Just as the excitement around strong customer authentication for online SEPA direct debits was beginning to settle, direct debits are under attack again: In a recent case before the CJEU, the Advocate General stated in his Opinion that it also constitutes undue IBAN discrimination if a merchant accepts SEPA direct debit payments only from customers resident in a particular member state. He added that creditworthiness considerations were equally not suitable to justify differentiations according to the customers’ place of residence.
IBAN discrimination before the CJEU
In a legal dispute between a consumer protection association and Deutsche Bahn (Case C-28/18), the Opinion was delivered on 2 May 2019. According to the Advocate General, Deutsche Bahn’s payment practice, according to which a customer must be resident in Germany in order to be able to use the SEPA direct debit payment method, violates the provisions of Regulation (EC) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (“SEPA Regulation”).
What legal provision does IBAN discrimination relate to?
IBAN discrimination concerns Article 9 para. 2 of the SEPA Regulation. In accordance with this, a payee who accepts a credit transfer or uses a direct debit to collect funds from a payer who holds a payment account within the European Union, shall not specify in which member state this payment account is to be held, provided that the payment account is reachable. Article 9 para. 2 of the SEPA Regulation is therefore addressed to users of payment services. A company offering direct debit must allow accounts from all countries that are reachable using the SEPA direct debit payment method.
What constitutes IBAN discrimination?
IBAN discrimination occurs if companies offer their customers the option to pay by direct debit, but restrict this option to German payment accounts. This violates Article 9 para. 2 of the SEPA Regulation (see BaFinJournal, December 2015, p. 41 f.; OLG Karlsruhe, ruling of 20 April 2018, 4 U 120/17).
In the Advocate General’s view, it is also IBAN discrimination if a company offers direct debit payments to customers but only offers this possibility to customers with a particular place of residence. Although this does not explicitly require a payment account in a particular member state, it does so implicitly, as customers usually hold their payment account with a bank established in their member state of residence. So far so good. This is one possible interpretation. It is not the only one.
Can IBAN discrimination according to creditworthiness be justified?
The Advocate General’s Opinion also contains statements regarding the practical question of a possible justification. And indeed, the question arises as to whether merchants are permitted to refuse customers from abroad for reasons relating to their creditworthiness, for example because no reliable information as to a customer’s creditworthiness is available for certain countries or because the merchant’s payment service provider only purchases receivables from customers domiciled in Germany and therefore only reduces the merchant’s credit risk to this extent. Both of these constellations occur in practice.
The Advocate General is of the opinion that creditworthiness considerations are no justification for a differentiation according to the place where the payment account is held or the customer’s place of residence. His main argument is that differentiation on the basis of creditworthiness is not permitted because the SEPA Regulation does not provide any grounds for justification and the merchant is free not to offer any direct debit payments at all.
Consequences for the future of direct debits in e-commerce
It remains to be seen whether the CJEU will follow this view. The Advocate General’s Opinion is not binding on the CJEU. However, the judges of the CJEU often follow the Advocate General’s Opinion in their rulings.
In our view, the question of the extent to which creditworthiness aspects can lead to a rejection of the direct debit payment method for the merchant’s customers can have a significant impact on the availability of the direct debit payment method in e-commerce. The merchant’s willingness to accept SEPA direct debits as a payment method is usually associated with considerable risk for the merchant. With SEPA direct debits, the merchant bears the risk of the customer’s solvency and willingness to pay, provided it fulfils its obligation to deliver or supply before receiving the purchase price, as is usually the case. This risk can be reduced with the help of credit checks. However, the customer’s credit information required for this is not available in all SEPA member states. If the merchant is unable to counter this risk situation by making appropriate differentiations, this may result in merchants no longer offering the customer-friendly direct debit payment method in e-commerce.
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