Irish Competition Authority Decisions

1. The Direct Debiting Committee (DDC) Rules and Originators Guide for the Direct Debiting Scheme were notified to the Competition Authority on 25 September, 1992. The Rules regulate arrangements for the operation of the direct debiting system. Since the original notification was received the rules have been updated with a fourth edition of the rules being issued in 1994. At the time of the notification the DDC consisted of the four associated banks and the Central Bank of Ireland. TSB Bank has since joined. The notification requested a certificate under Section 4(4), or in the event of a refusal by the Authority to grant a certificate, a licence under Section 4 (2). Notice of intention to take a favourable decision was published on 13 October, 1995 and no submissions were received. The Minister for Finance was invited to make a submission pursuant to Section 4 (5).

2. The notification concerns the DDC Rules and Originators Guide for the Direct Debiting Scheme. The parties to the agreement, with the exception of the Central Bank, each provide banking services to the general public. The Rules are agreed between the parties.

3. The parties to the arrangements are Allied Irish Banks plc, The Governor and Company of the Bank of Ireland, National Irish Bank Ltd., Ulster Bank Ltd. and the Central Bank of Ireland. Each of these is a member of the DDC which is an unincorporated association. TSB Bank became a member of the DDC after the arrangements were notified. The first four are known as the associated banks. They are essentially clearing banks which provide a broad range of retail and wholesale banking services and were traditionally responsible for the money transmission system. AIB and the Bank of Ireland are Irish registered institutions. Ulster Bank is a subsidiary of the UK National Westminster Bank group and National Irish Bank is a subsidiary of the National Australia Bank group. The Ulster Bank and National Irish Bank are much smaller in terms of size than Bank of Ireland and AIB. TSB bank emerged as a result of a series of amalgamations of the various trustee savings banks which had been located throughout the State. The Central Bank of Ireland was established by the Central Bank Act 1942. Its function is to operate as a central bank, i.e. to regulate commercial banks and other financial institutions, to provide banking services to the Government and to operate monetary and exchange rate policy.

4. The arrangements involve the rules of the DDC for the operation of the Direct Debiting System. Direct debits are a mechanism for payment of regular, and principally variable, payments. They constitute the only means recognised by the banks involved whereby a payer may authorise payment, until further notice, from his bank account, of sums which are variable as to time and/or amount at the discretion of the payee. The scheme was first introduced to Ireland in 1967. It is designed for use by persons (known as originators) such as insurance companies, public utilities, hire purchase and instalment finance companies, building societies and manufacturers who generate large volumes of periodic payments from their clients. The scheme is designed to provide an efficient system of collecting such payments. An originator is able to collect amounts due from a payer by originating direct debits upon an account of the payer. The payer provides prior authorization for the collection of such payments and can nominate an account with any financial institution within the State to whom a national sorting code number has been allocated for payments clearing purposes. The institution need not be a member of the DDC. An originator must be sponsored by one of the DDC member banks. Customers of other banks can become originators by means of an arrangement between the account holding bank and a DDC member bank.

5. Direct debits provide one means of making payment transfers. Cash, cheques, and in the case of personal customers, standing orders, credit cards and ATM cards can also be used for such payments. From the point of view of the originator direct debits ensure prompt payment of bills. Payers are provided with a simple, safe and convenient service for the payment of bills as they fall due. Direct debits eliminate the need to write out and post cheques, to queue at cash offices or banks and eliminate the risk of overlooking payment dates. Some data on the size of the market is given below. Cheques are by the most common cashless payment medium. In 1993 total cheque payments amounted to £323bn with credit transfer payments amounting to £290bn. In contrast total direct debit payments amounted to £34bn.

Table 1: Details of Payment Transactions (1994)

Source: Irish Bankers Federation.

7. The Terms, Conditions and Criteria for membership of the Direct Debit scheme as a sponsoring institution provide that all credit institutions which are supervised by the Central Bank and are authorised to provide money transmission services may become sponsoring banks provided they satisfy certain criteria. These provide that:

(i) the institution must be a member of the Dublin Banks Clearing Committee; [1]

(ii) the institution must abide by the DDC rules;

(iii) the institution must do its utmost to keep direct debit by paper to a minimum;

(iv) the institution must provide magnetic media in a format compatible with all banks' computer systems.

