Банкеръ Weekly

Briefs

BANK MARKET FUTURE DEPENDS ON A COURT DECISION

From now on, the subject of the bank advertisements will depend to a great extent on the decisions the Supreme Administrative Court is about to make. The court is going to announce its opinion on appeals filed by United Bulgarian Bank (UBB) and Post Bank against fines they were sanctioned to pay by the Commission for Protection of Competition (CPC) because of improper advertising. If the magistrates decide the commission has sanctioned the two institutions properly, almost all other banks will face the danger of sharing their fate. In order to avoid that, they will need to change the basics of their advertising strategies. Therefore, they will have to pay new considerable costs. At first sight, the ad agencies should be satisfied with the situation, but they will face difficulties, too. In case the supreme court blesses the fines imposed by CPC, it will stultify the so called product advertising. This is the conclusion made after reviewing all events that accompanied the two cases.It all started in November 2004, whenthe CPC sanctioned UBB to pay BGN100,000because of unauthorized (according to the supervising body) sale of debit and credit cards. UBB was punished because, according to experts from the commission, it violated art. 30 and art. 36 of the Competition Protection Act. The CPC justified its actions with the fact that from May 20 until June 25, 2004, through official announcements on its website, the bank had invited the holders of VISA credit cards to take part in a lottery and compete for a trip to Athens, as well as for cameras and CD players. In cases when the value of the prize exceeds that of the commodity or service sold, this is considered violation of the principles of fair competition.Once the CPC announced officially that it sanctioned UBB, experts from the commission started an argument with the bank officials about whether or not there was violation and in what exactly it consistedThe UBB experts claim that if the value of the card is considered value of the commodity or service, then it is insignificant (between BGN2 and BGN5). Moreover, UBB customers do not pay to have these credit cards issued. The bank should not be held responsible for the prize awarded to the lottery winners for one more reason. The tourist package for the Olympics in Athens is not paid by UBB, but by its owner, the National Bank of Greece. Not to mention that the lottery itself was initiated by the VISA company and the Bulgarian bank only acted as an intermediary in the organisation. Besides, other local financial institutions took part in it, too.If by saying a service the CPC means the requirement set by UBB: the lottery is only open for customers who have paid more than BGN2,000 through their cards, the situation gets even more complicated since the cameras and CD players given as reward cost much less than BGN2,000. Therefore, there is only one question left: how much the tourist packages to Athens cost. In case of prices lower than EUR1,000, the CPC should not impose sanctions for the offering of these prizes.Another reason pointed out by the UBB experts is that the lottery only referred to people who already owned its VISA cards and did not aim at attracting new customers. That's why the bank did not harm its competitors.All these reasons were submitted in written form to the Supreme Administrative Court which initiated a trial on June 13, 2005 on UBB's appeal against the CPC fine. The bank lawyers strengthened their motives by providing the court with written statements of some of UBB's direct competitors on the card market, such as BULBANK, Raiffeisenbank (Bulgaria), DZI Bank and ING Bank. In their statements these banks put it firm that they do not feel harmed by the product offered by UBB.In principle, the Supreme Administrative Court should have already announced its opinion on the case, as there is a one-month legal term provided for the purpose. The problem is that this term is advisable for the court, which means that the magistrates can make a decision whenever they want to.The legal debate between CPC and Post Bankis in an analogical position. In the middle of July 2005 the commission announced that it had imposed a BGN100,000 sanction on Post Bank because of misleading advertisement of its product called A New Home Credit. The reason were the announcements in the media through which the bank offered the credit with a 5.75% annual interest and a simplified launching procedure.The sanction was imposed because the advertised interest rate was actually valid for the first year of the redemption period - and what is more, only for financing in euro. The first year interest rate for credits in levs and dollars is in fact 6.3 per cent. The experts from the commission underlined that consumers only learn the actual price of the credit and the way it is formed when they sign a loan agreement.The misleading announcement for low interests on the Post Bank AD home credit, which does not specify that it is only valid for the first year, can not only attract customers and harm competitors but also create false reputation of the bank and convince consumers that it is profitable for them to choose that bank as their creditor based on incomplete and inaccurate criteria, the CPC announcement continues.Post Bank immediatelyappealed against the fineimposed by the CPC before the Supreme Administrative Court. The bank officials claim that an advertisement cannot objectively enumerate all conditions of the crediting product. Moreover, an advertisement aims at attracting the customer's attention and directing him to the respective bank's office where he will be given detailed information about the interest levels and all other conditions of the loan.Many banks, like all other companies that offer commodities with variable prices on the market, do not list price details resulting from additional elements in their advertisements. This is not possible in practice, Post Bank officers oppose. In fact, it means that CPC members should also test whether or not the Bonux washing powder sucks dirty spots like a vacuum cleaner as the TV ads try to make us believe. What will happen, if advertising statements and reality appear to be different? Actually, there is hardly a product or service which advertisement reflects perfectly its priorities while not missing its defects.By examining the banks' products advertisements - only those referring to the various types of credits they launch - customers will find out easily that most of them promote the more lucrative of their interest conditions, mostly for the first year of the redemption period.This does not refer to banks that try to attract customers by offering them presents in case they draw credits from them. It means thatif the Supreme Administrative Court declares legalthe fines imposed by CPC, the same sanction may threaten all credit institutions.Most products advertised by the banks will become subject to the same attacks and will be included in the black list of the competition commission. And there is probably no bank ready to advertise its services, if afterwards it will be sanctioned to pay BGN100,000.It wouldn't be exaggerated to say that if the cases of UBB and Post Bank continue unfavourably for them, that will make the advertising of separate financial products senseless and will force the banks to only pay for image advertising. However, that will impede most banks from implementing their market expansion plans and will even confuse their whole business. This is why the decisions of the Supreme Administrative Court on these two cases will be decisive for the advertising vision of the bank market in the next year or two.

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