ANALYSIS OF DIRECTIVES ON CONSUMER PROTECTION – EU FUNDED
1. PURPOSE OF THE DIRECTIVE
Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC (the “Directive”) aims at approximating the laws, regulations and administrative provisions of the Member States concerning the distance marketing of consumer financial services.
Distance contract is any contract concerning financial services concluded between a supplier and a consumer under an organised distance sales or service-provision scheme run by the supplier, who, for the purpose of that contract, makes exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded.
LEVEL OF HARMONIZATION: The Directive is a maximum harmonisation Directive as explained in paragraph 13 of the preamble. It is important however to note that in relation to the information requirements which should be given to the consumer, the MS in accordance with article 4(2) may maintain or introduce more stringent provisions on prior information requirements when the provisions are in conformity with Community law.
IMPERATIVE NATURE OF THE PROVISIONS OF THE DIRECTIVE: In accordance with article 12 of the Directive, Consumers may not waive the rights conferred on them by this Directive. Also MSs must take the measures needed to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-member country as the law applicable to the contract, if this contract has a close link with the territory of one or more Member States.
SCOPE OF THE DIRECTIVE: In accordance with article 1 of the Directive, this applies to distance marketing of consumer financial services. In the case of contracts for financial services comprising an initial service agreement followed by successive operations or a series of separate operations of the same nature performed over time, the provisions of this Directive apply only to the initial agreement. In case there is no initial service agreement but the successive operations or the separate operations of the same nature performed over time are performed between the same contractual parties, then articles 3 and 4 apply only in relation to the first operation. Where, however, no operation of the same nature is performed for more than one year, the next operation will be deemed to be the first in a new series of operations and, accordingly, articles 3 and 4 shall apply.
2. SUBSTANTIVE PROVISIONS
2.1. INFORMATION PRIOR TO THE CONCLUSION OF THE DISTANCE CONTRACT
In accordance with article 3, a Consumer, in good time before he is bound by any distance contract or offer, must be provided with information concerning the supplier, the financial service, the distance contract and the redress procedures (i.e. information relating to whether or not there is an out-of-court complaint and redress mechanism for the consumer that is party to the distance contract and, if so, the methods for having access to it etc). For example, in relation to the financial service, the consumer must be informed in relation to the description of the main characteristics of the financial service, the total price to be paid by the consumer to the supplier for the financial service including all related fees, charges and expenses, and all taxes paid via the supplier or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it. Where relevant notice indicating that the financial service is related to instruments involving special risks related to their specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the supplier’s control and that historical performances are no indicators for future performances, notice of the possibility that other taxes and/or costs may exist that are not paid via the supplier or imposed by him, any limitations of the period for which the information provided is valid, the arrangements for payment and for performance and any specific additional cost for the consumer of using the means of distance communication, if such additional cost is charged.
In accordance with article 3(2), the above information must be provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard, in particular, to the principles of good faith in commercial transactions, and the principles governing the protection of those who are unable, pursuant to the legislation of the MSs, to give their consent, such as minors.
INFORMATION IN CASE OF VOICE TELEPHONY COMMUNICATIONS: In accordance with article 9(3), in cases of voice telephony communications information such as the identity of the supplier and the commercial purpose of the call initiated by the supplier shall be made explicitly clear at the beginning of any conversation with the consumer as well as the identity of the person in contact with the consumer and his link with the supplier and a description of the main characteristics of the financial service. The existence or absence of a right of withdrawal in accordance with Article 6 and, where the right of withdrawal exists, its duration and the conditions for exercising it, including information on the amount which the consumer may be required to pay on the basis of Article 7(1). The supplier shall inform the consumer that other information is available on request and of what nature this information is. In any case the supplier shall provide the full information when he fulfils his obligations under Article 5.
Information on contractual obligations, to be communicated to the consumer during the pre-contractual phase, shall be in conformity with the contractual obligations which would result from the law presumed to be applicable to the distance contract if the latter were concluded.
2.2. INFORMATION/RIGHTS CONNECTED WITH THE CONTRACT FORMATION
WITHDRAWAL: Articles 6 and 7 refer to the right of consumers to withdraw from a contract. In accordance with Article 6, the consumer has at his disposal 14 days to withdraw from the contract without any penalty and without having to provide reasons for such withdrawal. The period of 14 days is extended to 30 calendar days in the case of distance contracts relating to life insurance covered by Directive 90/619/EEC and personal pension operations. The period for withdrawal begins to run from the day of the conclusion of the distance contract (and in relation to life assurance, from the time when the consumer is informed that the distance contract has been concluded) or from the day on which the consumer receives the contractual terms and conditions and the information in accordance with Article 5, whichever took place last.
Member States, in addition to the right of withdrawal, may provide that the enforceability of contracts relating to investment services is suspended for the period during which the right of withdrawal is effective.
In accordance with article 6(2), the right of withdrawal does not apply in the following cases:
“(a) financial services whose price depends on fluctuations in the financial market outside the suppliers control, which may occur during the withdrawal period, such as services related to:
– foreign exchange,
– money market instruments,
– transferable securities,
– units in collective investment undertakings,
– financial-futures contracts, including equivalent cash-settled instruments,
– forward interest-rate agreements (FRAs),
– interest-rate, currency and equity swaps,
– options to acquire or dispose of any instruments referred to in this point including equivalent cash-settled instruments. This category includes in particular options on currency and on interest rates;
(b) travel and baggage insurance policies or similar short-term insurance policies of less than one month’s duration;
(c) contracts whose performance has been fully completed by both parties at the consumer’s express request before the consumer exercises his right of withdrawal.”
