This article is brought to you in association with the European Commission.
Today, the European Commission adopted a reform of the current EU rules on the distance marketing of consumer financial services, which govern financial services sold at a distance. The proposal will strengthen consumer rights and promote cross-border provision of financial services in the single market. This market has evolved considerably in light of the global digitization of the sector and the new types of financial services that have been developed since the introduction of the first rules in 2002. These developments have been further reinforced by the impact of the COVID pandemic 19, which has greatly contributed to the increase in online transactions.
Vice President for Values and Transparency, Věra Jourovamentioned: “Consumers are increasingly turning to online services, including when it comes to finances, and that’s a good thing. But we also need to ensure that the rules of the game are up to date with the latest developments. Consumers need clear information and a safety net in case something goes wrong”.
Justice Commissioner, Didier Reyndersadded: “As the world of financial services evolves, so must our rules: it’s as simple as that. Digitization and the proliferation of new financial products have fundamentally changed this sector over the past twenty years, and the recent confinements brought about by the Covid crisis have shown that a more efficient and updated regulatory framework for remote financial services is more relevant than already. While the risks and challenges may vary, our spotlight is invariably on consumer safety.”
Modernization of EU rules
In order to ensure the promotion of the provision of financial services in the internal market and to ensure a high level of consumer protection, the proposal introduces actions in several areas:
- Easy access to the 14-day right of withdrawal for distance financial services contracts: in order to facilitate the exercise of this right, merchants must provide a withdrawal button when selling electronically. In addition, the trader is obliged to send a notification of the right of withdrawal if the pre-contractual information is received less than one day before the conclusion of the contract.
- Clear rules on what, how and when pre-contractual information must be provided: the proposal modernizes the rules, for example with regard to electronic communications, by imposing on the seller the obligation to provide certain information in advance, in particular the e-mail address of the merchant, the possible hidden costs or the related risk in the financial department. Information must also be displayed prominently on the screen, and rules are introduced regarding the use of pop-ups or overlay links to provide information. The new rules will also ensure that the consumer has sufficient time to understand the information received, at least one day before the actual signature.
- Specific rules to protect consumers when concluding online financial service contracts: financial services contracts can be complex to understand, particularly if negotiated remotely. The proposal obliges traders to set up fair and transparent online systems and to provide adequate explanation when using online tools (eg robo-advice or chat boxes). The rules also empower the consumer by introducing the possibility of requesting human intervention, if the interaction with these online tools is not entirely satisfactory.
- Enforcement: the Proposal will give teeth to the competent authorities. More severe penalties will apply to financial services contracts concluded at a distance in the event of widespread cross-border infringements, with a maximum penalty of at least 4% of annual turnover.
- Full harmonization to ensure the same high level of consumer protection throughout the internal market: the proposal introduces full legal harmonisation, establishing similar rules for all providers in the Member States.
The Commission proposal will now be examined by the Council and the European Parliament.
Over the past 20 years, the distance marketing of consumer financial services has evolved rapidly. Financial providers and consumers have moved away from the fax machine, mentioned in the directive, and since then new players (such as fintech companies) with new business models and new distribution channels (for example, financial services sold in line) appeared. Additionally, the impact of the COVID-19 pandemic and associated lockdowns has accelerated the use of online shopping in general.
The directive has been fully evaluated. The main results were: (i) following the entry into force of the directive, a number of product-specific European pieces of legislation (e.g. the Consumer Credit Directive) and horizontal European legislation (the General Data Protection Regulation) were enacted, reducing the relevance of the directive and its added value subsequently diminished; (ii) a number of developments such as the increasing digitization of services have affected the effectiveness of the Directive in achieving its main objectives; (iii) however, the Directive remains useful since its horizontal application guarantees consumers a certain level of protection for contracts concluded at a distance for financial products which are not yet subject to any EU legislation (for example, in absence of EU rules on crypto-assets, the directive applies).
The impact assessment accompanying the proposal explored a number of possible options. The preferred option led to the repeal of Directive 2002/65/EC, the modernization and subsequent inclusion of the still relevant articles (right to pre-contractual information and right of withdrawal) in Directive 2011/83/EU (Consumer Rights Directive), the extension of the application of certain rules of Directive 2011/83/EU to consumer financial services concluded at a distance (e.g. the rules on additional payments and the rules on enforcement and penalties) and the introduction of new targeted provisions to ensure online fairness when consumers conclude financial services online. With this in mind, the proposal tackles the problems identified and addresses the objectives in an effective, efficient and proportionate way.