EU: Distance Selling for Financial Services

A proposal to establish a clear regulatory framework for the marketing of financial services at a distance within the Single Market have been agreed by the EC. The aim is to ensure a high level of protection for consumers of retail financial services and to provide financial service suppliers with a clearly defined legal framework valid for distance selling throughout the Single Market without hindrance. The proposal covers distance contracts concerning financial services (e.g. banking, insurance, investment) concluded under an organised distance sales or services-provision scheme, for which the supplier and the consumer make exclusive use of communication at a distance (such as by telephone, by electronic means such as the Internet or by mail) up to and including the moment at which the contract is concluded. The proposal would harmonise MS’ rules on distance selling of financial services, thus ensuring identical standards throughout the Single Market. In particular, the Directive would lay down rules concerning:

• the consumer’s right to a period of reflection before agreeing to a contract (consumers would have to be informed ‘a priori’ of the contractual terms and conditions proposed by the supplier, who would have to maintain these terms for a 14 day period); this would allow consumers to compare various offers and examine the contract adequately before giving their consent;

• the consumer’s right of withdrawal, i.e. the right during a “cooling-off” period of 14 days (30 days for consumer mortgages, life insurance and pensions) to withdraw from the contact without penalty and without giving any reason which would exist only if:

• the contract was signed before the consumer had received its full terms and conditions or

• the consumer was put under unfair pressure during the reflection period

• basic consumer rights in cases where financial services ordered were partially or totally unavailable (e.g. right to be refunded)

• the supplier’s right to be compensated if the consumer decided to withdraw once performance of the service had already begun

• a prohibition on so-called “inertia selling” (i.e. a prohibition on providing distance services which have not been requested)

• limitations on and conditions for the use by the supplier of certain means of distance communications (such as limitations on so-called “cold calling”, where a consumer is contacted without his prior consent)

• complaints and redress procedures for the settlement of disputes between a consumer and a supplier.

The proposed Directive would complement the existing framework Distance Contracts Directive, which establishes distance selling rules for goods and services other than financial services. The proposal also fulfils the commitment made by the Commission in its follow-up to the June 1997 Communication on “Financial Services: Enhancing Consumer Confidence” (IP/97/566), to propose an appropriate legal framework for the distance selling of financial services.