Book 3 - 58 - Til Schuermann. “Stress Testing Banks,” April 2012
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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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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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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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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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.
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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
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(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.
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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.
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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.
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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.
1970 The private commercial banks
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
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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.
2001 The private commercial banks
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
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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
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BANKENVERBAND
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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
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IV The private commercial bankscomprehensive consumer policy scheme
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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
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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
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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
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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
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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
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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
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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:
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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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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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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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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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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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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