Also, article 6(3), states that MSs may provide that the right of withdrawal has no application in the following instances:
“(a) any credit intended primarily for the purpose of acquiring or retaining property rights in land or in an existing or projected building, or for the purpose of renovating or improving a building, or
(b) any credit secured either by mortgage on immovable property or by a right related to immovable property, or
(c) declarations by consumers using the services of an official, provided that the official confirms that the consumer is guaranteed the rights under Article 5(1).
This paragraph shall be without prejudice to the right to a reflection time to the benefit of the consumers that are resident in those Member States where it exists, at the time of the adoption of this Directive.”
Article 6(6) states that the deadline for sending a withdrawal notice by the consumer shall be deemed to have been observed if it is dispatched before the deadline expires.
It is important to note that if to a distance contract of a given financial service another distance contract has been attached concerning services provided by the supplier or by a third party on the basis of an agreement between the third party and the supplier, this additional distance contract shall be cancelled automatically, without any penalty, if the consumer exercises his right of withdrawal.
In the case of payment of the service provided before withdrawal, Article 7 applies. The said Article states that when the consumer exercises his right of withdrawal he may only be required to pay, without any undue delay, for the service actually provided by the supplier in accordance with the contract. The amount payable shall not exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract. In no case may such amount be construed as a penalty. Furthermore, the supplier may not require the consumer to pay any amount unless he can prove that the consumer was duly informed about the amount payable within the withdrawal period. However, the supplier may not require such payment if he has commenced the performance of the contract before the expiry of the withdrawal period without the consumer’s prior request.
In accordance with Article 7(4), the supplier shall, without any undue delay and no later than within 30 calendar days, return to the consumer any sums he has received from him in accordance with the distance contract, (except for amounts paid during the withdrawal period). Under Article 7(5), the consumer shall return to the supplier within 30 calendar days from the day that the consumer dispatches the notification of withdrawal, any sums and/or property he has received from the supplier.
PAYMENT BY CARD: By Article 8, the consumer may request the cancellation of a payment where fraudulent use has been made of his payment card in connection with distance contracts and in the event of such fraudulent use, to be re-credited with the sum paid or have them returned.
UNSOLICITED SERVICES: Except in the cases of implicit renewal of the distance contract, MSs must prohibit the supply of financial services to a consumer without a prior request on his part, when this supply includes a request for immediate or deferred payment. Also, a consumer is exempt from any obligation in the event of unsolicited supplies and the absence of a reply not constituting consent.
UNSOLICITED COMMUNICATIONS: Article 10 states that the use by a supplier of automated calling systems without human intervention (automatic calling machines) or fax machines, shall require the consumer’s prior consent. In the same way, if individual communications are allowed with the consumer through another means of distance communication, a prior consent of the consumers concerned must be obtained or they may be used only if the consumer has not expressed his manifest objection.
UNFAIR CONTRACT TERMS: In accordance with Article 15, any contractual term or condition providing that “the burden of proof of the respect by the supplier of all or part of the obligations incumbent on him pursuant to this Directive should lie with the consumer” shall be an unfair term.
3. OBLIGATIONS/RIGHTS OF MEMBER STATES
SANCTIONS: Article 11 of the Directive, provides that MSs shall provide for appropriate sanctions in the event of the supplier’s failure to comply with national provisions adopted pursuant to this Directive. Also, MSs may, in case of breach of the above provisions, allow the consumer to cancel the contract at any time, free of charge and without penalty. These sanctions must be effective, proportional and dissuasive.
JUDICIAL AND ADMINISTRATIVE REDRESS: In accordance with Article 13, MSs ensure that adequate and effective means exist to ensure compliance with this Directive in the interests of consumers. The means include provisions whereby one or more bodies, as determined by national law, may take action in accordance with national law before the courts or competent administrative bodies to ensure that the national provisions for the implementation of the Directive. Such Bodies are public bodies or their representatives; consumer organisations having a legitimate interest in protecting consumers and professional organisations having a legitimate interest in acting.
It is important to note that in accordance with Article 13(3), MSs shall take the measures necessary to ensure that operators and suppliers of means of distance communication put an end to practices that have been declared to be contrary to this Directive, on the basis of a judicial decision, an administrative decision or a decision issued by a supervisory authority notified to them, where those operators or suppliers are in a position to do so.
OUT-OF-COURT REDRESS: Article 14 provides for the promotion of the setting up or development of adequate and effective out-of-court complaints and redress procedures for the settlement of consumer disputes concerning financial services provided at distance. They should also encourage the bodies responsible for out-of-court settlement of disputes to cooperate in the resolution of cross-border disputes concerning financial services provided at distance.
4. OTHER PROVISIONS
The Directive also provides for specific amendments. Based on articles 17, 18 and 19, Directive 90/619/EEC, Directive 97/7/EC and Directive 98/27/EC are amended respectively.