Institutions are required to pay an equitable share of the annual operating costs. New entrants are required to pay an entry cost equivalent to 5% of the past development costs of the scheme.

8. The arrangements involve the DDC rules in respect of the direct debiting system. The original notification involved the third edition of the rules which had been in force since 1988. The rules were revised and a fourth edition was issued in 1994 but this involved only very minor changes. They include provisions for the admission of originators. These provide inter alia that as a condition of participation a prospective originator must execute a form of Direct Debiting Indemnity. Under this the originator undertakes to indemnify the banks against any loss arising from his direct debiting operations. It is a principle of the scheme that a payer has the right to seek and obtain an immediate refund from his bank branch when a direct debit has been charged to his account in error or where a payment is in dispute. If the originator was at fault, the bank branch will send a direct debiting indemnity claim to the originator.

9. The rules require that the prospective originator be a customer of a bank in Ireland. Sponsoring banks are the members of the DDC. The rules also specify the format to be followed in the direct debiting instruction. Provisions are also included inter alia regulating the provisions of advance notice to payers (in the case of variable amount instructions only), amendments to the payer's instructions, amalgamation of payments and input requirements and procedures.

10. In support of its request for a certificate the DDC stated that its objective was to allow sponsoring institutions to co-operate to provide a payments system which was highly secure, efficient and reliable. They stated that detailed rules were essential to protect the integrity of the scheme and reduce risks. The DDC stated that although the scheme involved co-operation between banks, this did not impact upon competition on how direct debiting services were provided by individual banks. It was also stated that no applicant for sponsoring membership had been declined. The DDC also presented a number of arguments in support of their request for a licence but these are not considered here.

11. On 15 October 1984 the Irish Banks Standing Committee notified the DDC rules to the EU Commission. [2] The Commission found that the notified arrangements did not infringe Article 85(1) of the Treaty of Rome and granted a negative clearance.

12. The Authority, pursuant to Section 4 (5) of the Competition Act, 1991, invited the Minister for Finance to offer observations on the notified arrangements. The Minister welcomed the notification of the Committee's rules as improving the transparency of the money transmission system and providing an opportunity to establish the competitiveness of the system. The Minister was concerned that the DDC should seek to be as open and accessible as possible to institutions that might wish to participate in money transmission services. With regard to the rules of operation of the DDC, he expressed the view that the thresholds applied for membership, the costs of membership and other provisions should not be prohibitive for institutions wishing to participate.

13. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

14. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the present arrangement are the four associated banks, TSB Bank and the Central Bank. All of them are corporate bodies engaged in the provision of banking services for gain and are therefore undertakings within the meaning of the Act. The DDC is therefore an association of undertakings. The Direct Debiting Rules of the DDC constitute an agreement between undertakings. They also constitute a decision by an association of undertakings.

15. The arrangements between the various banking institutions regarding the direct debiting system are not anti-competitive per se. It is open to any licensed financial institution to become a sponsoring bank and thence to provide direct debiting services. The rules simply deal with practical matters such as the format of direct debit mandates. The rules do not affect competition between financial institutions in their provision of direct debiting services to customers. The DDC Rules, as notified do not include any provisions which prevent, restrict or distort competition.

16. In the Authority's opinion the associated banks, TSB Bank and the Central Bank of Ireland are undertakings within the meaning of Section 3(1) of the Competition Act, and the DDC rules constitute an agreement between undertakings. The rules also constitute a decision by an association of undertakings. In the Authority's opinion the Direct Debiting Committee Rules and Originators' Guide of the Direct Debiting Scheme, (CA/125/92E), notified on 25 September 1992 under Section 7, as amended by the Fourth Edition 1994, do not offend against Section 4(1) of the Competition Act.

17. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Direct Debiting Committee Rules and Originators' Guide of the Direct Debiting Scheme, (CA/125/92E), notified on 25 September 1992 under Section 7, as amended by the Fourth Edition 1994, do not offend against section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

23 November, 1995.