Payment Transactions Under the EU Payment Services Directive: A U.S. Comparative Perspective

Penn State International Law Review Volume 27 Number 3 Penn State International Law Review Article 9 5-1-2009 Payment Transactions Under the EU Payment Services Directive: A U.S. Comparative Perspective Benjamin Geva Follow this and additional works at: http://elibrary.law.psu.edu/psilr Part of the International Law Commons Recommended Citation Geva, Benjamin (2009) "Payment Transactions Under the EU Payment Services Directive: A U.S. Comparative Perspective," Penn State International Law Review: Vol. 27: No. 3, Article 9. Available at: http://elibrary.law.psu.edu/psilr/vol27/iss3/9 This Article is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in Penn State International Law Review by an authorized administrator of Penn State Law eLibrary. For more information, please contact . Payment Transactions under the EU Payment Services Directive: A U.S. Comparative Perspective Benjamin Geva* I. INTRODUCTION Implementing a Proposal' of the Commission of the European Communities ("the Commission"), the Directive on payment services in the internal market, often colloquially referred to as "the payment services Directive" ("Directive"), 2 provides for "a harmonised legal framework" designed to create "a Single Payment Market where improved economies of scale and competition would help to reduce cost of the payment system." Focusing on electronic payments, the Proposal purported to "only harmonise what is necessary to overcome legal barriers to a Single Market, avoiding regulating issues which would go 3 beyond this matter.", * Professor of Law, Osgoode Hall Law School, York University. LL.B., Jerusalem; M, SJD, Harvard; member of the Ontario Bar. Research assistance by Osgoode student Joseph Juda is acknowledged with gratitude. Author takes responsibility for any error. 1. Commission Proposalfor a Directive of the European Parliament and of the Council on Payment Services in the Internal Market, COM (2005) 603 final (Dec. 1, 2005), available at http://ec.europa.eu/internalmarket/payments/framework/ index_en.htm. Quotations in the text are from the Explanatory Memorandum, under "Context of the Proposal," which further cites Articles 47(2) and 95(1) of the EC Treaty as the legal basis for the proposal. The proposal was discussed by this author in Benjamin Geva, Recent International Developments in the Law of Negotiable Instruments and Payment and Settlement Systems, 42 TEX. INT'L. L.J. 685, 712-25 (2007). 2. Council Directive 2007/64/EC, On Payment Services in the Internal Market, 2007 O.J. (L 319) 1 (EC) [hereinafter Directive]. This amended several previous Directives-Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC-and repealed Directive 97/5/EC of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers. [SHERRY: can you fix this extra, blank line?] 3. Commission Proposal, supra note 1, at 7 (under "Legal Elements of the Proposal"). PENN STATE INTERNATIONAL LAW REVIEW [Vol. 27:3,4 Title I of the Directive provides for subject matter, scope and definitions. It is followed by three substantive components. Title II covers payment service providers. Title III deals with transparency of conditions and information requirements for payment services. Title IV governs rights and obligations in relation to the provision and use of payment services. Under Directive Article 2, both Titles III and IV apply only where both the payer's and payee's payment service providers are located in the Community. In a major departure from the Proposal, Titles III and IV are not limited to payment transactions of up to EUR 50,000; 4 there is no amount ceiling whatsoever for payment transactions governed by them. The three substantive components are followed by Title V, dealing with implementing measures and Payment Committee, and Title VI, consisting of final provisions. Particularly, implementing measures may be adopted by the Commission with the view of (i) amending "non-essential elements of [the] Directive, relating to" the adaptation of the list of activities that constitute "payment services" under the Annex, as well as (ii) updating amounts specified in a few provisions "in order to take account of inflation and significant market developments." 5 This article endeavours to analyse the provisions of Title IV governing rights and obligations in relation to the provision and use of payment services. Analysis is particularly from a US comparative perspective. 6 Attention will be given to Uniform Commercial Code ("UCC") Article 4A, which governs U.S. wire and other credit transfers as well as federal laws governing consumer retail payment systems. A broader but related objective of the article is the assessment of the contribution of Title IV to the harmonization of funds transfer and payment law, not only by comparison to the U.S., but also by reference to a few aspects of a national law of an EU Member State. Scope does not allow a comprehensive treatment to either aspect, particularly the latter; yet, salient issues will be addressed. The ultimate conclusion is 4. The applicable Proposal provision setting this ceiling for Titles IIIand IV is Article 2(1). Note that about 70% of all TARGET2 (for which see note 42 infra) payments are below 50,000 EURO. See EUROPEAN CENTRAL BANK-EUROSYSTEM, TARGET ANNUAL REPORT 2008 at 18 chart 9; BENJAMIN GEVA, LAW OF ELECTRONIC FUNDS TRANSFERS § 4.04[7] 4-139 n.180 (2008) (1992). 5. Directive art. 84. Another matter that can be so changed is "the definition of micro enterprise within the meaning of Article 4(26) ....," id., which may be important should a Member State move to apply to micro enterprises prohibitions against disclaimer clauses as set out in Title III and IV. 6. For a discussion of the entire Directive, albeit in a context of a significantly less extensive comparative analysis, see Benjamin Geva, The EU Payment Services Directive: An Outsider's View, in 28 YEARBOOK OF EUROPEAN LAW 2009 (Eeckhout & Tridimas eds., forthcoming). 2009] PAYMENT TRANSACTIONS that the Directive is a positive but inadequate step towards global and European harmonization. II. SCOPE The scope of the Directive is stated in Article 2(1) to "apply to payment services provided within the Community," both national and cross-border.7 It governs the business activity of carrying out payment through the services of one or two payment services providers, each acting for a "payment service user"; 8 the latter being either the payer (that is, "payor" in American English) or the payee, who may be either a natural or legal person. 9 The payment service may be carried out for either a consumer or business transactions, and may be for any amount. Payment services providers1 ° consist of: credit institutions (commercial banks and electronic money institutions), post office giro institutions, central banks, Member States or their regional or local authorities, as well as (...truncated)