In 2007 the European Commission published a White Paper on the integration of EU mortgage markets. In this White Paper the Commission announced a study on tying and other potentially unfair commercial practices in the financial services sector.
For the purposes of the study, tying occurs when two or more products are sold together in a package. For instance a current account to a mortgage or a consumer loan. Other potentially unfair practices include conditional sales practices and aggressive commercial strategies.
The objectives of the study were to:
- Present a comprehensive inventory of tying and potentially unfair practices in retail financial services in all EU Member States.
- Describe and analyse the market, in particular to provide quantitative information on the use of these practices and to identify and explain why financial services providers as well as consumers engage in these practices.
- Present a quantitative and qualitative analysis of the potential impact of tying and other identified potentially unfair practices for different stakeholder groups.
The Commission has now published the results of the study. Key findings of the study include:
- That cross-selling practices, of which tying represents about one third, and conditional sales practices are widespread in EU Member States.
- That mortgages, consumer loans and current accounts take a leading role as gateway products for cross-selling practices.
- That the main reasons for financial institutions to engage in cross-selling practices are commercial strategy, risk reduction and cost efficiency.
- That the main reason for financial institutions to engage in conditional sales practices is risk reduction.
- That tying practices may be anti-competitive as well as harmful to consumers and small and medium enterprises as they reduce customer mobility, price transparency and the comparability of providers on the market, increase switching costs and negatively affect consumer confidence.
- That mixed bundling often has a similar negative effect on consumers as tying, as consumers are often put in a situation where they have to trust the advice of their counterparts and find it costly to shop around for alternatives.
- That in terms of legislation, national legal systems are fragmented with only twelve Member States having adopted specific solutions.
The Commission has also published a short consultation document on the results of the study. The deadline for comments on the consultation document is 14 April 2010. The study's findings, as well as the comments received to the consultation, will be taken into account by the Commission when developing its future position on tying in the EU retail financial services sector.