IBAN discrimination and how you can fight it

IBAN discrimination and how you can fight it

SEPA stands for ‘Single Euro Payments Area’. This Area includes the 28 EU countries and also Monaco, Switzerland, Iceland, Liechtenstein, Norway, San Marino, Andorra, and Vatican City.

IBAN stands for International Bank Account Number and it is assigned to every euro account that is opened with a bank or a payment system in any of the SEPA countries. IBANs allow residents of these European states to make euro payments in any country regardless of their banks’ home countries. Thus, anyone who has set up an account with a Lithuanian EMI, for example, is able to make euro payments in France or Italy without any trouble nor any commissions. Clearly, this opportunity is an important element of European integration.

This is the way it should work ideally, however, and not exactly the way it works in practice. You can encounter the so-called ‘IBAN discrimination’ when you want to make or receive a payment in a foreign European state, not in the state where your bank is domiciled. Some employers, merchants, utility and service providers may discriminate against foreign IBANS, that is, they may refuse to accept your payment if your IBAN starts with the ‘wrong’ combination of letters.

Even though it is illegal, some cases of IBAN discrimination have been reported. An Irish employer said he could not pay the salary to an employee with a bank account in Germany. An Italian Telecom company would not accept payments for its services from foreign bank accounts. A French bank would deny services to a client with a Lithuanian IBAN, and so on.

Sometimes this happens because the software that the company uses does not allow processing payments from and to foreign bank accounts even those that have IBANs. At other times, processing such a payment takes additional effort while the company does not have an opportunity to charge any extra for their extra efforts. In any case, IBAN discrimination can – and should – be fought against.

What can you do if a foreign utility provider, for instance, refuses to accept your payment? First, you can point out that this is a direct violation of Article 9 of the SEPA regulation. It says, in particular, “A payer making a credit transfer to a payee holding a payment account located within the Union shall not specify the Member State in which that payment account is to be located”, and similarly, “A payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located within the Union shall not specify the Member State in which that payment account is to be located.”

If these quotations suffice to solve the problem, you can consider yourself lucky. If the clerk that you are talking to says that their software allows processing only the payments made from domestic bank accounts, you can tell him or her the following story.

An Italian Telecom company used to practice geo-blocking, which is another name for IBAN discrimination. Complaints were made to the Italian Competition Authority (ICA) and it ruled that this practice was illegal. When the Telecom company tried to argue that the software that they used provided for more secure and faster processing of payments with Italian IBANS, the ICA said it did not care. Using the software was the company’s choice, not an obligation, and if it was the case that the software did not provide for equal opportunities for all SEPA payers, its use was illegal. Eventually, the Telecom service provider had to pay a fine of 800,000 euros. (We suggest that you should emphasize the amount of the fine when talking to the clerk.)

If this threat does not help to solve the problem of IBAN discrimination, you will have to contact your national authorities in charge of tackling such issues. In some countries, the Central Banks should be contacted, while in others, there are special agencies responsible for dealing with these issues such as the Italian Competition Authority, for example.

If you have to take the matter so far, please make sure that you have some confirmation of the IBAN discrimination case. Try to obtain a written document that would confirm service denial or make a screenshot of the website page where it says that processing your payment is impossible because you are not making it with a domestic IBAN.

If you face IBAN discrimination, please do not be shy to fight back as the law is totally on your side. The European authorities are combating such practices by levying heavy fines so the chances of encountering IBAN discrimination are becoming lower day after day. If you do find yourself in this unpleasant situation, however, now you know how to solve the problem!