addition, the geo-blocking regulation makes reference to the authentication requirements set out in the EU’s second Payment Services Directive (PSD2) which accounts for potential fraud and allows customers to be treated differently in cases where authentication fails. The geo-blocking regulation also does not prevent traders from withholding the delivery of the goods or the provision of the service until they receive confirmation that the payment transaction has been properly initiated so long as this is further justified by objective reasons.
Editor's note 16/09/19: The final two paragraphs have been added to the story to provide further clarity.
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